Analysis: UK Budget Announcement on Shale Gas
The UK Chancellor’s recent Budget statement that the UK Government will introduce a shale gas field allowance will surely be welcomed by those in the industry who have held back until now from embracing the undoubted opportunities that lie in the UK's relatively abundant but under explored shale plays. Although the UK has been a relative "first mover" in Europe in encouraging the development of shale gas extraction, and has been pragmatic and swift in its assessment of the risks associated with hydraulic fracturing, there has been an understandable reticence from within the industry in the UK to press forward with investment.
Whilst the details of the shale gas field allowance are yet to be published, it seems that the Chancellor has been encouraged by the upswing in offshore UKCS oil & gas exploration and development in the last 12 months, with investment and confidence in the UK oil & gas industry at near record levels. His willingness to offer financial support to the shale gas industry in the face opposition from environmentalist and a level of scepticism from the general public is also driven by the urgent need for new gas supplies in view of recent projections of future UK energy shortages and rising gas prices.
The challenge will now pass to the regulatory authorities and energy companies to work together to facilitate UK shale gas exploration and development in a manner that meets all stakeholder concerns. This announcement also bodes well for the development of complementary technologies and services in the UK supporting shale gas extraction which are likely to have significant global export and licensing potential.
The Chancellor's related announcement that the Government will publish guidelines to address the question of local community benefits from unconventional gas resources is further welcome recognition that a key factor in the successful development of a shale gas industry in the UK, and indeed in Europe, is the social factor, and the need to involve local communities in the approval process, employment opportunities, related services provision and potentially some form of financial benefit. Unlike the USA, where oil and gas are the property not of the State but of individual land and mineral rights owners, who are financially incentivised to approve and push forward shale developments, in the UK, where mineral rights are owned by the State, there is no direct financial incentive for local communities and land owners to see shale gas developments in their backyards.
Hamish McCardle is with Baker Botts LLP. He has wide ranging experience in the U.K. and international energy sector where he advises clients on all aspects of the energy value chain including large-scale projects and corporate and commercial matters, with a particular focus on those associated with the upstream and midstream oil and gas sectors and LNG. Hamish can be contacted at hamish.mcardle@bakerbotts.com