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8 Jan 2002 : Column 194WH

Methane Drilling (North Staffordshire)

1.30 pm

Paul Farrelly (Newcastle-under-Lyme): Thank you, Mr. Amess, for presiding over the debate. I thank my hon. Friend the Minister for attending on this first day of the parliamentary Session in the new year. I am deeply sad, as are we all, that the day is overshadowed by the tragic news received by my right hon. Friend the Chancellor. My constituents and I offer him and Sarah our sincere condolences at this painful time.

I have requested the debate because of massive opposition in north Staffordshire and Shropshire to plans by StrataGas plc to crack into virgin coal seams in precious greenbelt and special landscape areas in order to drill for coal-bed methane. StrataGas's planning application for four test wells, to be followed by up to 1,000 production wells—barbed wire, rig and concrete blots on our landscape—has been opposed by Labour-controlled Newcastle-under-Lyme and Staffordshire councils. Local parishes are against the plans and more than 1,000 letters of protest have been written. The planning issues involved will be heard at an appeal at the end of this month.

The Department of Trade and Industry, as the arbiter of national energy policy, is one of many interested parties. Coal-bed methane plans are, of course, nothing new. Licences envisaging CBM exploitation have been issued by the DTI since the start of the 1990s. One of my hon. Friend's predecessors, Tim Eggar, the Conservative Energy Minister, was effusive about CBM as long ago as 1992. StrataGas's plans could create a huge conflict between pressing local environmental and national policy issues, which needs to be resolved during this debate.

I would appreciate the Minister's advice on several issues relevant to StrataGas's controversial scheme. What is the DTI's current stance on CBM schemes in general and how does that fit into the current energy review? To what extent, in what time scale and under what conditions is CBM seen by the DTI as "needed"? What stance will the DTI take on StrataGas' plans in Staffordshire and Shropshire, and on what grounds? Will it take into account local environmental issues and public opinion in deciding whether to support the scheme, and will its decision be influenced by this debate? Given the many reservations local people have about the suitability of StrataGas, how does the Department vet licensees on an on-going basis?

Before I address those points, perhaps I could just briefly set the scene. Newcastle-under-Lyme has always been a coal-mining town, until recently when all our pits shut down. It is, however, surrounded by wonderful, unspoilt rolling Staffordshire and Shropshire countryside to the south and west and by the Staffordshire moorlands to the north. If the Minister were to visit, I am sure that he would appreciate that for himself, as did a planning inspector last year who ruled against a gas extraction scheme near Biddulph in the Staffordshire moorlands. I hope that the DTI will consider his findings carefully for their relevance to the StrataGas plans. The Minister would also find much to admire about the great efforts that Newcastle and Staffordshire councils have made to regenerate vast areas of brownfield pit and opencast sites to attract thousands of new jobs.

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StrataGas is a spin-off from Midlands Mining, the company that brutally shut down our last colliery, at Silverdale, in 1998. It also made a hash of its other pit, Annersley Bentinck in Derbyshire. More than 800 jobs were lost owing to the failings of directors and shareholders of StrataGas.

It is deeply offensive that people who failed to invest in mining coal underground now seek to get rich quick by cracking into coal seams above the ground, while creating very few jobs. It is equally offensive that, given all the possible drill sites, they are seeking to do so by spoiling precious greenbelt. The Minister may be interested to know that at a public meeting over a year ago, StrataGas managing director, Mr. Andrew Purcell, told local people, in his trademark listening style:

I am sure that the Minister will find it as galling as local people that StrataGas was implying DTI support, long before all the issues even started to be aired.

I should like to digress, but with a purpose. Mr. Purcell also told me:

I have been through the accounts. The company made pre-tax profits of £5.9 million from 1996-98—the period of its ownership. It also took out £4 million—more than was needed to invest in opening up new seams—in dividends by stripping the assets of the mine. What we hear from the company's management is not what we get. The mines and StrataGas investors learned that, and it is what local people fear if that small, financially weak company is given the go-ahead with its CBM plans.

