The UK government is considering a "generous new tax regime" for UK shale gas developers, chancellor George Osborne told the Tory conference last week. Energy Minister, John Hayes, meanwhile, recently told Bloomberg that the government could allow drilling for shale gas to resume as early as the end of this year. "Certainly I want to get the matter settled from the government's point of view sooner rather than later."
The government suspended the use of hydraulic fracturing, or 'fracking', in the UK last year after drilling by Cuadrilla Resources in Lancashire caused two small earth tremors. The controversial extraction method, already commonplace in the US, involves pumping water and a mix of chemicals underground at high pressure to shatter rock formations and release gas.
And positive statements from officials suggest the government intends shale gas to form part of the UK's wider energy policy over the coming years. Targeted tax breaks for the nascent shale gas industry here would help boost investment and could improve security of energy supply further down the road. According to Michael Wilkins, managing director of Standard & Poor's Rating Services: "The expectation is that the UK's North Sea natural gas reserves will soon be exhausted while ageing coal-fired plants will be gradually retired to comply with greenhouse gas regulations. While there are ambitious plans to build new nuclear plant and renewables - especially offshore wind - the perception is that these new sources of capacity will not be commissioned in time to meet growing demand."
Nevertheless, the proposals quickly received fierce criticism from the environmental lobby against shale gas. Opponents of fracking say the practice is unsafe and could cause groundwater pollution. And while much is made of anecdotal evidence, so far there is little scientific evidence that fracking automatically causes environmental damage - although poorly constructed wells are obviously a threat. As a review by researchers from the Massachusetts Institute for Technology concluded: "With over 20,000 shale wells drilled in the past 10 years, the environmental record of shale gas development has for the most part been a good one - but it is important to recognise the inherent risks and the damage that can be caused by just one poor operation."
The UK government is therefore likely to include stringent regulatory guidelines in any move to reinstate hydraulic fracturing in parts of the UK. The decision would be warmly welcomed by the industry - privately owned Caudrilla Resources says its licences could hold as much as 200 trillion cubic feet of gas in place within Lancashire's Bowland shale complex. Only a fraction of this could actually be extracted at a commercial rate, but even so it would have a positive effect on the UK's energy mix.
Other companies with shale gas licences in the country include Igas Energy (IGAS), BG Group (BG) and Australia Stock Exchange-listed Dart Energy (DTE), as well as privately owned explorers Celtique Energie and Reach Coal Seam Gas.
