Chancellor George Osborne has set out plans in the Budget for a “generous” tax regime for the emerging shale gas industry in the UK, which will undoubtedly bring opportunities for companies involved in water treatment.

Mr Osborne appears set on bringing shale gas into the UK’s energy mix after announcing to the House of Commons that:

“Shale gas is part of the future. And we will make it happen.”

He intends to introduce a new shale gas field allowance and extend the ring-fence expenditure supplement from six to ten years for shale gas projects to promote investment in the industry at an early stage of its development.

Also in the Treasury’s plans is planning guidance on shale gas by July 2013 to provide clarity around planning for shale gas during the exploration phase.

As the shale gas industry develops the Government said it will ensure an effective planning system is in place and by the end of the year will produce guidance for the industry to ensure the planning system is properly aligned with the licensing regime and regulatory regimes, principally: health and safety; and environmental protection.

All of this could spell opportunity for firms involved in shale gas-related water treatment.

Shale gas is extracted from the ground through the process of hydraulic fracturing, or “fracking.” Fracking involves pumping millions of gallons of water and chemicals into the ground at a high pressure in order to fracture shale rocks to release natural gas inside. Up to 80 per cent of the injected water returns to the surface as “flowback” water and “produced” water, which contain high levels of pollutants and must be cleaned up and treated before it is returned to the environment.

Shale gas currently contributes around 25% of the energy mix in the USA and its fracking-related water treatment market is growing rapidly. Though shale gas will likely be a smaller percentage of the UK’s energy mix, water treatment firms should keep a close eye on the sector in this country.

Flood defence funding "noticeably absent"

There was scant mention of infrastructure spending in the Budget, with the main announcement being an extra £3 billion a year of capital spending from 2015-16, which corresponds to £18 billion additional capital spending over the next Parliament.

The Government intends to set out how the capital spending will be allocated at the 2015-16 Spending Round in June.

In the run-up to Autumn Statement in December last year, the Treasury announced an extra £120 million of flood defence spending to boost economic growth and protect more homes. There was no mention of any flood defence spending in the Budget – will it get allocation in the extra £18 billion announced for the next Parliament?

UK head of water at engineering consultancy WSP, Ola Holmstrom expressed disappointment that flood defence funding was noticeably absent in the Budget. Holmstrom commented:

“Although we’re not surprised, we’re disappointed to see no surplus funding being put forward for flood risk management or adapting to a changing climate. In England, flooding costs an estimated £1.3—2.2 billion per year and this cost is expected to rise with climate change. On top of that 5.2 million properties are at risk of flooding and an estimated 200 homes at risk of complete loss to coastal erosion in the next 20 years.

“The current funding mechanism relies more and more on joint public and private ventures to get schemes off the ground but Government funding is still crucial and there are not enough collaborative approaches coming forward. One of the key blockers is the lack of funding to councils to maintain enough skilled staff to take a strong leadership position within this process.

“Part of the solution lies with responsible authorities and key players like WSP to educate home and business owners but there is also an immediate need for more upfront cash to protect communities from the devastation of flooding in future.”

Duncan Symonds, UK Head of Infrastructure at WSP said there was a lack of detail in the infrastructure plans announced by the Chancellor:

“It’s disappointing that the Chancellor’s recognition of infrastructure as the ‘economic arteries’ of this country wasn’t backed up by more detail on the ‘how’ and ‘when’ they will be unblocked.  £15bn extra funding is a welcome injection but it is realistically a small contribution to the £50bn needed by treasury’s own estimation, and most importantly, it will be futile if not backed by clear commitment to the programme, more detail on the delivery and support from the private market - so far not readily forthcoming.  Lord Deighton’s role in the delivery of projects is therefore very good news, as is the increased use of independent advisors.

“There also needs to be recognition that while the big red tape projects are important, the smaller, less sexy projects, like flood defences, electrification and maintenance and repair programmes are equally important and in some cases can have more immediate impact on the economy, creating jobs and building asset value.”

With flooding costing the UK enormously every year and set to increase in the future, leading consultancy WSP has expressed disappointment it was noticeably absent in the Budget.

The Civil Engineering Contractors Association (CECA) described the Budget as the ‘Jam Tomorrow’ Budget, which delays significant spending commitments until after the next election.

Commenting, CECA director of external affairs Alasdair Reisner said:

“While CECA welcomes commitments to an additional £3bn in infrastructure investment post-2014/15, the majority of this period will be after a General Election and is therefore hostage to fortune with any change in government. What we really need is activity on the ground now, and our initial view appears to suggest that there has been no new support in the short term for infrastructure construction.

“Before today’s statement, CECA had called for further details on the UK Guarantees Scheme, which was proposed as a method of unlocking major infrastructure projects. It is disappointing that the Budget contains no new details of projects that are to be funded by this method.

“CECA believes that there are thousands of smaller infrastructure projects across the country that could be ‘unlocked’, which would spur growth in the economy in the next eighteen months. By delaying significant infrastructure spending until after the next election, the Chancellor has offered a ‘jam tomorrow’ Budget, that will do little to boost growth through infrastructure provision before 2015.”