In its prospectus, StrataGas admits that there are significant environmental considerations, such as adverse visual impact, water and methane discharge and land restoration. Locally, we have identified many more, including traffic, children's safety at the nearby Edenhurst school, effects on local wildlife, housing blight and general harm to local business and tourism in a quasi-rural area. Therefore, much of the planning inquiry will focus on whether there is a national or local need for the CBM scheme. We would like to hear the Minister's views on that, and the current position on national policy guidance.

I must admit that we are fumbling in the dark. We have not yet seen the performance and innovation unit's energy project report. However, we are aware that the report says that new energy capacity could best be delivered through energy efficiency, combined heat and power systems and renewable energy. I would be grateful if the Minister confirmed that that is the current thinking.

It is important to distinguish between coal-bed methane and coal-mine methane. The latter is tapped off to prevent its escape from mineshafts—rightly so, as it is a greenhouse gas—but coal-bed methane is present naturally in stasis in virgin, uncracked coal seams. The geologists' report and the StrataGas prospectus make it clear that the seams in the north Staffordshire coalfield lie beneath clay—the Etruria formation—which is an effective seal and stops CBM escaping. Therefore, there

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is no environmental argument for StrataGas tapping CBM in our area in order to stop it escaping as a greenhouse gas.

As for local gas needs, StrataGas, as the former owner of Silverdale, already has a coal-mine methane operation at the mine; indeed, it is its only source of revenue. The gas is supplied to local business. Over the past year, StrataGas performance—surprise, surprise—has not been up to its directors' publicly expressed expectations. Results have suffered because take-up of the company's gas supplies has fallen. That is hardly surprising in a country awash with gas in which there is fierce gas competition. In short, we feel that there is no national need for the CBM scheme, which would override local environmental, planning and public concerns. Furthermore, as the company's performance shows, there is no overriding local need for the gas.

I would also be grateful to the Minister for information about the conditions that attach to the granting of exploration licences and how the DTI monitors adherence to them. The DTI granted licences to Midlands Mining, the parent company of StrataGas, in 1998. They have since been passed on to StrataGas. The company itself made it clear that the conditions laid down by the DTI for the transfer of the licences included raising a minimum of £4 million on its flotation and admission to the City's OFEX market, which happened in December 2000. StrataGas in fact raised £4.9 million but fell well short of its target of £5.6 million. It has since been consistently over-optimistic to its investors about the timetable for the CBM project, which is now a year behind because of huge local opposition.

The company has not revealed its current cash position but, from the most recent accounts and likely cash burn, we estimate that it is likely to be down to its last £2 million. That is about half the amount it originally said was needed to develop all the test wells. Therefore, the Minister will appreciate local fears that the company is too weak financially, not only to carry through its pilot scheme but to satisfy us that it could withstand any accidents caused by the new, largely untried technology and restore sites properly. Given the company's performance to date and lack of assets, there are concerns about its ability to raise further money in order to do so. Therefore, we would be grateful if the Minister would investigate whether StrataGas is still complying with its licence conditions, including any timetables set for initial well drilling.

A year ago, I raised concerns about disclosure in the StrataGas prospectus with the Financial Services Authority, which subsequently contacted StrataGas advisers, Matrix Securities. Yesterday, I wrote again to the FSA asking it to investigate statements made since by the company's chairman, Mr. Francis Gugen, about its performance, which appear to be at odds with its prospectus.

What you see and hear from StrataGas is not what you get. The public in Staffordshire and Shropshire are concerned because there is no overriding need for the CBM scheme and StrataGas is a wholly unsuitable company to pursue it.

1.39 pm

Mr. William Cash (Stone): I congratulate the hon. Member for Newcastle-under-Lyme (Paul Farrelly), who is my constituency neighbour, on securing the

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debate. I support him in his opposition to the coal-bed methane proposals. As Member of Parliament for Stone, I have been actively involved in the issue for an extended period, and I am deeply opposed to the proposals. They raise the most serious problems for the environment in my constituency, especially in and around Whitmore, and, as the hon. Gentleman said, they are vitiated by the grave uncertainties of the status of StrataGas.

