UK: Shale Gas: The UK Announces Tax Incentives

Last Updated: 22 October 2012
Article by Michael Hutchinson

Keywords: Shale gas, UK tax incentives, oil and gas reserves, gas imports

On 8 October 2012, the Chancellor of the Exchequer, George Osborne, announced that the British Government will soon be consulting on "a generous new tax regime for shale so that Britain is not left behind as gas prices tumble on the other side of the Atlantic".


Readily accessible oil and gas reserves are declining and consequently gas imports are rising rapidly. The energy supply industry is increasingly turning to unconventional reserves to fill the gap left by the decline of coal energy and the unreliability of renewable energy.

Interest in exploiting shale gas reserves has increased with the recent growth of shale gas production in the US and high natural gas prices in the UK. In the US, shale gas now accounts for 23% of domestic gas production and 22% of domestic consumption, helping to reduce natural gas prices in the US to a quarter of UK prices. Whilst the prospects of reductions of this magnitude are unlikely in the UK, the Government clearly sees the exploitation of shale gas as potentially having significant benefits for British consumers.

UK prospects and potential

Quantifying the exploitable amount of shale gas reserves within the UK is challenging, but in May 2012, Dart Energy International reported a best estimate of shale gas reserves onshore of 66 trillion cubic feet.

The Institute of Directors ("IoD") conservatively predicts that the country's onshore shale gas reserves would provide enough energy to meet 10% of the UK's gas demand for the next 103 years whilst the Financial Times predicts that shale gas could account for a quarter of UK consumption in 20 years. Increased shale production could also help offset the projected fall in conventional UK North Sea gas production over the next 10 years (which is estimated to equal 13 million tonnes of oil equivalent). The Financial Times has estimated that production of shale gas could reach 2,100m standard cubic feet a day by 2029, which is just over half the North Sea gas production levels this year.


The use of shale gas reserves also has wider reaching benefits on both the economy and the environment.

A recent article in the Financial Times predicts that shale gas could bring £95 billion of investment into the UK.

In March 2012, The Independent reported Lord Browne, the former BP chief executive, as predicting that the UK shale gas industry could create 50,000 jobs across the UK. The IoD has predicted a slightly more conservative figure of 35,000 new jobs across the UK.

Gas emissions contain half as much carbon dioxide as coal emissions, so increasing the UK's gas based energy supply would help to save up to 45 million tonnes of carbon dioxide annually, which is equivalent to 8% of the UK's annual carbon emissions.

Natural gas emissions contain fewer particulates and other pollutants than coal and diesel. The IoD anticipate that using natural gas instead of coal for the generation of electricity and switching vehicles from diesel to natural gas could reduce the number of deaths from poor air quality in the UK.


The use of shale gas as an energy resource is highly controversial due to some of the risks involved in the fracking process. The main risks are water contamination, tectonic plate movements and methane and other greenhouse gas emissions. The European Union is currently considering a legislative framework to manage these risks.

The future

The Government has said that gas "will continue to be an important part of the UK energy mix" as a successful UK shale gas industry "has the potential to create jobs and support UK energy security, benefitting the economy and taxpayers". The Government's aim is that a targeted tax regime will unlock investment which will "stimulate investment and production that would otherwise not have gone ahead". The House of Commons Select Committee is due to publish a report on Shale Gas and has been asking for written evidence on the following areas:

  • estimates on the reserves of shale gas in the UK, Europe and globally, and what proportion of those reserves are recoverable;
  • the reasons why estimates for shale gas reserves are changeable;
  • the prospects of offshore shale gas reserves in the UK Continental Shelf;
  • whether the UK should consider setting up a wealth fund with the tax review from shale gas;
  • the effects of shale gas on the liquefied natural gas industry;
  • whether shale gas could lead to the emergence of a single, global gas market;
  • effects on investment in lower-carbon energy technologies; and
  • the potential impact on climate change objectives with a larger use of shale gas.

In May 2011, the House of Commons Energy and Climate Change Committee produced a report on shale gas which recommended that the UK Government monitors the regulatory approach taken in Poland and other EU countries where shale gas is explored and produced. In this report, the Committee acknowledges that the offshore shale gas reserves could be far greater than the onshore supplies. The Committee therefore recommended that the DECC encourages the development of the offshore shale gas industry in the UK.

In a press release on 8 October 2012, the Treasury said that the Government will interact with companies to ensure that tax regime is "appropriately targeted while maintaining a fair return for the Exchequer". Ed Davey, Secretary of State for Energy and Climate Change, has since confirmed that he hopes to be able to "give the green light" to fracking around the time of the Government's gas strategy announcement, which is expected in early November. With these announcements, the UK, in future, will be better placed to take advantage of the opportunity to develop a cheap and reliable energy source which will reduce the country's dependence on foreign gas imports.

Originally published October 19, 2012

Visit us at

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2012. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.