'Generous' tax breaks for shale gas industry outlined

Bowland shale drilling rig The UK is believed to have large resources of shale gas that have yet to be extracted

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The government has outlined plans to give tax breaks to companies involved in the UK's nascent shale gas industry.

It has proposed cutting the tax on some of the income generated from producing shale gas - found in underground shale rock formations - from 62% to just 30%.

The plans would make the UK the "most generous" regime for shale gas in the world, the government said.

But they have been criticised by environmentalists, with Friends of the Earth calling them a "disgrace".

Greenpeace added that communities affected by fracking - the technique for extracting shale gas - faced a lot of disruption for very little gain.

Chancellor George Osborne says Britain must be" at the forefront of the shale gas revolution"

Chancellor George Osborne said shale gas was a resource with "huge potential" for the UK's energy mix.

"We want to create the right conditions for industry to explore and unlock that potential in a way that allows communities to share in the benefits," he said.

"I want Britain to be a leader of the shale gas revolution because it has the potential to create thousands of jobs and keep energy bills low for millions of people."

The shale gas firm Cuadrilla welcomed the news and said it would consider the implications.

"Whilst we are still in the exploration phase, we believe that shale gas has the potential to make a considerable contribution to the UK's energy supply and security, while at the same time creating thousands of jobs and generating very significant tax revenues and community benefits," said Cuadrilla's chief executive, Francis Egan.

Infographic showing shale gas extraction

The UK is believed to have large resources of shale gas.

A recent report from the British Geological Survey estimated there may be 1,300 trillion cubic feet of shale gas present in the north of England alone - much of it in the Bowland Basin under Lancashire.


Just how generous are these tax breaks?

Gas production is typically taxed at 62% although in some parts of the north sea long standing operations are taxed at up to 81%.

So the 30% tax rate proposed for shale gas does look generous.

The government insists it is in line with what already exists for small or challenging fields offshore.

What's more it won't be for the lifetime of the well.

In practice part of the profits from the well will be exempt from the higher tax rate. Just how much is still to be decided, but it will be linked to the amount of investment that a firm has made.

The industry insists the tax break is necessary as initial costs will be high and there is still much uncertainty about how much oil and gas will be liberated from our shale deposits.

But with up to 50 wells expected to be drilled in the next 2 to 3 years - the hope from the government is that this tax announcement will help to kick-start what could be a hugely important new industry.

Drilling companies have previously estimated that they may be able to extract about 10% of this gas - far in excess of the three trillion cubic feet of gas currently consumed in the UK each year.

However, the industry is still in its infancy with a handful of companies holding licences for shale gas exploration in the UK, none of which have begun extracting gas.

Water quality

In backing shale gas exploration, the government points to the experience of the US, where a shale gas boom has had a dramatic effect on the energy sector.

Under its plans, the tax break would apply to a proportion of the income generated from shale gas production. What that proportion is will be determined after a consultation.

BBC industry correspondent John Moylan says the industry regards the tax incentives as necessary, as costs are likely to be high during the initial exploration phase over the coming years.

The government has also confirmed plans to give communities that host shale gas sites £100,000 per site, and up to 1% of all revenues from production.

That is designed to offset some of the controversy surrounding the process of fracking.

Science Editor David Shukman explains the process of fracking

There are concerns the process, which involves pumping high pressure water, sand and chemicals into rock to force out the gas, is related to water contamination and even earth tremors.

Start Quote

Promising tax hand-outs to polluting energy firms that threaten our communities and environment, when everyone else is being told to tighten their belts, is a disgrace”

End Quote Andrew Pendleton Friends of the Earth

Water companies have warned that the quality of drinking water must be protected "at all costs".

Water UK, which represents the UK water companies, points out that fracking requires huge amounts of water which could put a strain on local supplies.

It also says the drilling and the fracturing process could damage water pipes.

"The water industry is not taking sides. If it (fracking) goes ahead we want to ensure corners are not cut and standards compromised," said Jim Marshall, policy and business adviser at Water UK.

