Britain unveils tax breaks for shale gas investment

LONDON (Reuters) - The British government unveiled draft tax breaks on Friday to drive investment in shale gas production, in what it termed the most generous shale incentives in the world.

The new tax allowance for shale gas, which is subject to consultation for three months, would reduce the tax payable on income from shale production to 30 from 62 percent for oil and gas, the UK treasury said in a statement.

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 shale gas “pad” allowance, it would likely go into the finance bill next year and last for the lifetime of the shale well, a spokeswoman at the treasury said.

A well pad is an area which has been cleared for drilling in oil and gas extraction.

“We want to create the right conditions for industry to explore and unlock that potential in a way that allows communities to share in the benefits,” UK Chancellor George Osborne said in the statement.

“This new tax regime, which I want to make the most generous for shale in the world, will contribute to that,” he added.

The British government is looking to shale gas to reduce the country’s reliance on costly natural gas imports, with the hope of lowering energy bills.

Last month, the British Geological Survey estimated the rocks of the so-called Bowland shale area in northern England held 1,300 trillion cubic feet of gas, double the amount of resources forecast previously.

The British shale industry is still in its infancy. IGas and Cuadrilla are already exploring shale gas and other energy firms are watching developments with interest.

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.”

There are also environmental concerns regarding fracking, the technology which involves injecting water and chemicals to break rock formations and extract shale gas, and its potential to trigger earthquakes has led to growing public concern.

To help placate local opposition to shale, the industry will have to provide communities located near exploratory wells with 100,000 pounds of benefits and 1 percent of the revenue from each production site, the government said last month. ($1 = 0.6579 British pounds)

Reporting by Nina Chestney; editing by James Jukwey