I should like the Minister to explain how the Secretary of State for the Department for Transport, Local Government and the Regions, having granted the licences in his former capacity as Secretary of State for Trade and Industry, can now call in the application? How can he reconcile his quasi-judicial functions in his present capacity in respect of granting the licences with his previous granting of those licences? It creates a very difficult situation, which is made worse by the fact that the former Minister of State for Energy, the hon. Member for Leeds, West (Mr. Battle), has already stated on the Floor of the House that the Government regard coal methane projects as in the national interest. Those inconsistencies raise serious doubts about the efficacy of the process, even before the inquiry has begun.

The pilot proposals for four wells are clearly intended to extend to 200 and would cause the gravest damage to the communities and the environment in my constituency and that of the hon. Member for Newcastle-under-Lyme.

Ms Joan Walley (Stoke-on-Trent, North): Does the hon. Gentleman agree that there is widespread fear throughout north Staffordshire about the implications of the incremental planning applications?

Mr. Cash : I most certainly endorse what the hon. Lady says. The matter is also of concern to my hon. Friend the Member for North Shropshire (Mr. Paterson), because the proposal extends to Woore, which is in his constituency. It affects a wide swathe of our constituencies and it is important that the Minister accepts that our constituents are gravely concerned about the issue and will fight hard to prevent implementation.

1.42 pm

The Minister for Industry and Energy (Mr. Brian Wilson) : I congratulate my hon. Friend the Member for Newcastle-under-Lyme (Paul Farrelly) on securing the debate and on the manner in which he presented his case. Judging from what he said and from the interventions of hon. Members representing constituencies in the same part of the country, I acknowledge that the issue gives rise to strong local feelings and is therefore a suitable subject for debate.

The debate provides an opportunity to discuss some of the issues involved as they relate to energy policy, the possible role of coal-bed methane energy generation and local issues. My hon. Friend is active and successful in seeking the regeneration of industrial sites in the Staffordshire area with a view to ensuring an inflow of investment. His anxieties about the proposal for investment and coal-bed methane drilling in and around his constituency stem from genuine feelings on the matter and reflect the views of many of his constituents.

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As my hon. Friend said, a planning appeal is under way. I am sure that he and others present recognise that that significantly constrains what I can say about some aspects of the application. I can, however, describe the regulatory framework that underpins the United Kingdom's petroleum licensing system and the activities that take place under it, and it would be helpful to do so. I hope to show that a robust regulatory framework controls those activities and to set my hon. Friend's mind at rest on some of the points he made.

Companies that want to search and bore for and get petroleum in Great Britain or on the United Kingdom continental shelf need under the Petroleum Act 1998 to hold an appropriate licence, which is issued by the Secretary of State for Trade and Industry. For the purposes of the Act, petroleum includes coal-bed methane and mines vent gas.

The principal licence under which companies may explore for and exploit those coal-mine gases in Great Britain is the petroleum exploration and development licence, which grants the holder exclusive rights over an area specified in the licence. The Secretary of State invites applications for such licences in regular licensing rounds. To allay the concerns that have been expressed, I stress that those licences confer no right of access to land, save with the landowner's permission, and do not remove the need to comply with the requirements of the local planning authority, the Health and Safety Executive and the Environment Agency.

Applications for petroleum exploration and development licences are made by companies, on their own or in partnership, and are assessed against two key criteria: the financial and technical capabilities of the applicants in relation to any proposed work under the licence, and the way in which any exploration or development of petroleum is to be carried forward. Unless companies can pass the financial and technical thresholds, they will not be considered eligible for a licence award. StrataGas, the company that holds the licence for the area that my hon. Friend mentioned, holds a number of those licences, having been thoroughly assessed against the criteria. Currently, we have no grounds on which to revisit the criteria, but I assure my hon. Friend that we shall consider carefully what he said.

The award of a licence is the beginning of the process. Once a licence is granted, any activities carried out under it are subject to a range of measures to safeguard particular interests. Before any exploration or development drilling can take place, the Secretary of State must grant consent. Our objective in considering applications for consent is to ensure that all economic petroleum in Great Britain and on the UK continental shelf is produced in an efficient, responsible and timely manner.

