Design of fiscal system for exploration of shale gas: how is it different from conventional oil and gas?

Abstract

Due to the success of shale gas developments observed in the US and lack of domestic legislation specifically for unconventional gas projects in the countries, an arising question is whether replicating the fiscal terms conceptually designed for conventional oil and gas exploration would be appropriate for the exploitation of unconventional gas deposits. To address this question this article compares shale gas projects with conventional gas projects, aiming to assess if they have similar enough structures to be suitably covered by the same fiscal regime or if the legislation needs to address issues that are either different or behave in a particular way in unconventional gas projects. The analysis indicated that gas projects – both from conventional or unconventional sources – have a set of singularities that make their economic appraisal remarkably different from oil projects. Put simply, gas projects have different business structures that leads to less margin of rent to be captured and a particular flow of revenues that should be taken into consideration when designing a fiscal system oriented to promote investments. It showed that investments in unconventional gas projects, besides having the particularities shared with conventional gas ventures, has its own singularities that are relevant enough to demand different kind of incentives and as a consequence a different treatment from fiscal policy makers.