Britain lifted its ban on shale gas exploration on Thursday as it aims to become a European leader in a sector that has transformed the U.S. energy market and counter a fall in the UK's natural gas production.

The green light on shale gas fracking from Energy and Climate Change Secretary Edward Davey comes approximately a year and a half after UK authorities halted the unconventional exploration after the process set off earth tremors at one site.

"I am in principle prepared to consent to new fracking proposals for shale gas, where all other necessary permissions and consents are in place," Davey said in a ministerial statement.

America is already reaping the benefits of surging shale gas production through lower gas prices and an expected industrial revival as gas-intensive industries from petrochemicals to manufacturing consider returning to home soil given the abundance of low-cost energy.

Europe's largest gas consumer, Britain in May 2011 put a temporary stop to hydraulic fracturing or "fracking" for shale gas, a process in which water and chemicals are injected at high pressure into rock formations to retrieve trapped gas, after earth tremors were measured near a fracking site close to Blackpool.

Fracking can now resume, but explorers need to operate under tighter rules including more thorough assessments for seismic risk and installing a so-called traffic light system where operations will be automatically stopped in certain conditions.

Currently only shale gas firm Cuadrilla Resources has an exploration license for shale gas in Britain but the company has said that initial production volumes from well tests in Lancashire were unlikely to materialise before March.

"I think with this announcement that there are other companies who will apply for exploration licences," Simon Toole, DECC's head of licensing, exploration and development, said.

Approval to resume shale gas exploration had been widely expected before the end of the year as Davey said in October that he hoped to lift the ban.

Cuadrilla Resources Chief Executive Francis Egan said the decision to allow it to explore a belt of gas-filled shale one mile thick at its Lancashire site was a "turning point for the country's energy future", adding it could create jobs, generate tax revenues and enhance Britain's energy security.

"Today's decision will allow continued exploration and testing of the UK's very significant shale resources in a way that fulfils the highest environmental and community standards," Egan said.

Industry group Shale Gas Europe said that development will also make UK manufacturing more competitive as additional supply will help lower gas prices.

Cuadrilla's expected shale gas production in Lancashire could cut wholesale gas prices in Britain by 2-4% from 2021, a recent study by consultancy Poyry found.

The government announced this month that it would create a dedicated government office to simplify regulation and to offer tax breaks to the shale gas industry.

Britain's domestic natural gas reserves are dwindling, and national production has been dropping since 2004, turning the country from a net exporter into an importer of natural gas.

The British Geological Survey (BGS) estimates Britain's onshore shale reserves at 5.3 trillion cubic feet (150 billion cubic metres), which would be enough to meet Britain's gas consumption for one and a half years, although UK shale gas exploration companies such as Cuadrilla Resources have put their figures as high as 200 trillion cubic feet.

BGS is expected to upgrade its estimate of UK shale gas resources early next year.

At the time of the ban in May 2011, no other company had applied for a UK shale gas exploration licence.

UK versus US

In the United States, an oversupply in natural gas following the start of shale gas fracking has brought a drop in domestic power and gas prices.

Partly due to shale reserves, the United States is expected to become almost self-sufficient in oil and gas by 2035 and will overtake Russia in gas production by 2015 and Saudi Arabia in oil production by 2017, the International Energy Agency said in November.

Europe has also taken a far slower approach to shale exploration than the United States partly because of environmental concerns and the fact the region is more densely populated than North America, with countries such as France and Bulgaria banning exploration.

There are important differences in law which also help explain the U.S. lead in shale as underground mineral rights concerning fossil fuels there are considered the property of individual landowners who earn royalties from shale gas production whereas in Britain, for example, these belong to the crown.

The European Parliament rejected a ban on shale gas on Nov. 21 and asked for a robust regulatory regime to address environmental concerns.

The European Commission, the EU executive, is expected to come up with a framework for managing risks next year.

Davey, who heads Britain's energy ministry, said concerns raised by environmental groups regarding chemicals used in fracking could contaminate drinking water were unfounded, based on the latest available evidence.

The Oscar-nominated documentary Gasland highlighted environmental concerns over fracking by showing people setting fire to water from their taps in parts of the United States, yet no case has yet come to light in which fracking chemicals have contaminated drinking water aquifers.