Expert: local business rates retention plans is a positive step, but more must be done to educate communities on the benefits of shale

Out-Law News | 14 Jan 2014 | 12:36 pm | 2 min. read

Financial incentives to encourage the development of shale gas in the UK must be accompanied by "education and understanding" about the benefits of the new energy source if it is to achieve its potential, an expert has said.

David Ross of Pinsent Masons, the law firm behind Out-Law.com, was commenting as the Prime Minister announced that local authorities would be able to hold onto the full 100% of business rates they collect from shale gas sites; double the usual 50%. Along with this benefit, which would be directly funded by central Government and could be worth up to £1.7 million per year for a typical site, the previously-announced package of community benefits for local residents would also be strengthened, David Cameron said.

Ross said that although the news was obviously a positive development for the UK energy industry, the "substantial benefits" of shale gas exploration and production needed to be understood at a "grass roots level for shale gas and fracking to truly become a success". This should include information on how a successful shale industry would have a positive impact on the economy, stability of energy supply and employment opportunities across the UK, he said.

"There is still a long way to go before shale gas can be a meaningful contributor to the UK's energy mix," he said. "Drillers must secure a range of permits before drilling can commence and there is still work to be done in streamlining the consenting process to enable swifter development of this burgeoning energy resource."

"Government has been under mounting pressure to provide incentives for communities near fracking sites for some time. Local residents clearly have a powerful voice and can potentially influence whether projects are allowed to proceed in the future. There is a clear need for meaningful incentives to support both communities and developers at a pivotal time for the UK shale gas industry," he said.

Shale is natural gas trapped within shale formations at significant depths below ground. It has become an increasingly important source of natural gas in the US, where a combination of drilling and 'fracking' has facilitated access to large volumes of shale gas that were previously uneconomical to exploit, particularly over the last decade. Fracking involves pumping water at high pressure into shale rock to create narrow fractures through which trapped gas can flow out and be captured.

A Government-commissioned assessment of the potential economic and environmental effects of expanding shale exploration and production, published last month, found that up to 32,000 full-time jobs could be created in the industry during the 2020s if a substantial amount of shale gas was produced. Local communities could receive £1 billion in community benefits under previously-announced industry plans under the same production scenario, according to the report.

Alongside the announcement by the Prime Minister, the UK Onshore Oil and Gas Operators Group (UKOOG) said that it would consult further on how community benefits to be paid when shale gas exploration or exploration works take place could best be shared with local residents. Proposals include direct cash payments to those living near fracking sites and the setting up of local funds, to be directly managed by local communities. Local communities are due to receive £100,000 when a test well is fracked, plus a further 1% of revenues if shale gas is then discovered.

"The news on community benefits demonstrates the Government's commitment to shale gas, but also a commitment to making it a valuable industry for both communities and developers alike," said energy expert David Ross of Pinsent Masons. "Community engagement is essential for the success of any new energy technology and it's refreshing to see the Government and industry provide substantial financial incentives at the early stages of exploration."

The announcements by the Government and UKOOG coincided with substantial investment in the UK shale industry by French energy firm Total, the first of the major oil companies to do so. The company said that it had acquired a 40% interest in two shale gas exploration licences in the East Midlands, with the intention to operate the project once its partner Island Gas Ltd had completed the initial exploration phase.