Osborne Weighs Shale Tax Break as U.K. Likely to Resume Drilling

U.K. Energy Minister Edward Davey
U.K. Energy Minister Edward Davey said, “In principle, I’m all in favor of exploiting the resources.” Photographer: Jeff J Mitchell/Getty Images

Chancellor of the Exchequer George Osborne announced possible tax breaks for shale gas as the U.K.’s energy secretary said he hoped to let drilling resume.

“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,” Osborne told his Conservative Party’s annual conference today in Birmingham, England.

Prospects for shale gas have become a political issue in the U.K. as Conservative lawmakers push the fuel as a way to mitigate rising energy prices and boost economic growth. Prices have fallen in the U.S. after production from shale fields made the country the world’s largest gas producer. In Britain, reserves could meet 10 percent of demand for a century, according to a report by the Institute of Directors last month. Environmental campaigners say the process risks polluting water.

Earlier today Energy Secretary Ed Davey, who’s a member of the Liberal Democrats, the smaller party in the governing coalition, said he hopes “to give a green light to shale.” Companies are waiting for the results of a government report that may allow them to restart shale gas exploration.

Britain’s energy department called for an assessment of hydraulic fracturing, as the process for extracting shale gas is known, after drilling last year by Cuadrilla Resources Ltd. caused two earthquakes. The company, which says the shale rock it’s exploring in northwest England has more gas than all of Iraq, suspended operations.

No Apology

“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.”

Shale gas resources currently fall under the same tax regime used for the U.K.’s conventional oil and gas reserves in the North Sea.

Cuadrilla estimates that the shale gas it is exploring may contain 200 trillion cubic feet of gas and the company said in an interview in May this year it hoped to resume work in 2012, allowing gas production to start as soon as 2014.

The first tremor on April 1 last year measured magnitude 2.3 on the Richter scale. A weaker quake of 1.5 was recorded in May. The company released a report in November saying that fracking probably caused the quakes, prompting a government assessment. and it suspended operations.

Greenhill & Co.

Other companies with shale assets include IGas Energy Plc, which is drilling in Cheshire in northwest England. Earlier this year, IGas said it may double the 4.6 trillion cubic feet estimate of its shale gas resource and in June the company appointed the investment bank Greenhill & Co. to help find an investor for its U.K. shale discovery.

“The chancellor is right to hail the potential of shale gas,” the Institute of Directors said in a statement today. “Shale gas represents a really valuable asset, right on our doorstep.”

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