Out-Law News 3 min. read

UK "cannot afford to miss out" on shale gas potential, says Prime Minister


The Prime Minister has publicly expressed his support for fracking, and has warned that the UK "could lose ground in the global race" to exploit "unconventional" energy sources such as shale gas.

Writing in the Daily Telegraph, David Cameron said that UK shale reserves had "real potential to drive energy bills down" and could create jobs and provide benefits to communities across the country if properly exploited.

"If we don't back this technology, we will miss a massive opportunity to help families with their bills and make our country more competitive," he said. "Without it, we could lose ground in the tough global race."

He said that with proper regulation, there was "no reason why the process should cause contamination of water supplies or other environmental damage" as protestors have claimed. The UK's regulatory regime was "one of the most stringent in the world" and had all the powers needed to act quickly if shale projects were to pose environmental or safety risks, he said.

Hydraulic fracturing, or 'fracking', involves pumping water at high pressure into shale rock to create narrow fractures which allow natural gas contained there to flow out and be captured. Although the technology is still at an early stage, a recent report by the British Geological Survey showed that there was more than twice as much shale gas in the north of England alone than there was previously thought to be in the entire UK.

The Government had placed a temporary moratorium on fracking operations pending the outcome of an investigation into how the nature of the process presents a risk of seismic earth tremors occurring, but lifted the ban late last year. Fracking is now permitted subject to a range of regulatory controls and permits being put in place to mitigate any risks to the environment and human health and safety.

Energy and environmental law expert Simon Colvin of Pinsent Masons, the law firm behind Out-Law.com, said that the Prime Minister's statement had "obviously been prompted" by recent protests against exploratory drilling at a site in Sussex.

"It is fair to say that the Government sees shale gas as a white knight that will help to solve the pending energy crisis in the UK, as well as our economic woes," he said. "That is why the Government is so keen to support the development of the shale gas industry with an attractive tax regime and clarification of the consenting process."

"It is interesting to see how well-organised the objectors and protestors are. However, it should be remembered that shale gas is not alone in feeling the wrath of objectors and protestors. Onshore wind projects and new nuclear power stations have been subjected to the same treatment," he said.

Colvin said that shale would have "an important part to play in the UK's energy mix alongside renewables and nuclear", as well as other more traditional sources of energy generation.

According to Cameron's Telegraph article, latest estimates of the amount of shale gas lying underneath 11 UK counties suggest that there is about 1,300 trillion cubic feet to be exploited. "To put that in context, even if we extract just a tenth of that figure, that is still the equivalent of 51 years' gas supply," he said.

"This reservoir of untapped energy will help people across the country who work hard and want to get on; not just families but businesses too, who are really struggling with the high costs of energy. Just look at the United States: they've got more than 10,000 fracking wells opening up each year and their gas prices are three-and-a-half times lower than here. Even if we only see a fraction of the impact shale gas has had in America, we can expect to see lower energy prices in this country," he said.

The Government is currently consulting on a generous tax regime for shale, including a new 'pad' allowance based on the existing field allowances for oil and gas production. As proposed, tax on a proportion of the income generated from producing shale gas would be reduced from 62% to 30%. The consultation also proposes extending the current ring-fence expenditure supplement from six to ten years specifically for shale gas projects. If approved, legislative measures would be introduced as part of next year's Finance Bill.

In addition, the Government plans to create a "robust" community benefit scheme under which developers would have to provide at least £100,000 of benefits per 'fracked' well site during the exploration phase, and no less than 1% of overall revenues, to local communities. According to the Prime Minister, the amount of revenue returned to local residents could be as much as £10 million.

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