UK Officials Consider Tax Break on Shale Gas

Written By Brianna Panzica

Posted October 8, 2012

The shale drilling boom that hit the United States and pushed gas prices down to ten-year lows has other nations eager to replicate it. But few have made significant progress.

The U.K. in particular has been grappling with the controversial process of hydraulic fracturing, or fracking, mandating a government report of the process after drilling by Cuadrilla Resources Ltd. caused two earthquakes in the area.

According to an estimate by the British Geological Survey, the nation could have as much as 5.3 trillion cubic feet in shale gas. Cuadrilla and other exploration companies have estimated that this could be as high as 200 trillion cubic feet.

The gas contained within the nation’s shale deposits could be sufficient to provide 10 percent of demand for over 100 years.

Britain exported gas until 2004, when its reserves began to decline. Now, improvements in fracking technology have provided extraction opportunities that weren’t there before; for the first time, it’s easy and economical to extract petroleum resources from these tight reserves.

But the U.K. has not been taking advantage of the process. Last April, a tremor near Cuadrilla’s drilling site registered a magnitude of 2.3. Another tremor in May was 1.5. And the company didn’t deny that the quakes were related to drilling; in fact, it released a report by November stating they most likely were a result of fracking.

Fracking was then halted pending further government assessment.

Today at the Conservative Party’s annual conference in Birmingham, England, Chancellor of the Exchequer George Osborne announced that the nation may soon be allowing drilling once again, and this could present an opportunity for tax breaks for shale gas.

He said at the conference:

“We’re consulting on a generous new tax regime for shale gas, so that Britain is not left behind as gas prices tumble on the other side of the Atlantic.”

Earlier in the year, Cuadrilla expressed hopes to resume exploration later in 2012 and begin gas production by 2014. This depends on the government report, which has yet to be released.

Energy Secretary Ed Davey expressed a similar support for fracking to Osborne, though the Liberal Democrat was less eager to rush it along.

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From Bloomberg:

“In principle, I’m all in favor of exploiting the resources,” Davey said at an industry conference in London. “I make no apology for being a little more patient than those excited commentators. Questions about regulatory oversight and the involvement of local communities need to be answered rather than simply dismissed.”

IGas Energy Plc (LON: IGAS) is also involved in U.K. shale drilling. IGas has stakes in northwest England’s Cheshire, where it estimates reserves of 4.6 trillion cubic feet – a number the company said may even double. The company is in the process of finding an investor in the discovery.

The U.K. government is attempting to reignite economic growth, as it slowed between April and June for the third quarter.

Osborne has called it “absurd” that the government is not taking advantage of the shale reserves, which he believes will “create thousands of jobs and reduce consumer bills.”

Once the government report on fracking is released, the nation’s drilling operations will likely move forward.

That’s all for now,

Brianna Panzica

follow basic@brianna_panzica on Twitter

Energy & Capital’s modern energy guru, Brianna digs deep into the industry with accurate and insightful updates into the biggest energy companies and events. She stays up to date with the latest market moves and industry finds, bringing readers a unique view of current energy trends.

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