* Proposes lower tax on income from shale production
* After consultation, likely to enter finance bill next year
* Amount of potential UK shale production uncertain
(Updates throughout, adds links)
By Nina Chestney
LONDON, July 19 The British government unveiled
what it described as the world's most generous incentives for
shale gas on Friday, offering tax breaks to drive investment in
a sector that has already transformed the U.S. energy market.
Finance minister George Osborne said the government wanted
to create the right conditions in Britain for industry to unlock
the potential of shale gas.
"This new tax regime, which I want to make the most generous
for shale in the world, will contribute to that," he said.
The government is looking to shale gas to reduce Britain's
reliance on natural gas imports and hopes it will also lower
consumers' energy bills.
The British shale industry is still in its infancy, however.
Experts say it is difficult to estimate how much shale could
be developed commercially, and their estimates vary widely.
Utilities analyst Peter Atherton at Liberum Capital said the
new tax allowance could attract more companies.
"It (shale exploration and production) is a tough thing for
industry to do, costing from tens to hundreds of millions of
pounds, and with a fair amount of technical risk and
reputational aggravation in the early years," he said.
The proposed allowance for shale gas, subject to
consultation for three months, would reduce the tax payable on
income from shale production to 30 from 62 percent for oil and
The tax break is based on existing allowances for oil and
gas production aimed at supporting almost 14 billion pounds ($21
billion) of investment next year.
Called the shale gas "pad" allowance, it would likely go
into the finance bill next year and last for the lifetime of the
shale well, a UK Treasury spokeswoman said.
British exploration firms IGas and Cuadrilla are at
the exploration stage in shale gas, while other energy firms
such as France's Total are watching developments with
Shares in Alkane Energy PLC, which has extraction
licences in the Bowland area, were up 4.6 percent at 40.4 pence
at 1142 GMT, while IGas was 5.58 percent higher at 123
Shares in Centrica, which has a stake in one of
Cuadrilla's exploration licences, was down 0.2 pence to 380.9
Shale gas is natural gas trapped in dense rock formations.
The process of fracking, in which water and chemicals are pumped
deep underground to break open the rocks, has led to fears it
could cause earthquakes and contaminate drinking water.
Last month, the British Geological Survey estimated the
rocks of the Bowland shale area in northern England held 1,300
trillion cubic feet of gas, double the amount previously
However, it is still uncertain how much gas can be extracted
and how many shale wells developed.
A report by the House of Commons' Energy and Climate Change
Committee said this week: "It is impossible to determine
reliable estimates of shale gas in the UK unless and until we
have practical production experience."
Experts say there should be a period of at least two years
of exploratory drilling to see whether UK shale is a viable
Jenny Banks, energy and climate change specialist at WWF-UK,
said encouraging more fossil fuel investment was at odds with
tackling climate change.
To help placate local opposition to shale, the industry will
have to provide communities near exploratory wells with 100,000
pounds sterling ($152,000) in benefits and 1 percent of the
revenue from each production site, the government said last
($1 = 0.6579 British pounds)
(Editing by Jason Neely and Jane Baird)