UK shale gas resources may be far greater than previously thought, a report for the government says.

The British Geological Survey was asked to estimate how much gas is trapped in rocks beneath Lancashire and Yorkshire.

It said there could be 1,300 trillion cubic feet at one site alone, but it is unclear how much could be extracted.

Ministers are set to announce financial benefits for communities where fracking – the controversial extraction technique – takes place.

BBC industry correspondent John Moylan says the government is also likely to announce plans for tax incentives to encourage investment in shale gas, and a streamlining of the process to award drilling permits.

He describes the BGS survey as potentially a “landmark” moment.

The exploitation of shale gas and oil revolutionised the energy industry in the US, although there are questions over whether the same thing can be repeated in the UK.

Analysts say the shale geology of the UK is complex and the costs of drilling are likely to be much higher than in North America.

‘Exploit gas’

Critics also argue that the process of fracking can cause earth tremors and pollute water supplies, and that shale gas wells could blight the countryside and affect house prices.

They want investment in green energy.

The report for the government comes as energy regulator Ofgem is expected to warn that the risks of power blackouts has increased because excess capacity in the power industry has fallen in the UK.

In his Spending Review on Wednesday, Chancellor George Osborne said the government would “make the tax and planning changes which will put Britain at the forefront of exploiting shale gas”.

The BBC understands that communities that host fracking sites, which involve pumping water, chemicals and sand at high pressure into rock to release shale gas, will receive 1% of any revenues generated by the well over its lifetime.

The package is expected to be set out by the Department of Energy and Climate Change later.

Our correspondent says gas flow rates from “fracked” wells tend to deteriorate significantly over their lifetime, so it is likely that much of the cash communities would receive would be in the early years of the well’s operation.

The communities would decide how any cash was spent.

Price worries

Meanwhile, in an updated assessment of the UK’s electricity market, Ofgem is set to issue another warning about possible power blackouts in 2015.

The watchdog has twice warned in recent months that the amount of spare power is shrinking, partly due to some gas generators being taken out of service.

Centrica has already withdrawn two of its gas plants from operation. In April, SSE confirmed that it too would mothball gas plants and put off investments in new ones.

Adam Scorer, of the lobby group Consumer Futures, said: “Projections of ever-tighter capacity margins understandably raise fears of higher electricity prices.

“Government and regulator need to agree on the most realistic capacity scenarios, the least-cost ways of reducing demand and, where necessary, of incentivising new generation capacity.”