The conclusions of the British Geological Survey report mark another step forward for the shale gas industry. The report identifies a larger volume of potentially exploitable shale gas within the north of England than previously thought, with as much as 1,300 trillion cubic feet at the Bowland site in Lancashire. Whilst the report does not detail how much of these reserves are exploitable, the confirmation of such significant volumes raises the potential commercial value of the UK shale gas industry, making entry into it more attractive.
The Government will also be incentivising entry into the industry through the taxation benefits previously announced under the 2013 Budget. Alongside the announcement of the report, the Government has confirmed they will begin consulting on the extent of the incentives it will be offering to those involved in the exploitation of shale gas within the coming weeks. In the recent Spending Review presented before Parliament, George Osborne said it was the Government’s intention to “make the tax and planning changes which will put Britain at the forefront of exploiting shale gas…We will provide our country with the energy of the future at a price we can afford”. The consultation document highlights the following measures:
- allowing the Environment Agency to offer permits on an expedited basis;
- guidance clarifying the interaction of the planning process with the environmental and safety consenting regimes; and
- a ‘pad allowance’ which would operate in a similar fashion to existing field allowances, exempting a portion of production income from the supplementary charge. This would reduce the effective tax rate on that income from 62 per cent to 30 per cent. The amount of production income exempt from the supplementary charge would be a proportion of cumulative capital expenditure incurred on a shale gas pad.
Osborne, in interviews regarding the report, has emphasised that planning permission will remain a key hurdle to all proposed fracking activities. He anticipates that the financial benefits being offered to communities in which fracking takes place will assist in obtaining the necessary local support. Both he and the consultation document have provided further indications of the likely benefits, suggesting that communities will receive at least £100,000 per fracking well within their community and no less than 1% of the revenues generated from such wells.
Investment is beginning to occur. Centrica has recently bought into the Bowland exploration licence for a price of up to £160m and Total has announced it is “interested in shale gas in the United Kingdom…we are awaiting the bidding rounds” having had initial discussions with current licence holders to buy into prospects.
The Government consultation document can be found here.