Shale Gas - Energy and Climate Change Contents


Supplementary memorandum submitted by the Department of Energy and Climate Change (SG 01b)

1.  Who was asked to submit evidence to DECC's inquiry into unconventional gas and how were these organisations chosen? Was the Environment Agency asked to contribute, if not, why not?

Last year DECC contacted the following organisations and experts:

  • BG Group;
  • BP plc;
  • Centrica plc;
  • Chatham House;
  • Douglas Westwood Ltd;
  • Exxon Mobil Corporation;
  • International Energy Agency;
  • IHS Cambridge Energy Research Associates;
  • Oxford Institute for Energy Studies;
  • Shell U.K. Ltd;
  • Dr Pierre Noel, Electricity Policy Research Group, University of Cambridge; and
  • Professor Dieter Helm, University of Oxford.

The list was put together by DECC and FCO officials, and included companies with an international view of the prospects of unconventional gas production and experts, that it was thought at that time would be able to provide useful information.

The focus of the call for evidence was relatively tight—for example, it did not focus on specific environmental, health or safety issues regarding production in the UK (considerations in relation to that have been made within the DECC/HSE/EA/SEPA group referred to in Q3 below).

Given the scope of the call for evidence—that is, on the prospects for global production of unconventional gas—it was judged that the information we hoped to receive (together with other sources of information eg in the public domain, attending stakeholder events, etc) would be sufficient to enhance DECC's understanding in this area. The call for evidence was routine and just one part of DECC's ongoing work on unconventional gas. It was not intended to be of itself a forensic or comprehensive investigation around all aspects of unconventional gas. We continue to welcome further information on the matter, particularly as this an evolving area.

In the interests of transparency, having undertaken the call for evidence DECC was proactive in requesting where submissions could be published; where permission was received they were published on DECC's website[4] on 25 February 2011. Charles Hendry wrote to the Committee's Chairman on 28 February to draw attention to the call for evidence and the published contributions to ensure that the Committee was aware of the work.

In view of the international scope of this call for evidence DECC did not consult the Environment Agency, whose role in relation to unconventional gas extraction is ensuring appropriate regulatory controls aimed at preventing pollution and ensuring high standards of environmental protection are in place within England and Wales. If DECC's call for evidence had focused on a wider set of issues relating to unconventional gas, then it would have been appropriate to approach a wider group of individuals or organisations.

The Committee also asked why Cuadrilla were not asked to provide evidence. As indicated, the DECC consultation was on the global role of unconventional gas and was limited to the biggest multi-national companies with a global view. Cuadrilla do not fall into that category. However as far as UK shale gas activity is concerned DECC has of course had a number of meetings with Cuadrilla.

2.  How many responses to the inquiry did DECC receive in total and how will these feed into DECC's policy on unconventional gas?

Ten of the organisations and experts approached provided some kind of response. Some of these responses answered the specific questions put to them, some responses provided reports relating to unconventional gas (many of which were already in the public domain) and others provided comments or contextual information.

The information collected is intended to be used as contextual information for policy making. For example, had responses indicated that it was likely that a rapid development of large volumes of shale gas would be produced in Europe then this would have had implications for European gas prices, European energy security and other impacts which in turn might have had implications for the UK.

3.  In evidence to the Committee, Simon Toole referred to an implementation group of DECC, HSE and EA officials which met to discuss unconventional gas issues. How often does this group meet and what are the job titles of the officials attending. Does this group have contacts with equivalent regulatory bodies in the US and Europe?

Officials from DECC, HSE, EA & SEPA have been meeting (via telephone conference) fairly regularly since 11 February. There have been three strategy meetings and three meetings at working level. Officials who have attended some or all of these sessions are as follows:
DECC:Director—Licensing, Exploration & Development
Deputy Director Licensing Strategy
Head of Oil and Gas Licensing
Senior Geoscientist
Head, Environmental Management Team
Environmental Manager
Manager, LED Briefing Co-ordination
HSE:Head, Offshore and Diving Policy
Defra:WFD implementation
Water Quality
Water Availability & Quality
Water Availability & Quality
Environment Agency:Head of Waste & Resource Management
Area Environment Manager—Northwest
Groundwater Manager
Climate Change Advisor
Senior Government Relations Advisor
Climate Change Advisor
Parliamentary Co-ordination
SEPA:Senior Policy Officer—National Operations Water Unit

In addition to these meetings, there continues to be an ongoing dialogue amongst these regulatory bodies via e-mail and telephone regarding specific issues and activities as they arise. Some of these officials, from Environment Agency, have had contact with counterparts in the EU and US. For example the EA has had informal discussions with the US EPA to understand the statutory framework in place in the US, and to establish key points of contact if required in the future.

4.  Does UK oil and gas legislation need to specifically refer to unconventional gas or will existing legislation provide the appropriate regulatory framework to deal with the potential hazards?