Environmental groups argue that investment in the industry will divert attention from the need to develop renewable sources of energy.

Andrew Pendleton, from Friends of the Earth, condemned the move.

"Promising tax hand-outs to polluting energy firms that threaten our communities and environment, when everyone else is being told to tighten their belts, is a disgrace," he said.

"Ministers should be encouraging investors to develop the nation's huge renewable energy potential. This would create tens of thousands of jobs and wean the nation off its increasingly expensive fossil fuel dependency."


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  • rate this

    Comment number 15.

    When you remove shale gas, it is compressed and it behaves as a hard support layer for the soil above. When you break this tight enclosure, whatever one replaces, won't be as strong a support layer. Result? High possibility of subsoil movements, possible earthquakes.
    The lunatics behind this crazy idea will have blood on their hands if things go wrong in the future. All in the name of greed!

  • rate this

    Comment number 14.

    The government should be raising taxes on the Shale companies.

    This resource belongs to all of us.

    Sure, let the companies make a profit for extracting it.

    But let us all benefit from it, not just shareholder or large corporate interests.

    Otherwise they will take the money and sail off into the sunset and we will be left to clean up their mess...

  • rate this

    Comment number 13.

    Who needs groundwater anyway? We get plenty of rain in the UK. Just look at how wet July has been...

  • rate this

    Comment number 12.

    i dont have kids so I'm happy for companies to pollute water with chemicals and screw the last piece of life out of this planet. Once this gas is used up that will be it anyway as theres no move to get renewables.

    Besides, be good to invest in these fracking companies - as seen in the past, they will make huge profits rather than pass on cheap prices to consumers.

  • rate this

    Comment number 11.

    Tax breaks for the corporations that will already be making huge profits from all of this? How about reducing our gas bills? Besides, who voted for this? I don't remember saying yes to drilling holes into the ground and pouring in vast amounts undisclosed chemicals.

    Our government is so corrupt! We need to evict the Tory/ Labour political elite who think we serve them, not the other way round!

  • rate this

    Comment number 10.

    The country needs lower energy bills, not this expensive green nonsense"

    So, your happy for our descendants to subsidise cheaper energy for us all today? It's funny that those who argue we shouldn't be piling debt onto them are at the forefront of letting them pay the price of our energy usage. Debt can be written off; flooded and desertified land can't be so easily.

  • rate this

    Comment number 9.

    I don't get why you have to offer a Tax break to someone to extract 1,300 Trillion Cubic Feet of Gas?

  • rate this

    Comment number 8.

    You really think this will cut your gas bills Max? It's about getting rich and that means big fat gas bills just like it always was.

  • rate this

    Comment number 7.

    "...plans to give communities that host shale gas sites £100,000 per site, and up to 1% of all revenues from production." Seems like corporate bribery to me.

  • rate this

    Comment number 6.

    As Sting once said "We build machines that we can't control and bury the waste in a great big hole"
    Fracking HAS caused earth tremors and has the potential to pollute aquifiers. We have to give up on the fossil fuel obsession before it is too late.

  • rate this

    Comment number 5.

    Giving them a tax break just means more profit for them. It will not lower our bills at all. It will be just the same as oil and gas as when their prices drop per barrel we never see a drop in our bills.

  • rate this

    Comment number 4.

    If we insist on bringing millions of immigrants into the country we need some way of supplying them with electricity and gas. Lets not make the same mistake as we did with housing, building no where near enough for the immigrants, such that living in a shoe box sized room costs an arm and a leg.

  • rate this

    Comment number 3.

    Great a tax break so they can pollute the water table and increase bills at the same time. Another example of the Torries helping out their mates.

  • rate this

    Comment number 2.

    If they want to give out tax breaks how about giving us a tax break on our gas bills.

  • rate this

    Comment number 1.

    Finally, now get one with awarding the licences. The country needs lower energy bills, not this expensive green nonsense.


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