In all the noise of tomorrow’s Budget, many may not spot a small tweak to the fiscal regime for UK oil and gas. Those of us with a close interest in unconventional oil and gas, however, will be watching closely. Last year the Chancellor announced a consultation on a specific tax regime for onshore shale gas development, the results of which are expected on Wednesday.
Press coverage of shale gas is often characterised by myth and hyperbole. For some, it’s the last gasp for fossil fuels; for others, a new source of energy security and the key to bringing down bills for industry and consumers.
We are not used to thinking of energy as a diplomatic weapon here, but contrast this with the EU which imports a fifth of its gas from Russia via Ukrainian pipelines. Several times in recent years, Russian gas giant Gazprom cut or threatened to cut Ukrainian supplies. On each occasion the impact reverberated across mainland Europe. However, as a result of the US shale gas boom, some analysts now expect lower LNG prices to reduce Europe’s exposure to Russian gas from 27 per cent of supply in 2009 to just 13 per cent by 2040. That’s without significant domestic European shale gas production. With estimates of European shale gas reserves rising, the impact here could be even greater. Earlier this year, for example, Shell signed a 50-year, $10 billion deal to develop reserves in Ukraine. All of this could mean massively reduced reliance on Russian gas and hugely improved security of supply for mainland Europe. It could also have a significant impact on the Russian economy, where oil and gas revenues reached a record $346 billion in 2011.