As May pushes cash payouts for households, would sharing the proceeds of shale turbocharge the dash for gas?

Views of the Cuadrilla Fracking Site At Balcombe
You could be due for sizeable payouts if you have a fracking site over your hedge (Source: Getty)

Michael Hulme, head of commodities at Carmignac, says Yes.

Sharing the proceeds of shale with individual households as well as local councils will help kick-start the process, yes. The driver of shale development in the US was the existence of mineral rights – simply put, the ownership of what lies under the ground by the owner of the property or land. That doesn’t exist in the UK, as the Exchequer owns the rights to oil and gas and other minerals below ground. However, if royalties were payable which provided a meaningful share to the landowner, the council, and the exchequer, then that would help bring all parties together through mutual financial interest. In the US, royalties for landowners often represent around 15 per cent or more of total revenues from the sale of gas, with local taxes often adding a further 7-8 per cent to that amount. Royalties or stakeholder payments of as little as 5-10 per cent in the UK could help provide the right financial incentives that localities need to cut through the red tape and get fracking!

Jonathan Robinson, principal consultant at Frost & Sullivan, says No.

This policy change is not enough to kick-start a shale gas boom. Opposition to shale gas in the communities where it has been proposed runs deep, and many are likely to perceive this as a bribe to buy their support. There are several practical challenges. Because payments are made on production royalties, if gas flows are weak, residents would get a much lower payment than expected. Even if flow rates are high, it could take five years for volume production to be reached, so residents would be committing themselves to a property for at least five years, a potential challenge in the mobile UK property market. What of the impact on house prices? Certainly, in the south east of England, a £10,000 payment is nothing if you feel the value of your house could decline by much more. Finally, this could be very divisive for local communities, pitting against each other those who want (or need) the money and those who are strongly opposed.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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