Conclusions and Recommendations
The US shale gas revolution
1. We
conclude that because the US is the only country to have developed
a shale gas industry, it can serve as a useful case study when
considering how a shale gas industry might develop in the UK.
Some of the factors which facilitated the US revolution, however,
do not apply to the UK and so development of the UK's shale gas
industry is likely to be different to the experience of the US.
The UK should learn the lessons of the US experience, including
creating a favourable climate for companies to operate in, while
ensuring environmental damage is avoided. (Paragraph 13)
Defining shale gas estimates
2. We
conclude that it is right for the Government to exercise caution
over shale gas estimates given the uncertainty and confusion over
definitions. If and when the Government does decide to issue
estimates of UK shale gas resources it should set a good example
and ensure that it is explicit about which definition it is using.
We recommend that it should use the definition which is most relevant
to the general public, which in our opinion is recoverable resources.
The Government should also clearly communicate the uncertainty
inherent in some of these figures by emphasising the difficulty
of producing an accurate estimate of shale gas.
(Paragraph 16)
Calculating shale gas estimates
3. We
conclude that it is impossible to determine reliable estimates
of shale gas in the UK unless and until we have practical production
experience. Therefore, if companies can demonstrate that they
can meet the required standards the Government should encourage
exploratory shale gas operations to proceed in order to improve
current estimates, providing that public concern over environmental
impacts is recognised and taken into account. It should require
shale gas companies to share their gas content and production
figures with relevant research bodies (subject to commercial confidentiality).
(Paragraph 21)
Latest shale gas estimates
4. While
it is unlikely that offshore shale gas will be pursued in the
near future, strategically, it may have the most potential for
the UK in the medium- to long-term, especially if it avoids public
opposition associated with onshore operations. We repeat the
recommendation made in our previous report that DECC encourage
the development of the offshore shale gas industry in the UK,
working with the Treasury to explore the impacts of tax breaks
to the sector. This must be done before the UK's North Sea oil
and gas platforms are decommissioned, otherwise the opportunity
to utilise the UK's offshore oil and gas assets may pass.
(Paragraph 29)
Public perception
5. One
key to community acceptance will be a robust factual response
by government to scare stories. The other key to ensuring public
acceptance of the shale gas industry is community engagement.
Engagement should be early and businesses need to be able to demonstrate
that they are both listening and responding to community concerns.
The Government should consider whether it would be appropriate
for the new Office of Unconventional Gas and Oil to provide advice
and support to local communities living near potential shale gas
developments, taking into account the need to address perceptions
that the Office may be too closely linked to industry.
(Paragraph 34)
6. Communities who
are affected by shale gas development should expect to receive,
and share in, some of the benefits of the development. We support
the Government's intention to ensure that local communities will
benefit from shale gas projects in their area. We recommend
that the Government explores ways of sharing substantial material
benefits with local communities. In the same vein as the recommendation
in our Building New Nuclear report, one option the Government
could consider is extending the scope of its proposal to allow
local authorities hosting renewable energy projects to retain
business rates to include shale gas developments. A mechanism
for sharing substantial material benefits with local communities
should be ready to be offered to communities in time to encourage
them to take a positive view of the prospect of commercial shale
gas operations beginning in their locality. (Paragraph 37)
Regulation
7. We
welcome the Government's attempts to minimise the regulatory burden
on companies by streamlining processes and avoiding duplication
where possible. However, robust regulation of the sector in order
to protect the environment and ensure the health and safety of
workers is absolutely essential in itself as well as to ensure
that the shale gas industry is to be accepted by the general public.
We recommend that the Government maintains the highest standards
of protection in environment and health and safety procedures.
When the Government provides detail of the objectives, remit and
responsibilities of the Office of Unconventional Gas and Oil should
include clear lines of accountability to a single Minister responsible
for the Office. The Government must also demonstrate how it intends
to avoid any potential conflict of interest arising from the different
roles of the Office. (Paragraph 43)
Tax
8. The
Government should make an assessment of whether these tax breaks
will continue to be required during commercialisation.
(Paragraph 47)
Impact of foreign shale gas on UK gas prices
9. We
conclude the shale gas revolution in the US has the potential
to influence the nature of gas markets around the world. In particular,
it could stimulate greater use of gas-to-gas competition in spot
markets to determine gas prices rather than oil-indexation. However,
this would not necessarily guarantee that the price of gas will
fall. (Paragraph 52)
10. We conclude that
if the US were to begin exporting its shale gas as LNG, the UK
might find it economically attractive to import some of this gas.