Government does not believe there is a requirement for UK oil and gas legislation to specifically refer to unconventional gas. The technologies being used for shale gas and coal bed methane are not new. However more widespread use of hydraulic fracturing does potentially pose additional challenges for regulators, local authorities, water providers and waste management organisations. For this reason DECC has an ongoing dialogue with Defra, HSE, EA, and SEPA to ensure that exploration and drilling operations are know by all relevant parties and ensure a joined up approach.

We believe that the UK has a robust regime which is fit for purpose and will ensure that shale gas and coalbed methane operations are carried out in a safe and environmentally sound manner. We are still considering whether or not there is a need to amend any regulatory provisions to give us the same level of assurance about Underground Coal Gasification.

There are a range of regulatory requirements. It is the responsibility of each particular company to identify and comply with all legal and regulatory provisions that apply to the activities they proposes. It is not possible to list every such provision that might arise, but in a typical case of a company seeking to explore for or produce hydrocarbons onshore in the UK, all the following bodies and provisions will have to be considered:

  • Department of Energy and Climate Change, which administers a licensing system under the Petroleum Act 1998, and which authorises drilling, appraisal and development activities case by case;
  • The planning authority (generally the local authority), from which the company has to obtain planning permission;
  • The relevant environmental agency (in England and Wales, the Environment Agency, and in Scotland, the Scottish Environment Protection Agency) which regulates discharges to the environment, and is a statutory consultee in the planning process;
  • The Health and Safety Executive which regulates the process safety aspects of the activities, which contributes to mitigating the risk of environmental risks; and
  • The Coal Authority (in the case of coalbed methane) which regulates access to the nation's coal.

5.  How is DECC ensuring that the UK learns from the regulatory mistakes of the US in relation to shale gas exploration over the last decade?

When looking at shale gas prospectivity and development, we think it would be wrong to draw any strong parallel with the US for a number of reasons:

Prospectivity

Different shale plays have different prospectivity and production characteristics, so we cannot assume that UK shales will perform in the same way as some of those large producing shales in the US. Shale gas activity is only just starting here, whereas there is a well established industry in the US—with around 30,000 producing shale gas wells. With so little known as yet about UK prospectivity, it seems premature to expect any sudden surge of activity. But if it is commercially proven here, we could well imagine a steady increase in shale gas operations.

Land / Population

Land issues and population density are very different here from those in the US, with its large tracts of sparsely-inhabited land. Constraints on land access in the UK require our industry to be smarter in its planning; drilling multiple wells from one pad can be one part of a solution.

Also, the rights to oil and gas remain with landowners in the US, whereas in the UK they are granted to companies by DECC in the form of Petroleum Act licences. The UK approach allows DECC to assess the basic competence of an operator, so that there is little or no risk in the UK of damage caused by small scale amateur operations.

In the UK, the issue of a Petroleum Act licence does not remove landowner rights over access to the land, so the onus is on the licensee to negotiate access with the landowner. A recent legal case before the Supreme Court provided clarification of the issue of subterranean access. Where a landowner unreasonably refuses to agree access, where he demands unreasonable terms, or where the fragmentation of landownership means that a licensee cannot agree terms with everyone, the Mines (Working Facilities and Support) Act 1966 as applied and modified by the Petroleum Act 1998 provides a method by which a licensee can seek ancillary rights through the courts, though this is far from a common procedure.

We are aware of the reports of shale gas polluting water sources in the US, and understand investigations are going on at various levels over there to determine whether this is the case. We will of course look at all information as it becomes available, but on the evidence available and in light of thorough discussion with Environment Agency, the Scottish Environmental Protection Agency and others, Government is satisfied that our regulation is robust and there is no justification for an indefinite delay while we wait for all overseas investigations to complete.

Regulation

We have to be cautious in talking about US regulation as it does seem to be the case that regulatory responsibilities are much more widely distributed in the States.

In the UK regulation is well-designed with clear lines of responsibility among several different bodies including DECC, the HSE, the respective Environment Agency, and Local Planning Authority.

The Environment Agency has had informal discussions with the US EPA to understand the statutory framework in place in the US, and to establish key points of contact if required in the future.

In the US there do seem to be differing approaches according to where you are. For example operators would not be able in the UK to keep waste water in open pits if there is risk of overflow, or dispose of waste products without them being sent to a suitable waste treatment plant. Cuadrilla for example is storing all of its water in metal storage tanks and any waste product will be taken off site to a treatment plant.

Well Casing

We gather that there have been questions raised relating to well casings on some US shale wells. The integrity of the well casing is considered key in relation to protecting any potential contamination to the water aquifer.

We do not believe that such a situation would occur in the UK—there is an obligation on the operator to ensure that the well design is safe and fit for purpose and this is checked very carefully by the Health and Safety Executive.

In Cuadrilla's operations multiple layers of protective steel casing are being placed around the drill shaft, which in turn are surrounded by cement. This casing can reach depths of at least 10,000 feet. For the wells in the Bowland Basin, near Blackpool, the intermediate casing extends to over 1,000 feet below the level of the aquifer, with the sole aim of ensuring environmental protection.

