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
The chancellor is under pressure to introduce measures to kick-start a moribund domestic economy, and the fact that growth prospects in the US have improved due to the success of the unconventional oil and gas industry has not gone unnoticed. But the ability of the government to successfully intervene in wholesale gas markets is open to question, and it's highly doubtful that the UK will be able to replicate the scale of expansion seen in the US. Realistically, the interests of UK households and business would be better served if prices for gas were decoupled from crude oil prices - a possible consequence of US shale-derived LNG making its way onto global export markets.