Last week we heard the Chancellor announce the ‘generous’ tax incentive to be provided to UK Shale production companies. The current tax of 60% is to be halved to 30% on production revenue.
Analysts may debate that this is necessary in order to diversify the UK gas supply mix, whilst environmentalists and water companies may not be so welcoming with the consequences of fracking.
What Is It?
The extraction of Shale Gas is done by a process called Fracking. By drilling down a high-pressure water mixture directed at the rock to release the gas inside. Water, sand and chemicals are injected into the rock at high pressure which allows the gas to flow out to the head of the well. The process is carried out vertically or, more commonly, by drilling horizontally to the rock layer.
What It Means for the UK
Cuadrilla is the only company to have ‘fracked’ for shale in the UK and has already suffered numerous setbacks. Two small earth tremors in 2011 caused the company to stop all fracking. Despite being given the go-ahead to resume last December, it has not yet started again. Politically, there is strong support for fracking as this will bring significant tax revenue to the government. As mainland natural resources are owned by the Crown, Cuardrilla is not exempt from paying their taxes.
The UK is already seeing the benefits of the US Shale Gas boom. A few months ago Centrica signed a 20 year agreement to secure the UK domestic supply.