UK shale sector could face tighter regulations
Regulations have stalled the industry, but companies are trying to prove hydraulic fracturing's worth
Explorers in the UK’s nascent shale-gas sector face the prospect of tighter country-wide regulation, as well as a moratorium on hydraulic fracturing in Scotland, moves which will, at the very least, further delay the industry’s long-awaited take-off.
No shale-gas wells have been spudded in the UK since drilling by Cuadrilla Resources in Lancashire, northwest England, triggered small earth tremors in 2011. Since then, industry leaders Cuadrilla, iGas and Ineos have been expanding their acreage positions, carrying out preliminary studies and trying to persuade national and local authorities, and the public, that fracturing is safe and that efforts to exploit the UK’s shale-gas reserves would benefit the country’s long-term energy security.
The British Geological Survey has estimated that northwest England’s Bowland shale and surrounding areas could hold a shale-gas resource totalling as much as 1,300 trillion cubic feet. Explorers estimate they could extract about 10% of this.
In mid-January, Cuadrilla’s plans received a boost when the UK Environment Agency gave it the go ahead to resume drilling on Bowland shale licences in Lancashire. But, on 23 January, the firm suffered a setback when local planning officers in recommended refusing Cuadrilla’s two shale drilling applications in the county, based on concerns over increased noise and traffic. A final decision on the applications, which had been due by 29 January, has now been delayed by eight weeks to give Cuadrilla time to address these issues.
The situation threatened to get much worse for the industry in the run up to a 26 January vote on a parliamentary bill setting terms for the sector’s future. A cross-party group of MPs tried to amend the Infrastructure Bill to include a country-wide moratorium on hydraulic fracturing. The move was backed by a report from the parliamentary Environmental Audit Committee (EAC), which also called for ban.
The attempt ultimately failed, but the Conservative-led coalition government was pushed into accepting a 13-point plan for tougher regulations on hydraulic fracturing, proposed by the opposition Labour party, in order to keep the sector’s prospects alive.
These changes would prohibit fracturing in national parks, areas of outstanding natural beauty and also areas where drinking water is collected, effectively preventing drilling across a large swathe of the country’s shale gas plays. The measures look likely not only to limit where exploration takes place, but also slow it down – one proposed regulation would require any drilling to be preceded by a year of background monitoring. It remains to be seen precisely how these new measures will be incorporated into future versions of the Infrastructure Bill.
Then, on 28 January, the Scottish government said fracturing would be banned in Scotland until further studies were carried out. The Scottish government is due to gain full control over shale development in Scotland as part of a package of enhance devolved powers set to come into effect after the UK general election on 7 May.
The most significant affect of this re-ignition of the shale-gas debate may prove to be a change in line of attack by opposition groups, which may also have wider implications for the UK oil and gas industry as a whole.
Until now, the debate over shale-gas development has tended to focus on the environmental damage to the immediate area of exploration pads, encompassing concerns over possible gas leakage, water supply contamination, earthquakes and increased traffic flows on rural roads. However, the EAC’s opposition has pushed climate change considerations to the fore.
A major conclusion of the committee’s report, published in late January, is that by the time any large-scale shale-gas production takes place – at least 10-15 years away, the EAC says – the UK will only be able to burn a small percentage of the gas produced if it is to comply with the tighter EU emissions regime expected to be in place by then.
The report says meeting climate change obligations should be the principal objective of UK energy policy, rather than maximising the recovery of domestic oil and gas, which has tended to be the de facto policy of successive governments, including the current Conservative-led coalition.
MPs opposed to hydraulic fracturing have also launched an assault on the economics of shale-gas extraction, suggesting that the steep slide in oil prices now make the sector’s economics - in some cases, already marginal - less viable. They also say more work needs to be done on improving the transparency of the industry and its regulatory environment before further exploration is permitted.
The UK gas industry has reacted furiously, claiming opposition to hydraulic fracturing is based on bad science and ignores the long-term economic benefits the UK will reap by replacing gas imports with domestic supply.
Oil & Gas UK (OGUK), an industry organisation, has expressed concern that opposition to shale gas development on climate change grounds could have an impact on the North Sea oil and gas industry, which is already under pressure from falling levels of investment due to the low oil price.
Tom Crotty, director of Ineos, which wants to become the UK’s largest shale gas operator, told local media: “There is absolutely nothing inconsistent between greening the economy and the development of our indigenous shale gas.”
He said gas would remain and important back-up fuel for renewable energy for decades to come, adding that using domestic reserves would result in lower carbon emissions than using liquefied natural gas imports.
Crotty said drilling needed to start soon to establish whether or not UK shale gas reserves were viable, and said that, while it would take some years for commercial shale gas production to start, it would be unlikely to take the 10-15 years suggested by the EAC.
Ineos has particular reason to be unhappy with the Scottish government’s hydraulic fracturing ban, as it owns the UK’s largest petrochemicals complex at Grangemouth in Scotland and plans to use shale gas from nearby prospective acreage in central Scotland as feedstock for that plant.
The shale gas industry elsewhere in the UK can at least count on strong support of the current government – in a leaked letter, published by the Guardian newspaper, chancellor George Osborne has urged cabinet colleagues to ensure rapid progress on reducing drilling delays.
Meanwhile, despite its reservations, the opposition Labour party is not blocking government efforts to change trespass laws to make it easier to drill horizontal wells under private land.