George Osborne confirmed that the Treasury will be reviewing a range of tax incentives for companies looking to exploit the UK's shale gas reserves. The chancellor also announced that The Department of Energy is to establish an Office for Unconventional Oil & Gas, and that the government will take a much firmer hand in wholesale gas markets.
There has been wild speculation about the value of the UK's shale gas resources ahead of a study to be published by the British Geological Survey (BGS). An aggregate figure of £1.5 trillion has been bandied about, although it's thought that only around 10 per cent of the deposits are readily accessible, or located away from population centres. Nevertheless, it is likely that the BGS survey will reveal a dramatic upward revision of the existing onshore estimate of 5.3 trillion cubic feet (tcf); perhaps to as much as 200 tcf, according to a report published by the Institute of Directors.
Until now there has only been limited activity within the UK shale gas segment. Last year, a moratorium on hydraulic fracturing in the UK was imposed after minor earthquakes on Lancashire's coastline were linked to an exploratory drilling programme carried out by private equity backed Cuadrilla. The Energy Secretary is now expected to reverse the decision, clearing the way for new licence applications.
It's hard to predict whether specialist unconventional energy companies such as Alkane Energy or IGas would be willing to explore shale gas options, but at least forward demand won't be an issue. A new gas strategy by the Department of Energy could result in 30 new gas-fired power stations being developed by 2030. If this transpires it will mean that natural gas will provide nearly half of the UK's generating capacity - a decidedly risky scenario given that European gas prices are still linked to the price of crude oil through long-term contracts with major gas exporters such as Norway, Russia and Qatar. Net UK imports of natural gas increased by 87 per cent through 2007-11, so it's obvious why the chancellor is keen to follow America's lead in shale gas.