We will be closely monitoring any results coming out of the US investigations so that we can learn any lessons which go beyond our current regulatory / industry practices and which might be applicable to UK shale gas operations.

6.  What will DECC do to ensure shale gas exploration does not de-incentivise investment in lower carbon technologies?

As UK shale gas has not yet been commercially proven analysis of the potential effects of extraction on UK energy policy objectives and development of renewable energy would be subject to large uncertainties.

However, in general terms, if commercially extractable, we would expect the main effect of shale gas to be to reduce our dependence on imported gas, rather than displacing renewables. This is because indigenous production of shale gas is unlikely to have any significant impact on the marginal price of gas into the GB market.

But if we step back and look at the big picture, the UK faces a major issue, which is that of making the transition to a future energy economy which has much lower emissions of carbon. This Government has an ambitious programme to deliver that transition. It certainly calls for a major contribution from renewables. But we also hope to see a substantial contribution from other sources, and we are investing in carbon capture and storage. Equally, we have ambitious programmes addressing the ways in which energy is used—in our homes, in industry, in transport, in agriculture.

This transition is a massive change, and it won't all be delivered next year or even next decade. And at the moment, our energy supplies come principally from oil and gas—they supply about three-quarters of our needs. We have to start where we are, and the plain fact is that we will still be using a lot of oil of gas in five or 10 years' time. And because our own supplies, particularly of gas, are declining, the current outlook is that we will be increasingly dependent on imports.

So if shale gas does prove to be economically producible in the UK, the initial effects would all be in the area of reducing our need for imports. That does not seem a bad thing.

In the longer term, the overall role of gas in our energy supplies will be a function of its price. Prices for oil and gas are set by an global market in which UK supplies have no significant influence. We do not believe that shale gas in the UK will change that reality.

So we do not believe that shale gas activity conflicts with our overall policy on energy and climate change.

7.  How do you see shale gas affecting energy investments (and hence emissions) in developing economies?

How shale gas production in developing countries might affect energy investments will depend on a number of factors specific to each country, such as:

  • the amount of recoverable shale gas resources;
  • how much it might cost to produce any shale gas;
  • the cost of alternative forms of energy (including conventional gas which is still abundant in many regions) or the cost of importing gas from other countries;
  • the overall level and structure of energy demand and usage; and
  • whether the necessary factors to develop shale gas are in place (availability of the rigs and technological know-how, access to the land and the necessary consents, availability of water, etc).

It may be more difficult and more costly to produce shale gas in many developing countries than it has been in the US. Other forms of gas—eg coal-bed methane, tight gas and also conventional gas - may in many circumstances prove to be easier and more cost-effective to extract. For example, in order to give some quantitative indication of the amount of shale gas that might be produced, the figure below shows the IEA's recent assessment of the potential production of unconventional gas (that is, shale, coal-bed methane and tight gas) to 2035 in the "New Policies"[5] scenario.

In this scenario the IEA estimate that around 35% of the increase in global gas production comes from unconventional sources and the remaining 65% of the increase coming from production of conventional gas. DECC is not aware of a specific IEA estimate for shale gas production for developing countries as a group, but based on the data provided within the WEO 2010, DECC estimates that unconventional gas production outside of the US and Canada would seem to be projected to grow by around 360bcm until 2035 in the "New Policies" scenario[6] of which some part will be shale gas.

WORLD NATURAL GAS PRODUCTION BY TYPE IN THE NEW POLICIES SCENARIO

Source: Figure 5.4 from the World Energy Outlook 2010 (source IEA).

The impact on other energy investments and emissions is complex. The cost and availability of gas in developing countries will depend on a range of factors such as the regulatory regime, levels of energy subsidies and the cost of other parts of the supply chain.

However, all other things being equal, we would expect that shale gas offers the potential to increase the availability and potentially reduce the cost of gas in some regions; where this is the case then it might lead to a) an increase in overall energy demand to some degree, and b) substitution away from other forms of energy. The impact on emissions will depend on the extent of any shale gas production and whether any shale gas use substitutes for energy source with higher average emissions per unit of energy used than gas, or sources with typically lower emissions.

April 2011


4   http://www.decc.gov.uk/en/content/cms/what_we_do/change_energy/int_energy/policy/gas_markets/gas_markets.aspx Back

5   The IEA's "New Policies" scenario takes account of broad policy commitments that have already been announced, in addition to policies that had been formally adopted by mid-2010, and assumes cautious implementation of national pledges to reduce greenhouse-gas emissions by 2020 and to reform fossil-fuel subsidies. Back

6   Based on the statement that around one-quarter of the increase in unconventional production is expected to come from the US and Canada. Page 188, World Energy Outlook. Back


 
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© Parliamentary copyright 2011
Prepared 23 May 2011