UK Proposes Sovereign Wealth Fund From Fracking Proceeds

Published at 10:21AM - 18/11/14

The British government is looking at plans to use the fracking industry’s proceeds to fund a ‘wealth asset fund’ designed to benefit communities. However, the early suggestions have already been met with some controversy over whether shale gas is a desirable form of energy for the future.

Earlier in the year, David Cameron announced that the UK would be launching itself into shale production, as Britain’s North Sea gas and oil operations are rapidly ageing and the UK has once again moved into net import status for hydrocarbons in the last ten years.

Accordingly, shale gas was to be the next big thing for the government. Ministers wanted to follow the US, which has also moved heavily into shale production. However, controversy persists around the fuel in Europe because of the environmental difficulties involved in accessing it, particularly when compared to plans to further extract gas and oil from existing offshore fields using advanced technologies and continued investment in renewable energies.

The government believes that its growing shale gas industry will provide around 64,000 new jobs, with an initial focus on exploration in northern England. It is estimated that around 40,000 trillion cubic metres of the resource could exist in this part of the country.

However, building a sovereign wealth fund on the back of an industry which is yet to receive wide public backing could seem a little premature. George Osborne, the Chancellor, has said that this fund would ensure that proceeds from the industry’s taxation were not ‘squandered’ on current spending needs. A similar wealth fund was proposed in the late sixties, after the UK began to drill in the North Sea, but it never progressed to become a reality. Consequently, many feel that the industry’s revenues were ‘wasted’ and offered no real gains for future generations.

The government is suggesting that 50pc of fracking taxation proceeds are invested annually in the fund, with a maximum of 4pc being allowed for withdrawal in any one year. Additional details are yet to be thrashed out. There is a similar model in Norway, which has a Government Pension Fund Global with assets worth around 715 billion euros, which is around 200pc the size of the country’s GDP last year. The fund has ownership stakes in 1.3pc of all global companies, and the country’s finance minister has responsibility for it, including corporate governance.



Fracking, which is the process that sees gas extracted from shale, is controversial because of environmental worries. The process involves chemicals and water being pumped into the ground using high pressures to fracture the rock and release gas underground. Concerns focus around air and water pollution. Some say that these worries are exaggerated, and others still believe that the industry will not fully reach scale until 2020, and even then may not be of a sufficient scale to have a significant impact on import minimisation or gas prices.

Some people believe that the UK is well placed to benefit from the technology. Accenture Stark, for example, sees value in fracking and the idea of a wealth fund, saying that efficiencies will improve over time, along with technologies, and that overall fuel demand is starting to level off rather than grow.

Last updated on 11:13AM - 24/11/14