Despite Tax Break Shale Gas Challenges Remain High
Recent tax breaks unveiled to primarily support shale gas development in the UK highlight the government's commitment to advancing the industry. Although the tax changes are both welcome and necessary, we retain our view that in light of both below and above ground challenges, shale gas production in the UK is unlikely to make a material impact over the course of our current 10-year forecast period to 2022.
Chancellor George Osborne unveiled promised tax incentives for shale gas in his Autumn Statement. Although the incentives would be available to all onshore exploration and production (E&P) work, the plans were specifically designed to incentivise shale gas activity. Under the new fiscal regime, taxes on profits from production would be reduced from 62% to 30%. The lower rate would remain in effect until taxable profits are equal to 75% of the initial costs of development. The new breaks come on top of existing relief that firms can claim for capital expenditure, further reducing their tax bill.
The latest policies reflect what continues to be a robust level of support from the UK government for shale gas since the lifting of a moratorium in December 2012. Despite the political challenges of a coalition government, officials have managed to not only reverse the ban on hydraulic fracking but to push through the most supportive fiscal and regulatory regime for unconventional E&P in Western Europe.
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