The decision to uphold the ban on hydraulic fracturing (‘fracking’) in France by the constitutional court, preventing further exploration activities for shale gas reserves, is unlikely to change in the near future, despite the warnings of advocates that France will miss out on a significant source of cheap energy, says a new report from research and consulting firm GlobalData.
According to the company’s latest report, France Upstream Fiscal Regulatory Report, the ban on fracking, which was originally put in place in 2011, is the most important regulatory change to have occurred in France in recent years, with previous years seeing very few significant alterations.
While fracking proponents maintain that France may lose out on an important source of cheap energy as a result, GlobalData believes that such an argument is unlikely to gain much traction in French politics. Natural gas is deemed a relatively unimportant energy source in the country, representing just 15% of its primary energy mix.
Furthermore, polls suggest that the majority of the French public is in support of the ban, and the government is not therefore expected to permit the activity in the face of such opposition.
Matthew Ingham, GlobalData’s Lead Analyst covering Upstream Oil & Gas in Europe, says: “The fracking ban was originally put in place by Nicolas Sarkozy’s center-right government, following fears surrounding the environmental impact of the practice. Now that Francois Hollande’s socialist government has maintained the stance, the chances of it being relinquished are low.
“France is thought to have the largest technically recoverable shale resources in Western Europe. While the domestic requirement for gas is not great, the country is losing out on much-needed tax and export revenues.”
While the specific fiscal terms for France’s upstream oil and gas activities have not been altered substantially in recent years, changes to the corporate tax burden may be an important determinant of investment attractiveness.
Ingham continues: “The 5% temporary surtax, which was introduced as part of France’s deficit-reduction plan, has proved a major addition to the tax burden. Now, the draft 2014 budget is expected to be amended, replacing the tax on gross operating surplus that was originally included in the budget, with provisions to increase the surtax to 10.7%. A total combined corporate tax rate of nearly 40% is likely to damage the attractiveness of an already weak sector, such as oil and gas.”
A new mining code is expected to undergo debate by legislators in early 2014. While it is not anticipated that this will lead to any significant fiscal changes, the draft text will include more stringent regulation.
In the meantime, the ban on fracking within France is expected to remain in place for the foreseeable future, precluding shale gas exploration.