U.K. to Cut Tax on Shale Gas Production by Half

Updated on

The U.K. government plans the world’s “most generous” tax system for shale gas to encourage development of a resource that may meet national demand for almost five decades.

Britain proposed an initial tax rate on shale production income of 30 percent, compared with the current maximum 62 percent rate on oil and gas extraction, the Treasury said today in a statement.

“Shale gas is a resource with huge potential to broaden the U.K.’s energy mix,” Chancellor of the Exchequer George Osborne said. “This new tax regime, which I want to make the most generous for shale in the world, will contribute to that.”

The government is seeking to spur gas production to counter dwindling North Sea supply and curb reliance on imports. In 2012 it lifted a ban on the hydraulic fracturing drilling technique, and in June said shale fields in northern England are twice as large as previously estimated. It’s seeking to replicate a U.S. shale boom that has cut energy costs and boosted the economy.

“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,” Osborne said.

Opponents of hydraulic fracturing, or fracking, have said the drilling method, which blasts rock with water, sand and chemicals to release fuel, may pollute ground water and blight rural areas.

Environmental Concern

“We’re likely to see the industrialization of tracts of the British countryside, gas flaring in the Home Counties and a steady stream of trucks,” said Lawrence Carter, a campaigner at Greenpeace. “The chancellor is telling anyone who will listen that U.K. shale gas is set to be an economic miracle, yet he’s had to offer the industry sweetheart tax deals.”

The government said June 27 that shale-gas fields under counties including Lancashire and Yorkshire may hold as much as 1,300 trillion cubic feet of the fuel. A recovery rate of 10 percent -- similar to fields in the U.S -- would give the U.K. enough gas to meet demand for about 47 years.

To win support, explorers have promised local communities a 1 percent share of output revenue. Operators will also provide at least 100,000 pounds ($152,000) for every well drilled by fracking, the government said.

Right Conditions

“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,” Osborne said.

Shale operators won’t be subject to an additional tax charge of 32 percent at the beginning, Corin Taylor, senior economy adviser at the Institute of Directors, a business lobby, said by phone. The new system is similar to the small field allowance in the North Sea, he said.

Explorers Cuadrilla Resources Ltd., IGas Energy Plc and Dart Energy Ltd. have licenses in British shale areas. Centrica Plc, the largest energy supplier to U.K. households, agreed in June to buy a 25 percent stake in Cuadrilla’s permits in northern England, becoming the biggest company to enter the country’s shale industry.

IGas rose 8.2 percent to 126 pence in London trading, the highest price since Jan. 9. Dart Energy jumped 15 percent in Sydney. Cuadrilla isn’t traded.