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Bowland shale output to curb UK gas imports by 14%

Production from the Bowland basin could see UK imports decline by almost 15%, according to a new report

Shale gas production from the UK's Bowland basin could cut the country's imports by 14% over the next seven years, according to a new report.

The report from Deloitte, Potential Bowland Basin shale gas development: Economic and fiscal impacts, says shale-gas production from the Bowland basin, in northern England, could significantly reduce the country's gas imports and gain valuable tax revenue for the government.

Falling UK Continental Shelf production and expectations of lower imports from Norway will increase the UK's reliance on imported gas, Deloitte said. By 2020 around 69% of the UK's gas will be imported, Deloitte said, equivalent to 21.2 billion therms. This is around 60bn cubic metres (cm).

The UK's declining oil and gas production has increased its import needs in recent years. The UK's gas demand is expected to be between 80bn cm and 100bn cm by 2020, according to Ofgem figures. This is up from 78.3bn cm last year.

Deloitte's claim that the UK's import needs could be reduced by 14% assumes a Bowland basin shale gas production level of 8.4bn cm per year (cm/y) by 2020.

Other studies have indicated UK shale gas production could reach 12bn cm/y by 2020, adding gas prices could fall by between 2% and 4% from 2021. Cuadrilla Resources has said previously that shale gas production in Lancashire could reach 20bn cm/y by 2035.

Dwindling output

Domestic oil and gas production has tumbled over the past few decades as mature North Sea fields face decline and reserves have dwindled. The UK produced 41bn cm of natural gas in 2012, down 14% year-on-year. In 2002, the UK produced 103.6bn cm of gas, according to Cedigaz figures.  

The country's oil production has fared no better. Last year the UK's oil output was 967,000 barrels a day, down by more than 13% year-on-year.

The UK has been a net importer of gas since 2004. Last year the UK's pipeline gas imports reached to 35.4bn cm, up from 28.1bn cm in 2011.

According to the National Grid's Gone Green scenario - which assumes renewable energy will comprise 15% of the UK's energy mix by 2020-  almost 70% of the UK's gas will be imported within seven years.

Tax boost

Deloitte said Bowland basin production would also raise £580m ($903m) per year in tax revenue for the UK government by 2020. The report says that by 2016 UK government revenues from taxing oil and gas production will fall by more than 50% over the next three years because of the decline in North Sea production.

The consultancy expects tax revenue from UK oil and gas output to fall from £9bn in the 2010-2011 financial year to £4.2bn in 2016-2017. By the 2017-2018 tax year this could fall further to £3.7bn, Deloitte said.

The UK's office for Budgetary Responsibility (OBR) said last year that if UK oil and gas production continues to fall by around 5% per year then oil and gas revenues would fall from 0.9% of GDP in 2011-12 to around 0.1% of GDP from 2028 onwards. By 2040, this could fall further to 0.05% of GDP, the OBR said.

Deloitte said the financial benefits of Bowland basin shale gas output would also be significant on a local level. Lancashire's local authority could receive more than £54.5m per year in business tax, around 3% of its current budget.

Fiscal regime

But to make shale gas production commercially viable, the government must create greater financial incentives for would-be producers, Deloitte said.

Under the current fiscal regime, designed for conventional gas output, it would not be economically viable to produce shale gas from the Bowland basin, Deloitte said. This is because of huge uncertainty around development costs and future gas prices.

In March, the UK government said it would offer tax breaks to encourage shale gas development. The government sweeteners such as a new shale-gas field allowance and lower corporate tax rates in a bid to help the nascent shale-gas industry get off the ground.

Deloitte said shale gas production could create up to 23,600 jobs in the UK from 2025, but the actual number will depend on the extent the UK's manufacturers and service companies develop the skills and capacity to supply the UK shale gas sector.

Deloitte added that gaining public support is critical to the success of operations. Overcoming financial and technical obstacles, such as uncertain well flow rates and production costs, will also be central to success. 

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