UK offers tax breaks to boost shale gas industry


LONDON -- Producers of shale gas in the UK will be offered tax breaks that more than halve the amount they pay on profits, the government said Friday, in a move designed to kick-start the embryonic industry.

No shale gas has yet flowed commercially in the UK so any profits from the sector are some way off, but the government said Friday that producers will have to pay just 30% tax, compared with the current 62%, in a move it hopes will encourage exploration to begin.

George Osborne, the UK chancellor of the exchequer, said in a statement: "We want to create the right conditions for industry to explore and unlock [shale's] potential...this new tax regime, which I want to make the most generous for shale in the world, will contribute to that."

The coalition government has been vocally enthusiastic about shale-gas prospects, noting that commercial quantities have transformed the energy outlook in the US, where natural-gas production increased five-fold between 2007 and 2012.

The British Geological Survey last month said that around 1.3 quadrillion cubic feet of gas was contained within shale formations under the Bowland area in northern England, twice the amount previously thought to be present in the whole country. The US Energy Information Administration, which made the previous estimate, said that the two studies were based on different methodologies.

The BGS made no estimate as to how much gas could ever be recovered. In the US, around 10% of shale gas resources have proved to be recoverable, according to the UK Department of Energy and Climate Change in a report last year. Experts point out that Britain's geology is very different to North America's, so it isn't possible to make a comparison about how much might be extracted in the UK.

Mr. Osborne said that shale gas could create jobs and help keep down energy costs. The UK has some of the highest domestic energy costs in Europe: household gas bills rose 55% between 2007 and 2012, according to the Department for Energy and Climate Change.

Last month, UK energy giant Centrica became the first major utility to enter the fray, buying a 25% interest in exploration licenses on the Bowland shale for 40 million pounds ($61.3 million) from Cuadrilla Resources.

But opposition to shale gas exploration has come from environmental groups, which say the process known as fracking--the injection of water and chemicals into rock -- could damage the countryside and pollute groundwater.

Even if fracking is safe, say others, shale gas is still a polluting fossil fuel and doesn't provide a long-term solution to the UK's energy problems. The country's fleet of aging coal and gas power stations needs replacing, but there is a lack of consensus on what should take their place.

"Fracking, even by what its proponents think, is ultimately a stop gap...[and] we're seeing with the fracking wells in the US today the yields are starting to decline," said Tobi Kellner, energy modeller at the Centre for Alternative Technologies, during a briefing this week.

Advocating the building of a greener infrastructure, he said: "It's a little bit like, as a kid, are you just going to shove another thing under your bed... or are you actually going to stop and tidy your room?"

Dow Jones Newswires

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