Government overrides County Council in drive to promote UK shale

Houses of Parliament, London
Source: DollarPhotoClub

In a move welcomed by the oil and gas industry and protested by the environmental groups, the UK Government decided to make use of rules introduced back in August and override Lancashire Council’s decision to disallow shale company Cuadrilla to drill wells in the county.

Local government minister Greg Clark has informed Lancashire County Council of the minister’s intention to himself determine Cuadrilla’s appeal on two rejected permits in the area in northwest England.

“Ministers have decided to recover Cuadrilla’s appeals for shale exploration in Lancashire,” the Government said in a letter to the council dated Nov. 26.

John Williams, senior principal consultant at the consultancy Poyry Management said a decision on the appeal could be made by the second half of 2016 but rules requiring the company to monitor water supplies at the site for 12 months before fracking can start would delay any gas extraction.

“We could see some drilling in the second half of 2017 but they still have to determine whether there are reserves that can be extracted economically and it would likely be 2018 at the earliest before a decision to move into full production would be taken,” he said.

A spokesperson for Cuadrilla said if the projects are given approval the company would begin water monitoring at the sites as soon as possible.

The decision sparked protest on the part of environmental groups, with Donna Hume, senior energy campaigner at environmental group Friends of the Earth, telling Reuters that “If Cuadrilla is given permission to frack in Lancashire, it will be against the wishes of its residents, and its council, both of which have made their views against this risky process very clear.”

However, the sentiment within the oil and gas sector is that once exploration commences many scaremongering stories and theories will be disproved, taking the weapons out of the hands of the anti-frackers. If Cuadrilla can demonstrate that it can proceed with the drilling and fracturing with a minimal impact on the environment and local communities, the support for UK shale is likely to grow.

This is yet another step taken by the Government to support UK shale and comes at the heals of Chancellor Osbourne’s pledge to set up a Shale Wealth Fund. In his Autumn Statement, delivered to the British Parliament on 25 November, Chancellor of the Exchequer George Osborne said “We are supporting the creation of the shale gas industry by ensuring that communities benefit from a Shale Wealth Fund (SWF), which could be worth of up to £1 billion ($1.6 billion).”

The British Treasury has already gone a long way to entice shale exploration companies. Last year saw the exemption of a portion of profit equal to 75% of an exploration company’s qualifying onshore capital expenditure from supplementary tax charge. This portion of the profit will then be subject to tax at 30%, while the remaining profit will be subject to a marginal tax rate of 62%, as is usually the case with oil and gas companies operating on the UK Continental Shelf.

In 2015, this was followed by a decrease in UK Petroleum Revenue Tax from 50% to 35% and the lowering of the country’s supplementary rate of taxation from 32% to just 20%.

Dr Colin Brown, Director of Engineering at the Institution of Mechanical Engineers said in response to the Chancellor’s announcement: “The commitment to the Shale Wealth Fund provides some guidance as to where additional UK gas is expected to come from, supporting the development of more gas power plants, however without local authority and community buy in environmentally as well as economically to regional shale gas production, this is unlikely to help the UK meet the demand for electricity following the closure of coal fired power stations.”

Chris Lewis, partner in EY’s energy team, commented: “The announcement to create a Shale Wealth Fund (SWF) to support the creation of a shale gas industry should accelerate investment in this sector. One of the biggest challenges the sector faces right now is funding projects as a result of drawn out planning applications and the low current gas price. This long planning is making investors reluctant to hand over cash as under the current system projects are uneconomical.

“The creation of a SWF helps garner community engagement because the communities will directly benefit from the projects that are happening in their own back yard. It will also speed up and streamline the planning process by connecting the investors with the local communities and planning decision makers.”

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