Companies exploring for shale gas are set to have tax slashed on some generated income from 62% to 30% under new plans unveiled by the government.
The exact proportion of income on which the new low tax rate will be applied will be determined following consultation.
It is hoped that the tax breaks will lure players to explore for shale gas, creating jobs and reducing the UK’s dependence on energy imports.
Chancellor George Osborne: “Shale gas is a resource with huge potential to broaden 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.
“This new tax regime, which I want to make the most generous for shale in the world, will contribute to that. 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.”
UK water companies have expressed concern at the latest move from the government and are pushing for consultation with exploration companies. The process of hydraulic fracturing used in shale gas extraction uses large quantities of water, something which could prove problematic and unpopular as the UK has consistently suffered water shortages in recent years, some for prolonged periods.
Shale gas exploration is at a very early stage in the UK and suffered a setback in recent years after a number of small earth tremors in the north-west were connected with fracking.
The industry has been given a recent boost, however, Centrica farmed into explorer Cuadrilla Resources’ Bowland shale play in Lancashire.
Cuadrilla is set to apply for planning permission to frack and test its already-drilled Grange Hill exploration well in north-west England.
Moreover, Cuadrilla said it plans “over time” to seek consent to drill, fracture and test gas flow at another six exploration well sites in the Fylde region.
It also wants to drill three more vertical exploration wells that will not be fracked.
The new plans from Cuadrilla follow the recent publication of a study by the British Geological Society that pegs potential in-place gas resource in the Bowland-Hodder shale in northern England at as much as 1300 trillion cubic feet.