The team of geologists and engineers in the oil and gas directorate of the Department of Trade and Industry will seek to ensure that the proposed project is sufficient to maximise the recovery of the target gas, but is not gold-plated as regards the number of wells drilled or processing plant provided. I am now speaking generally about applications rather than in any way prejudging the one under discussion.

In addition, the licence holder must obtain the relevant consent from the appropriate planning authority. The authority will consider the proposed

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project's impact on a variety of issues, including the environment, on which it takes advice from the Environment Agency and the relevant statutory nature conservation bodies. If approved, the activity will be subject to normal environmental controls.

Mr. Cash : The Minister has said that when a licence is granted, account will have been taken of environmental questions, following discussions with the Environment Agency. I return to a point that I made in my short speech. Given that the functions of the Secretary of State for Transport, Local Government and the Regions—the former Trade and Industry Secretary—are indivisible constitutionally, how will it be possible to achieve fairness and justice on such questions? The licensing arrangements made by him in his former post must be dealt with in the making of decisions regarding the environment—by the Secretary of State at the DTLR.

Mr. Wilson : I did not say that licensing was subject to environmental consultation; I said that licensing was then subject to normal planning procedures, and that the planning authority was obliged to consult the Environment Agency and other relevant environmental bodies.

To return to the hon. Gentleman's point about the former Secretary of State at the DTI now being Secretary of State at the Department for Transport, Local Government and the Regions, the office is charged with such responsibilities, not the individual. It is pretty naive to suggest that individuals move around making decisions in their own name and that those decisions are thereby invalidated, and I do not think that the hon. Gentleman would want to advance that as a substantial part of his case.

The final stage that a licence holder has to surmount is that the Health and Safety Executive must be satisfied that licensees have assessed risks to persons and have demonstrated that adequate measures have been taken to ensure the health and safety of people who could be affected by the proposed project.

Taken together, the measures mean that the UK's long-established onshore oil and gas industry is tightly regulated at a number of different levels, all of which aim to ensure that operations are carried out efficiently and safely and with minimum disruption to interested parties and the environment. The licensing process, the planning process, environmental safeguards and the health and safety check must all be gone through before matters can proceed.

The system has a track record of ensuring that hydrocarbon extraction co-exists harmoniously in the countryside without damage to the community. Significant oil production in Nottinghamshire, Sussex, Hampshire and Dorset has been under way for many decades with very little disruption to any of the local stakeholders. It is not widely recognised that one of the largest oilfields in the UK—the Wytch Farm development—has successfully and unobtrusively produced from under Poole bay near Bournemouth for more than 20 years. I am in no way prejudging issues that are subject to planning appeal, but the system has

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safeguards to deal with any project that is environmentally irresponsible or is not undertaken by a company with a strong financial and technical base.

I turn to the questions asked by my hon. Friend the Member for Newcastle-under-Lyme about our general approach to energy supply and the potential place of coal-bed methane within it. The overall aim of our energy policy is to work to ensure competitive energy markets while achieving safe, secure and sustainable energy supplies. In support of that, our objectives are to maintain the security and diversity of the UK's energy sources and to contribute to meeting the UK's environmental emissions targets. Potentially, coal-bed methane has a part to play in achieving both those objectives.

Local environmental issues for landward projects are taken into account during the planning process, but we need to consider the impact that projects, especially those in the energy sector, are likely to have on the national or international scene. The Government are committed to taking action to tackle climate change—indeed, the UK is one of the few countries to have published a strategy for doing so. Our current energy review is aimed specifically at determining how we can best meet the twin obligations of securing supply from diverse sources and meeting our Kyoto targets.

In that context, the development of coal-bed methane as a fuel, albeit on a small scale, will supplant the use of more carbon dioxide-aggressive resources such as oil and coal. Coal-bed methane is a very pure form of natural gas which burns more efficiently than other hydrocarbon resources with low CO2 emissions. Moreover, it is essentially a local fuel, so the CO2 transportation burden is much lower than that of oil or, in most cases, coal.

