* Office for Unconventional Gas and Oil as point of contact
* Details on shale gas tax breaks in 2013 budget
* UK shale gas can made large economic contribution
* UK raises new 2030 gas plant capacity need by 30 pct
(Adds details, adds power market report, comments)
By Karolin Schaps
LONDON, Dec 5 Britain gave a boost to its shale
gas industry on Wednesday by creating a dedicated government
office to simplify regulation and by confirming tax breaks, but
stopped short of lifting a ban on exploration imposed over a
The government will form an Office for Unconventional Gas
and Oil to create one point of contact and to streamline rules
relating to shale exploration, finance minister George Osborne
He also said, confirming comments two months ago, that the
department would hold a consultation with industry on tax breaks
for shale gas exploration, details of which will be revealed in
the 2013 budget statement.
"We are consulting on new tax incentives for shale gas and
announcing the creation of a single office so that regulation is
safe but simple," Osborne said in his half-yearly budget
Britain, Europe's largest gas consumer, in summer 2011 put a
temporary halt on hydraulic fracturing or "fracking" for shale
gas, a process in which water and chemicals are injected at high
pressure into rock formations to retrieve trapped gas, after
earth tremors were measured near a fracking site close to
Britain's energy secretary has not lifted the ban, but
Wednesday's confirmation of shale gas tax breaks implied it
would allow fracking to resume. He previously hinted that he
hoped to give it the green light.
The energy ministry said an announcement on the ban would be
A government report into Britain's gas generation strategy
published on Wednesday showed shale gas could make a significant
economic contribution in Britain.
"If it can be shown to be economic and safe, domestic shale
gas production could offer a significant economic opportunity
for the UK, with the prospect of new sources of indigenous
supply, new industrial activity and skilled jobs," the report
"Large areas of the UK are underlain by shale rocks, some of
which are likely to contain substantial quantities of shale
Shale gas firm Cuadrilla estimated that some 6 trillion
cubic metres of gas lie beneath its sites in Lancashire, enough
to cover Britain's gas needs for 75 years.
"We welcome any initiative that streamlines decision-making
processes while ensuring that all shale gas extraction conforms
to the highest environmental and health and safety standards,"
said Francis Egan, chief executive of Cuadrilla, which is
waiting for the government to lift the fracking ban on its sites
near Blackpool, which triggered last year's tremors.
Shale gas exploration has revolutionised the U.S. energy
market, where an oversupply of gas has depressed prices and
headed the United States toward energy independence.
In Europe, most governments have been cautious about
allowing shale gas exploration due to environmental concerns and
worries about its impact on seismic activity.
A European Commission study published in September said
shale gas could help offset the decline in conventional
production but would do nothing to reduce the continent's
dependence on imports.
Britain's gas production last year slipped below gas imports
for the first time since records began in 1960.
GAS IN POWER PLANTS
Gas will also continue to play an important role in
Britain's future electricity mix, with the government expecting
gas-fired power plants to fill gaps left by intermittent
renewable production and the phase-out of ageing coal plants.
In its report, the government increased its forecast for new
gas-fired power plant capacity needed by 2030 by 30 percent to
Around 21 GW of current power plant capacity will be phased
out by 2030 due to age and stricter pollution rules, putting the
2030 available gas plant capacity at 37 GW, around 5 GW higher
"Government has now made it clear that it sees gas as having
an important role today and in the future," said Angela Knight,
chief executive of energy industry lobby EnergyUK.
"This greater certainty on energy policy should also be a
real confidence booster for establishing supply chains for all
types of electricity generation."
As part of its plans to reform the electricity market,
Britain proposed last week to create a system whereby back-up
power plants, mainly gas-fired, would be paid through an auction
system to fill supply gaps left by volatile renewable energy
Even though broad proposals have been put forward, the
industry has asked for exact details of the mechanism to be
published to clarify how generators will earn money.
"If independent players and new entrants are to be able
to create more competition across the gas-to-power chain and
help provide security of energy supply, there is an urgent need
now for clarification on the operation of the proposed capacity
market to support independent investment in new gas generation,"
said George Grant, chairman of Stag Energy, an energy company
that has invested in numerous gas plants in Britain.
(Additional reporting by Oleg Vukmanovic; Editing by Anthony
Barker and Jane Baird)