Shale gas reserves in the north of England could supply the UK's energy needs for years to come, scientists have declared, as warnings emerge that the country could face an electricity blackout within two years because of supply shortages.

Following months of investigation, the British Geological Survey reported that 1,300 trillion cubic feet of gas could be held in underground rock in north Wales, the northwest of England and the Midlands.

The latest figures – over twice the previous highest estimate – have encouraged ministers to press for exploration, despite fears in Lancashire and elsewhere that drilling will contaminate water and threaten earthquakes.

Next month, new simplified planning rules and proposed tax breaks for exploration in England will be published, along with details of the benefits that communities can expect to receive directly if drilling goes ahead.

Stored gas
Known as fracking, water, sand and chemicals are injected at ultra-high pressure into rock formations, which break apart and allow gas stored inside for hundreds of thousands of years to seep out.

Shale gas has revolutionised the US energy market, cutting gas imports by 55 per cent. By 2020, the US is expected to be a net gas exporter. Last year, it was credited with creating 600,000 jobs there, contributing $20 billion in taxes and cutting CO2 emissions.

Recently, the International Energy Agency reported that the US will overtake Russia as the world's biggest gas producer by 2015, and Saudi Arabia as the world's biggest oil producer by about 2020, which could have global implications.

Unwelcome
But there is less of a welcome for fracking in the UK. Fracking in the US largely takes place in remote rural areas, and landowners can get hundreds of thousands of dollars in fees. In the UK, energy resources are owned by the crown.

Exploratory drilling in Lancashire by one fracking company, Caudrilla, was suspended after it caused minor earth tremors, though energy secretary Ed Davey has since given permission for the work to resume, subject to safeguards.

A one-time opponent of fracking, the Liberal Democrats politician has softened his attitude in recent months, partly because of sustained pressure from the chancellor of the exchequer, George Osborne, who is a major supporter.

Striking a note of caution, the Department of Energy and Climate Change said the percentage of the shale gas found that will be recoverable would be “substantially lower because of technical and commercial limitations on the level of extraction”.

“The report published today will give industry and regulators an indication of how best to plan future exploratory drilling, so they can determine how much of the gas would be able to be commercially recovered,” it said.

Tax deductible
Under next month's changes, exploration companies will pay 30 per cent tax, rather than 62 per cent, on fracked gas profits. In addition, a much greater share of the opening costs will be tax deductible.

Permits will be promised within 13 weeks, though, “in some cases, this could be as little as six”.

Communities will be promised a £100,000 one-off payment for each well, along with 1 per cent of all revenues – though some communities believe this money will be paid to councils, rather than to individual households.

Meanwhile, energy regulator Ofgem warned that Britain is facing the serious threat of electricity blackouts from 2015 because of supply shortages, which led ministers to publish plans to encourage factories to close down in the evening during winter.

The gap between electricity supply and demand could fall to just 2 per cent by 2015, Ofgem cautioned, even before a number of polluting, ageing coal-fired power stations are due to close under the UK’s climate change deal with EU partners.

The situation has been further complicated because coal-fired stations are being used more often because coal prices are low, while gas stations have become uncompetitive, though all of this is raising the UK’s CO2 emissions.

The British government yesterday announced plans to spur £110 billion worth of energy investment by 2020, along with setting minimum guaranteed prices for renewable energy companies.