Government will consult on tax regime for shale gas, says Chancellor

Speaking at the Conservative Party conference, George Osborne said that the government would be consulting on a "generous new tax regime for shale so that Britain is not left behind as gas prices tumble on the other side of the Atlantic."

A Treasury press release confirmed that "gas will continue to be an important part of the UK energy mix'. It stated that a targeted tax regime will 'help unlock investment". 

The Government will consult with companies "to ensure that the final structure of the regime is appropriately targeted while maintaining a fair return for the Exchequer".

"The last 18 months have illustrated the Government's conviction that using targeted tax measures will help unlock exploitation of the UK's natural resources," said Tom Cartwright, a tax expert at Pinsent Masons, the law firm behind Out-Law.com. "However, any new measure will need a broad consensus of support to encourage business to commit to investment in long-term projects."

Speaking at the Gastech conference today in London, Edward Davey of the Department of Energy and Climate Change (DECC) said he hoped to lift a suspension on new shale gas exploration imposed last year due to concerns about fracking. "In the context of the Government’s green light for CCS for fossil fuel plants and in the light of evidence of the best regulatory regime, I hope it will prove possible for me to give a green light to shale," he said.

"I would welcome as much as anyone a way to boost Britain’s indigenous gas supplies and to reduce energy prices to consumers and businesses alike. But I make no apology for being a little more patient than those excited commentators. I want to base our approach on the evidence, as we do for all fuel sources, and I know that industry analysts do see shale as a rather different proposition here than in the US."

The government suspended the development of shale gas extraction last year after hydraulic fracturing triggered two small earthquakes near Blackpool. Hydraulic fracturing, known as fracking, is a method of drilling through shale deposits to retrieve gas by injecting liquids and chemicals.

Shale gas is natural gas formed from being trapped within shale formations. It has become an increasingly important source of natural gas in the United States in particular over the past decade. A combination of horizontal drilling and hydraulic fracturing has allowed access to large volumes of shale gas that were previously uneconomical to produce. In the United States, the shale gas boom has resulted in a sharp reduction in gas prices.