UK to offer shale gas tax breaks

The UK will consider tax breaks for shale-gas exploration as the government seeks to reduce dependence on energy imports and hold down household power bills, Chancellor of the Exchequer George Osborne said today.

The use of hydraulic fracturing, the process known as fracking that uses pressurised water to drive gas out of shale rock, was suspended after Cuadrilla Resources set off two earthquakes last year in northwest England.

The government, which has said the ban will end soon, will set up an Office for Unconventional Gas to regulate the industry, Mr Osborne announced.

Mr Osborne wants the UK to give priority to gas as a power source because it's cheaper than renewables and less environmentally harmful than coal.

At the same time, the UK wants to curb reliance on natural gas imports that have almost doubled since 2007 as domestic production dwindles.

US natural gas prices dropped 87 per cent from 2008 to April this year as production from shale fields boomed.

"We don't want British businesses and families to be left behind as gas prices tumble on the other side of the Atlantic," Mr Osborne said in his Autumn statement to parliament.

Mr Osborne's shale plans may place Britain ahead of efforts on the continent, where nations have hesitated to endorse the technique because of concerns it may pollute water.

The Czech Republic proposed a temporary ban on exploration of shale deposits in September and France decided that month to maintain a ban on fracking.

The Netherlands has said it plans to conduct a study of the environmental impact of shale and coal-gas exploration.

"Europe is a very, very different situation to the US," said Paul Ekins, professor of resources and environmental policy at University College London.

"The US by itself will not have the kind of impact on the world's gas market that would allow our prices to fall significantly."

Cuadrilla says the shale rock it's exploring in northwest England has more gas than all of Iraq.

Exploitation of the UK's shale-gas reserves may meet 10 per cent of UK demand for more than 100 years, according to the Institute of Directors.

The Department of Energy and Climate Change set out plans for as many as 30 new gas-fired power stations with 26 gigawatts of capacity in a gas generation strategy published today, designed to shore up new supplies as aging coal and oil plants retire.

Environmental pressure groups Greenpeace and WWF, as well as the government's independent climate change adviser, have warned Britain may miss its legally binding carbon cutting targets if it presses ahead with its gas plans.

Bloomberg