The Government's policy is to encourage the development of cleaner coal technologies for application in both home and overseas markets. In 1999, a review of energy sources was carried out, and during the consultation phase coal-bed methane was identified as one of the alternative ways of obtaining energy from coal without mining. As I keep emphasising, I am talking in general terms, rather than dealing with a specific application. I shall not accept the invitation to rule out coal-bed methane as an energy source in general, for the reasons that I have stated.

In the context of the UK's overall energy supply, the potential importance of coal-bed methane production has not been tested. My hon. Friend asked about its significance in the energy mix, and the simple fact is that its current significance is small, but that does not prejudge its potential significance. There is only one coal-bed methane field in production in the United Kingdom, which is at Airth in Stirlingshire. Estimates of the national coal-bed methane resource vary widely, and it is too early to put a figure on the level of production that could be expected. The UK's coal seams could, however, provide a considerable amount of methane and it is important to test that resource. It is worth noting that coal-bed methane has been successfully developed in the United States where it provides a small but significant input to that country's energy needs.

In the absence of a clear estimate of the size of the coal-bed methane resource, one can look to another area of coal-gas exploitation that has been

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demonstrated to work in Great Britain: the capture of the methane that is continually released from abandoned mineshafts. There are already several such projects up and running, including one in north Staffordshire at the Silverdale pit to which my hon. Friend referred, and there are many more proposals to take such activity forward. In some cases, the projects combine gas exploitation with on-site electricity generation or direct feed into the premises of energy users. The success of those commercial projects has demonstrated to both the energy industry and the financial markets that there is potential in small-scale CBM schemes.

My hon. Friend raised the issue of an appeal by StrataGas against the local authority's decision to turn down its application to drill several wells to test coal-bed methane potential in his constituency and the surrounding area. As he acknowledged, a public inquiry will convene later this month before an independent inspector, which means that the appeal is on-going. The inspector will submit a report to my right hon. Friend, the Secretary of State for Transport, Local Government and the Regions, who will decide whether the appeal is to be upheld or rejected. Officials in my Department have made a submission to the inquiry, as have many other interested parties. Although I do not want to impinge on my right hon. Friend's responsibilities—I am talking in general terms rather than specifically considering the application—I shall re-state in summary the key points from that submission, which reflect the general policy points that I have made.

The UK's energy self-sufficiency will decline as, over coming years, we become increasingly dependent on imports of fuel, particularly gas. The Department's oil and gas directorate is anxious to ensure that all economic petroleum in Great Britain and on the UK continental shelf is exploited in an efficient, responsible and timely manner.

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Britain's coal reserves offer considerable potential for the development of a viable coal-bed methane industry. However, not all coal seams are identical: they need different techniques to make the gas flow. Although useful, lessons learned from the United States do not provide all the information necessary to underpin technical decisions about exploitation in the UK.

Again, I make my next point as a general statement of fact rather than an opinion on the specific application: the gassy coals of north Staffordshire make it a promising area for the production of mines-related methane. There are seven extant petroleum licences covering acreage in the northern half of Staffordshire, each of which is targeting coal-mine methane, either through the exploitation of vent gas—Silverdale is one of those projects—or through accessing gas trapped in unworked coal seams as is proposed by StrataGas.

Paul Farrelly : I am grateful for my hon. Friend's information and his assurances that my remarks about StrataGas will be carefully considered. I have not seen the DTI's submission to the inquiry, but from his summary I take it that the submission is a statement of general policy and cannot be taken as backing a specific scheme against local concerns, because that is a matter for the planning inquiry. I take it that it would therefore be wrong for any company to imply that it had specific support from the DTI for a specific scheme.

Mr. Wilson : We have 60 seconds of the debate left, and I do not want to waste them by playing with words. If the DTI has offered a licence, that represents support within the licensing context. I am trying to distinguish between the licensing process and the planning process. I have set out, as best I can, the sequence of events that mean that licensing does not imply approval under the planning process—

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