The amount of revenue shale gas could generate depends on how much gas we can recover – but the Institute of Directors believes it could ‘generate significant tax revenue’1.
For shale gas extraction to make sense, the price of natural gas on the wholesale market needs to be higher than the costs of extracting it. This means that, if shale gas extraction is less expensive than importing gas from abroad, the companies involved will go ahead. The price of other energy sources, such as coal, nuclear and renewables, will also have an impact, but most British homes are heated by natural gas, so a secure gas supply is very important.
The Institute of Directors (IoD) has produced calculations for a pad of 10 wells, each with four horizontal wells (laterals), which could heat a peak of 400,000 homes. In their model, the IoD assume that each lateral costs £6 million to drill, facility costs are £30 million and decommissioning costs are £40 million, with a total investment of just over £500 million – this includes operating expenditure, which is considerable, and the cost of getting the gas to market.2 According to Ernst & Young (EY), £333 million of capital investment is required to bring a well-pad of this scale into operation.3 This investment will be made by companies without subsidy from taxpayers.
John Williams, Senior Principal at Pöyry, a global consulting and engineering firm, told us that: “If the exploration process provides evidence of sufficient levels of gas which could be recovered at a reasonable cost and sold profitably on the wholesale market then operators can move towards positive final investment decisions with greater certainty.” He added that “shale gas produced here in Great Britain could also have other significant economic benefits in terms of job creation, tax revenue and improving the balance of trade.”
There will also be financial benefits to communities. The industry has committed to paying £100,000 to the local community living near to each exploratory well site where hydraulic fracturing takes place, together with a £20,000 community benefit payment per unique horizontal well over 200 metres in length and below 300 metres in depth. This will be paid by the operator, regardless of whether or not recoverable deposits are found. In addition, the industry has committed to paying communities 1% of the value of the shale gas that is produced – for a site of 40 horizontal wells, this could be worth £5-10 million in total. Finally, operators will pay business rates on their sites – 100% of which will go straight to the local authorities in the area.