Out-Law News 2 min. read

Budget announcements could "define" UK shale industry says expert


Announcements made by the Chancellor of the Exchequer as part of the 2013 Budget will "ultimately define" how a new shale gas industry will develop in the UK, an energy law expert has said.

Bob Ruddiman of Pinsent Masons, the law firm behind Out-Law.com, was commenting as George Osborne announced the creation of a new shale gas 'field allowance' and a generous tax regime for developers to "promote early investment". Planning guidance and specific proposals to allow local communities to benefit from shale projects will be published in the summer, the Chancellor said.

The Budget also provided some clarity on previously-announced tax relief on the cost of decommissioning existing oil and gas projects, stating that the first contracts with the industry would be signed later this year. The Government also announced the two carbon capture and storage (CCS) projects that would proceed to the next round of its ongoing funding competition today.

Ruddiman called on the Government to take "speedy and smooth" decisions on the future development of shale in the UK following the Budget announcements. Shale is a natural gas formed from being trapped in shale rock, and has become an increasingly important source of energy in countries including the United States over the past decade.

"The Conservative Party was clear about its support for the shale industry and has now demonstrated its commitment," Ruddiman said. "The Treasury was slightly blindsided by this previously, and now is the opportunity to take positive action."

"This is crucial for the industry, and there will be disappointment in the market if there is the same kind of delays and confusion as we have previously seen with energy policy. Lessons have been learned from mistakes made by successive governments in respect of both the oil and gas and renewable energy sectors," he said.

In its Budget document, the Government said that a successful shale gas industry would have the potential to "provide new employment and support UK energy security". It planned to consult on the detail of the new tax breaks, which will also include extending the current ring-fence expenditure supplement from six to ten years specifically for shale gas projects. It will also consult on whether the allowances should be extended to "other forms of onshore unconventional gas".

The Government said that it would produce "technical planning guidance" for shale projects by July 2013, and would "ensure an effective planning system is in place" as the new industry develops. Industry guidance, ensuring that the planning system was properly aligned with the licensing and regulatory regimes, would follow before the end of the year, it said. It would also "keep under review" whether the largest shale gas projects should be given the option to apply for consents under the more flexible major infrastructure planning regime.

Tax expert Tom Cartwright of Pinsent Masons said that the field allowance proposals followed similar approaches for harder-to-reach offshore oil and gas fields, announced previously by the Government. The allowance will reduce the rate of corporation tax charged on the field from 62% to 30%.

"The Government believes that this initiative is helping to encourage investment in areas such as West of Shetland and for older 'brown' fields, and will be hoping the same magic can be worked for shale gas," Cartwright said. "Many in industry had been hoping that the period extension to ten years for ring-fence expenditure supplement would apply more generally to all oil and gas extraction activities, but shale gas is the only winner for now."

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