UpdateUK Chancellor promises shale gas tax relief

20 March 2013 16:58  [Source: ICIS news]

(updates with industry comment)

LONDON (ICIS)--UK Chancellor of the Exchequer George Osborne promised on Wednesday to introduce tax relief measures for shale gas exploration, as part of the country’s latest Budget announcement.

Osborne said: “I am introducing a generous new tax regime [for the industry], including a shale gas field allowance, to promote early investment.

“Shale gas is part of the future and we will make it happen.”

The UK was an early adopter in Europe of shale gas exploration, but the practice was suspended in June 2011 after several small earthquakes in northwest England. Osborne announced intentions to establish a dedicated office for shale gas, to be known as the Office of Unconventional Oil and Gas, in December last year.

A London School of Economics think tank, the Grantham Research Institute on Climate Change and the Environment, said earlier this week that the UK should use shale gas to help to reduce the carbon emissions level of its energy sector, but should not expect prices to fall significantly.

Energy firm Cuadrilla Resources, which carried out some fracking in the northwest of England prior to the moratorium, welcomed the news that the government is to prioritise shale gas.

Cuadrilla CEO Francis Egan said: “At this early stage of the industry's development, the government's decision to introduce tax reforms for shale gas will greatly incentivise companies."

"We also support the government's decision to accelerate the provision of planning guidance for local authorities. The country needs to move forward with vital exploration activities, so we can begin establishing the value of our significant onshore gas resources,” he added.

Osborne also announced increased investment in capital projects, including an additional £3bn (€3.5bn, $4.5bn) per year for infrastructure spending, and £3.5bn in capital spending over three years for shared equity loans to people looking to buy homes. Prospective homeowners may also be offered a loan of up to 20% of a property’s value as a measure to stimulate the housing sector.

Construction and industry are key end markets for chemical products.

Companies operating in the UK’s North Sea oil territories are also to receive decommissioning relief on projects in the area.

UK trade body the Chemical Industries Association (CIA) welcomed the new shale gas exploration incentives and tax credits for research, but called for more clarity on how the transition to a lower-carbon economy would impact businesses.

CIA chief Steve Elliott said: “Today’s budget takes further steps to underpin a manufacturing resurgence by supporting shale gas development and increasing the ‘above the line’ research and development tax credit."

"But we need more certainty that industry will be fully compensated for spiralling carbon costs. Better still leave the other electricity market reforms to support the development of low-carbon power,” he added.

Osborne announced that he will allow the Bank of England’s Monetary Policy Committee (MPC) to use unconventional methods to help the UK economy, although the country’s inflation target is to remain at 2%.

He said: “I want to make sure that an active monetary policy plays a full role in supporting the economy, so I am setting out an updated remit for the Monetary Policy Committee, and a review of the monetary policy framework.

“The new remit recognises that [the] MPC may need to use unconventional monetary instruments to support the economy while keeping inflation stable,” he added.

The UK’s GDP growth forecast for 2013 has been cut to 0.6% from 1.2% in December, Osborne added, while predicted growth for 2014 has been reduced to 1.8% from 2.0%.

(€1 = £0.85, $1 = £0.66, $1 = €0.78)

By: Tom Brown
+44 208 652 3214

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