'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.

Analysis

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
    +1

    Comment number 635.

    607 Jason Essex

    I agree entirely, and that is a good and sensible use of tax breaks and crucial for economic growth. Fracking will happen without tax breaks, so their impact in this instance is to reduce public services elsewhere (or the potential for more beneficial tax breaks). Reductions in public services generally hit the poorest hardest.

  • rate this
    -8

    Comment number 634.

    The amount of lies and half truths told here is awful, But they mostly come from commenters on this article - who seem to feel they can make any statement or accustation they like without doing any basis checking of facts ,

    BBC needs to tighten down on the amount of comments that might be considered libelous

  • rate this
    -2

    Comment number 633.

    We absolutely need this resource, but just for once, a British asset, should remain just that, especially if we are to subsidise it. No sales to foreigners, would be fair and equitable. Stop the "Rip Off Britain" syndrome. Environmental wallies who would have us freezing to death in caves, could be used a filler, for any holes left under the ground.

  • rate this
    +4

    Comment number 632.

    What is not clear is if the UK consumer will benefit from a reduction in prices. The price of gas has fallen in the U.S. because their shale gas is landlocked with little export options other than shipping on LNG tankers. UK shale gas producers could easily sell raw gas to continental Europe, keeping domestic gas prices elevated. Producers will sell to those willing to pay the highest price.

  • rate this
    +3

    Comment number 631.

    This is just a temporary stop gap and is no cause for celebration. This government has dithered and dithered; and has failed to make any decision on "base-load" power generation. It is running 2 high-risk strategies at once. Reducing spare generating capacity whilst keeping ageing plant in service.

    The decision to "dash for gas" will haunt our grand-children.

    Fracking?

  • rate this
    -3

    Comment number 630.

    while I totally agree with environmentalists and need for research in renewable source of energy in long term, I totally support and encourage exploitation of shale gas for short term benefit to UK. While Arab countries are making billions of pounds by their non-renewable oil wealth, whats wrong in UK making the same? Govt. should go ahead and get the shale gas for us ASAP.

  • rate this
    +4

    Comment number 629.

    Just give it away Davo....

  • rate this
    +4

    Comment number 628.

    More backhanders for the ministers goldfishes caretakers ;)

    If this is such a good earner and open to such relief at the expense of the tax payers it must surely be a state owned enterprise to ensure those paying fo rit (the tax payers) get the rewards from it.

  • rate this
    +4

    Comment number 627.

    Yes, great energy potential.
    Couple of problems here.
    We are still burning things to produce this energy, hence production of CO2.
    10% of this shale gas is extractable, how much of the remaining 90% leaks out.
    Leaked methane has a Global Warming Potential 72x that of CO2 in a 20 year time period, dropping to 25x over a 100yr time period, so much, much worse than CO2 alone.
    No more characters.....

  • rate this
    +4

    Comment number 626.

    “Drilling companies have previously estimated that they may be able to extract about 10% of this gas”.

    Drilling company estimates may well be very wrong and they will wreck the environment in the process of finding out. And to think these evil devious cunning “environmentally friendly” Tories changed their party logo to a tree!!

  • rate this
    -3

    Comment number 625.

    #610: "This feels like we're importing failed Republican policies from America"

    Ah, yes - all those "failed policies" that are supporting real growth in states with low tax policies and right to work laws, while the fabulously successful policies of the left have rendered Detroit bankrupt.

  • rate this
    +3

    Comment number 624.

    Yes we are all in it together. Just that some are more in it than others. Also give us a tax break, if we have more money we would spend more thus helping the economy.

  • rate this
    0

    Comment number 623.

    588.The Ace Face
    You know what? I'm laughing my head off of all those who say it will save consumers money. All it will do is make even more profit from greedy power generators
    -
    And comments like that make me laugh. The North gets an influx of jobs and where do you think those profits go? You think Cyril Sneer or Scrouge McDuck runs the company? It goes to pensions & shareholders who spend it

  • rate this
    +2

    Comment number 622.

    What's new about tax breaks? We may pressure offshore havens to boost our tax take, but if you're a rich foreigner you can live here virtually tax free.....

  • rate this
    +127

    Comment number 621.

    The only justification for tax breaks would be that the gas is going to sold exclusively to the UK home market at substantially below world market prices.

    If it's going to be sold at world market prices then there is absolutely no benefit to the UK population & we should tax it at proper rates so we at least get something out of it.

  • rate this
    +3

    Comment number 620.

    I wonder how many Tory MPs sit (or will sit) on the boards of these companies? Oh, and how many have connections with cigarette companies and drinks companies? (Innocent face).

  • rate this
    +2

    Comment number 619.

    number 493 AuntieLeft

    The worrying thing is, I guess the majority are young.
    What is bringing on this paranoia?

    -----------

    The 'young' as you call them aren't paranoid, just better read!

    Spend your life relying on the MSM for your information.....the more you watch/read the less you learn.

  • rate this
    +2

    Comment number 618.

    Re 333
    Yes, how we agree.
    However there are a few questions which need to be answered.
    Like fracking may cause earthquakes and gas mixed with tap water is not nice.
    How about the gas companies giving the same percentage cut to the cost of energy as the government is giving them, for customers living, say, within 10 miles of a fracking station. For those without gas the same should apply.

  • rate this
    +4

    Comment number 617.

    Typical Conservative philosophy.
    Give tax breaks to large industries, to benefit the consumer.
    Umm, err, what?

  • rate this
    +2

    Comment number 616.

    George Osborne says that shale gas production will 'keep energy bills low for millions of people'' Our bills are already high!
    The BBC reports that by 2020 our bills will rise by up to £240 a year.
    In the US, energy prices have come down.

 

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