The ultimate fracking incentive was unveiled yesterday, 13th Juanuary 2014, when David Cameron, the Prime Minister, announced that local councils which approve shale gas projects will keep millions of pounds generated through windfall business rates. In this instance they will keep 100% of rates, up from the usual 50%, which is an estimated £1.7m for a 12-well site.
Yesterday it was also announced that the French company, Total, one of the world’s big five oil companies, was to invest close to £50 million in shale exploration in the UK. The fact that there is a ban on fracking in France has not gone unnoticed. Total is paying £1.6m to acquire a 40% stake in two exploration licences in the Gainsborough Trough, a geological basin in Lincolnshire, eastern England, and committing funding to a £45m exploration programme.
The existing partners, eCorp of the US, Dart Energy and UK-listed iGas and Egdon Resources will remain in licences but with reduced stakes. John Thrash, chief executive of eCorp International, said “The entry of this highly respected global shale operator into the UK shale gas exploration effort is a watershed event, not only for the UK, but also, we believe, Continental Europe”.
David Cameron is fully behind shale gas exploration in the UK. He said “Shale is important for our country. It could bring 74,000 jobs, over £3bn of investment, give is cheaper energy for the future, and increase our energy security.”
The technique of hydraulic fractruring, commonly known as “fracking”, involves extracting gas trapped in shale rock by drilling deep underground and pumping in pressurised solutions of water, sand and chemicals to shatter fissures in the rock. This process releases trapped gas which can then be pumped to the surface. Its proponents promote it on its economic merits of cheaper energy costs, job creation and as a pathway to greater energy independence.
This local government incentive has received condemnation from some corners, with local councils having to balance economic proseperity with environmental protection, potentially undermining community trust in their decision-making process. Jane Thomas, Friends of the Earth, accused the government of “Having to go to extreme measures to persuade people to accept fracking. These are community sweeteners”.
There are concerns over the pollution of water tables in rural areas, the risk of tremors and earthquakes, and the negative impact on air quality and local infrastructure. Existing drilling sites at Barton Moss, Manchester, operated by iGas, and at Balcombe, West Sussex, under Cuadrilla, have come under considerable pressure from community protest. Ministers are keen to persuade local communities to accept this relatively new technology which stand to benefit by £100,000 when a test well is fracked and receive 1% of revenue over the life of a well, typically £5-10m per site.
On the plus side jobs in drilling are created with fracking and for every new job created in drilling, more than three are created in supplies and service. Construction and engineering jobs can equally be in demand due to the increase in building. Retail, food and entertainment businesses expand as they support the increased population.
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