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Counting fracking chickens

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The UK government is putting the final touches to the new national Shale Wealth Fund which is intended to share up to 10 percent of the profits from fracking among the communities affected.

According to the Yorkshire Post:

“The Shale Wealth Fund will see communities near ‘significant shale gas reserves’ offered a share of a £1bn pot which can be spent on projects ranging from play parks to transport links…

“The policy will be funded by 10 percent of tax revenues arising from shale gas production. Communities could receive up to £10m, to be spent as they decide, with residents in the North and the Midlands set to benefit first.”

The fund is an attempt to mitigate a major difference between US and UK fracking.  In the US shale plays, landowners have the rights to mineral deposits; in the UK mineral rights belong to the Crown.  For this reason, fracking was more popular in the US because landowners received a direct payment for agreeing to fracking beneath their property.  In the UK, in contrast, property owners (and the wider community) had all of the downsides (pollution, earth tremors, traffic congestion, etc) with none of the benefits.  By diverting a share of the tax-take to community projects, the Shale Wealth Fund is intended to make some reparation.

Judging by the US experience, this is likely to prove to be a bad deal.  The damage done by the US fracking industry has been far greater than the taxes levied on the industry and the wages of its employees.  The result is that local authorities have been forced to divert funds from public services in order to fund such things as road and bridge repairs that result from the heavy volume of traffic that fracking generates.  Communities affected by fracking in the UK are likely to face the same problem; with already underfunded local authorities forced to divert funds from public services in order to clear up the mess when the frackers have gone.

There is, however, another reason to be suspicious of the Shale Wealth Fund; that is that it may never distribute a single penny.  To date, the UK fracking industry has yet to frack a single test well.  It might require 200 test fracks before anyone can tell if there is sufficient shale gas to make further drilling worthwhile.  Even then, with a glut of US, Middle Eastern and Russian gas holding prices down, it is doubtful that UK shale gas can be recovered and sold at a profit.  Even if it can, thanks to George Osborne, the UK frackers have been given generous tax breaks which will eat into the UK government’s tax take.

By claiming a £1 billion pot from an industry that has yet to bring a single Btu of shale gas to the surface, the UK government is not so much counting its chickens before the eggs have hatched, but counting them before the eggs have even been laid.  Local communities would be better off preventing the damage from fracking being done in the first place rather than hoping for a share of a tax pot that is very likely to be empty.

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