However, the significant transportation costs associated with
shipping LNG, combined with expected demand for LNG from Asia,
means that the price for this gas in the UK is likely to be significantly
higher than that experienced in the US. (Paragraph 56)
Impact of domestic shale gas on UK gas prices
11. We
conclude that it is too early to say whether domestic production
of shale gas could result in cheaper gas prices in the UK. It
is unlikely that the US experience will be directly replicated
in the UK because of differences in geology, public attitudes,
regulations and technological uncertainties. Shale oil is likely
to be present in the UK but it remains uncertain whether industry
will consider shale oil economically worthwhile to explore. (Paragraph
61)
Impact of foreign and domestic shale gas on UK
gas markets
12. We
conclude that there remains substantial uncertainty about the
impact shale gas will have on gas prices, both internationally
and domestically, and it is by no means certain that prices will
fall a result of foreign or domestic shale gas development It
would be wrong for the Government to base policy decisions at
this stage on the assumption that gas prices will fall (it is
possible that they will rise) in the future. However, if large
quantities are found they will either bring down prices in the
UK, or generate substantial tax revenues, or both - and will certainly
reduce imports with benefits to our balance of payments and energy
security. For all these reasons the Government should encourage
exploration to establish whether significant recoverable reserves
exist. (Paragraph 64)
Global emissions
13. We
conclude that although development of shale gas in the US has
reduced America's greenhouse emissions this may have been offset
by increased use of the coal in Europe. This highlights the importance
of improving the EU ETS to ensure it is able to deter the consumption
of unabated coal for electricity generation. (Paragraph 68)
UK emissions
14. We
recommend that the Government should complete its research into
the impact which shale gas extraction could have on greenhouse
gas emissions as quickly as possible so that the data can be used
when considering applications for licenses for commercial scale
extraction. Policies on flaring and venting of methane should
be reviewed in light of the study in order to ensure that fugitive
emissions from fracking are kept as close to zero as possible.
DECC should also monitor the methane emissions of those companies
that are currently exploring for shale gas. It should be possible,
by way of regulation, to ensure that fugitive emissions are prevented
by outlawing venting.
(Paragraph 73)
15. We conclude that
the Government needs to recognise that the unchecked development
of gas-fired generation, which the development of shale gas may
facilitate, might be incompatible with meeting the UK's climate
change obligations. As we have recommended before the Government
should implement an emissions performance standard (EPS) that
gets tighter over time so as to include unabated gas-fired plant
and avoid excessive gas "lock-in". However we do recognise
there will be a role for unabated gas as peaking plant and to
balance intermittent renewable sources. If shale gas does prove
to be plentiful and either cheap or yielding substantial tax revenues
it would be sensible to put far more emphasis on developing CCS.
(Paragraph 77)
16. We share SSE's
frustration at how long it is taking to develop CCS especially
as it is clear that the Prime Minister sees it as critical to
meeting our future climate change targets. The speed of commercial
development of CCS will affect whether it can play a meaningful
role in the UK's energy mix and how much gas we can rely on without
conflicting with the UK's climate change targets. While we are
pleased to hear in the Budget that the Government will take two
CCS projects to the next stage of the CCS commercialisation competition,
we recommend the Government needs to conclude its CCS competition
as soon as possible and bring forward CCS demonstration projects
to allow it to be deployed in time to contribute towards meeting
our carbon budgets. Unless progress towards economically viable
CCS accelerates rapidly in the next three years, it will become
impossible to base UK energy policy on the assumption that it
will be available in time to help meet the decarbonisation recommendations
of the Committee on Climate Change. We intend to keep a close
eye on DECC's progress in this area. (Paragraph 81)
17. We recommend
the Government push through its reforms to the electricity market,
as set out in the Energy Bill, without delay. This will discourage
the unchecked development of unabated gas-fired generation and
create a favourable investment climate for low carbon technologies
which could help to avoid gas "lock-in".
(Paragraph 86)
Security of supply
18. We
recommend that Government should not rely on shale gas contributing
to the UK's energy system when making strategic plans for energy
security. We welcome the commitment made by the Minister that
the new Office for Unconventional Oil and Gas will assess the
effects of shale gas development on the UK's security of supply
- providing we can be reassured that that the Office does not
have a conflict of interest.
(Paragraph 90)
Economic benefits
19. We
recommend that Government encourage partnerships such as the one
between Cuadrilla and the University of Central Lancashire to
ensure the skills required to develop the shale gas industry are
available. Government should make an assessment of the need for
skills development and should work with industry and the relevant
sector skills council to develop a skills action plan for shale
gas similar to the Nuclear Supply Chain Action Plan which the
Government has recently published.
(Paragraph 93)
20. If shale gas development
produces cheaper gas prices in the UK, as a result of the export
of shale gas from the US and the development of shale gas in the
UK, the energy intensive industries could benefit from lower electricity
and chemicals prices. (Paragraph 96)
| 
