House of Lords - The Economic Impact on UK Energy Policy of Shale Gas and Oil

The Economic Impact on UK Energy Policy of Shale Gas and Oil - Economic Affairs Committee Contents

Chapter 8: The UK's regulatory system

192. The Better Regulation Task Force defined five principles of good regulation in 1997.[403] The principles, endorsed by the present Government,[404] state that any regulation should be "transparent, accountable, proportionate, consistent and targeted". This chapter will consider the effectiveness of the regulatory regime for shale gas in the UK.

The UK regulatory regime: shale gas exploration and appraisal phases

193. In December 2013, DECC published a "Regulatory Roadmap" to help operators understand the regulatory process for onshore oil and gas exploration and appraisal in the UK.[405] A diagram from the Roadmap that explains the process in detail is at Appendix 4. The main regulatory bodies involved are DECC, local Mineral Planning Authorities, the Environment Agency and the Health and Safety Executive. The responsibilities of each are outlined below.[406]

DECC

Issue of petroleum exploration and development licences (PEDLs)

194. The Crown has the exclusive right for searching and boring for and getting petroleum in Great Britain.[407] DECC issues production licences (known as 'petroleum exploration and development licences' (PEDLs)) to operators through licensing rounds. These licences grant exclusivity to an operator within a certain area. As part of the licensing process, DECC assesses operator competency, safety management systems, well examination schemes and financial capability.[408] The licence does not grant any right to drill a well but exploratory work through seismic investigations may begin.[409]

Environmental risk assessment

195. Where hydraulic fracturing is planned, DECC requires an environmental risk assessment (ERA) to be carried out. This is an overview that assesses environmental risks over the full cycle of the proposed operations with the participation of stakeholders, including local communities. DECC recommends it as a starting point for early engagement by operators with local authorities and other regulators as it can subsequently inform other required assessments.[410]

Approval and consent

196. Under the terms of the PED licence, operators are required to submit to DECC for approval a hydraulic fracturing plan that demonstrates a full understanding of the risks involved. Operators also need to evaluate the historical and background seismicity, describe faults in the proposed area and identify the risk of activating any fault through hydraulic fracturing activity. Traffic light monitoring systems are required to enable operators to mitigate induced seismicity.[411]

197. Operators are required to seek consent from DECC to drill and consent to fracture once all permissions and permits from other bodies discussed below have been granted. Operators can make the requests for drilling and fracturing consent together.[412]

LOCAL AUTHORITIES / MINERAL PLANNING AUTHORITIES

Planning permission

198. Operators require planning permission from the relevant Minerals Planning Authority (MPA) to conduct both exploratory and appraisal work.[413] County councils or unitary authorities usually exercise MPA duties. The MPA will determine applications in accordance with planning law. Permission is granted for the location of any wells and wellpads and conditions may be imposed to ensure that the impact on the use of the land is acceptable.[414] If an MPA refuses permission for the proposed development, operators can appeal to the Secretary of State for Communities and Local Government.[415]

199. The focus of the planning system is on whether the development is environmentally acceptable. Key issues may include site location, traffic volumes, noise, groundwater, induced seismicity and waste.[416] Guidance from DCLG states that Mineral Planning Authorities should "use appropriate planning conditions, having regard to the issues for which they have responsibility, to mitigate … any adverse environmental impact."[417] The guidance recognises that a number of issues are covered by other regulatory regimes and MPAs

"should assume that these regimes will operate effectively … as they can rely on the assessment of other regulatory bodies. However, before granting planning permission they will need to be satisfied that these issues can or will be adequately addressed by taking the advice from the relevant regulatory body."[418]

Environmental Impact Assessment (EIA)

200. The MPA considers whether a proposal requires an Environmental Impact Assessment (EIA). If the project is likely to have significant environmental effects, the operator is required to complete an EIA.[419] Operators can request a decision from the MPA as to whether an EIA is needed in advance of any planning application. The EIA assesses the likely significant environmental effects of the proposed development. Operators are expected to draw upon the content of the environmental risk assessment required by DECC. Once the EIA is complete, the results are presented in an environmental statement submitted with the planning application. Professor Mair considered that the EIA played a "crucial role" and "should be mandatory for all shale gas operations … if [it] is done properly … the whole path will be much smoother."[420]

201. Mr Figueira told us that once the planning application is made together with the environment statement, the MPA will "place and advertise and consult for usually around 21 days, and then the planning permission would normally take 16 weeks if it involved an environmental impact assessment, and, if it did not, around 13 weeks."[421] The Environment Agency is a statutory consultee to the planning process.

Agree plan for site restoration

202. Operators are required to present plans for restoration of the planned development site to the MPA. The MPA is responsible for ensuring proper restoration and aftercare of the site when operations terminate.[422]

ENVIRONMENT AGENCY

Notice of intention to drill

203. Operators are required to serve notice on the Environment Agency (EA) before drilling a borehole. A detailed statement needs to be submitted with information on well drilling, well casing, storage of substances including fuel and chemicals and a proposed plan for dealing with waste.[423]

Environmental permits

204. Operators may require environmental permits for:[424]

· Groundwater activity[425]

· Mining waste activity[426]

· Industrial emissions activity[427]

· Radioactive substances activity[428]

· Water discharge activity[429]

· Groundwater investigation consent[430]

· Water abstraction licence[431]

· Flood risk consent[432]

Dr Grayling told us that "the number of permits and consents that are required … will depend on the site in question, its geology and what activities are actually proposed."[433] As some of the technical documentation supporting operators' planning and environmental permit applications may need to be submitted to the EA and to the MPA, the EA "strongly recommend 'parallel tracking' of environmental permits and planning applications."[434]

205. Lord Smith said that the EA aims to issue permits within a 13-week period but "that, however, has to include a period for public consultation. If it is a matter of high public interest, the consultation period might have to be a slightly extended one, which might push the timetable a bit beyond the 13-week period."[435] Draft technical guidance from the EA says that "given the current level of public interest in unconventional gas and oil exploration, it's likely that we treat such sites as being of high public interest … For a bespoke permit application where there is a lot of public interest, determining a permit may take four to six months from where the application is duly made."[436]

206. The Secretary of State for the Environment, Food and Rural Affairs told us that the Government planned "to reduce the timescales … with the intention of there being a standard permit."[437] Dr Grayling thought that the EA would be able to issue these "within two to three weeks" and they would be available in early 2015.[438] We heard from the Secretary of State for the Environment and from the Environment Agency of plans for standard permits to be issued on reduced timescales. We consider that changes on these lines would be highly desirable but doubt if they will happen without the changes we recommend to simplify the regulatory framework.

HEALTH AND SAFETY EXECUTIVE

Well design and integrity

207. The Health and Safety Executive (HSE) monitors onshore oil and gas operations for well integrity and site safety. Prior to the start of drilling, the operator must notify the HSE of the well design and operation plans.[439] The design of wells is regulated by the Offshore Installations and Wells (Design and Construction, etc.) Regulations 1996 (DCR). These regulations include specific requirements for all wells, whether onshore or offshore, and include well integrity provisions which apply throughout the life of wells.[440]

208. The regulations also require a well operator to provide HSE with regular reports of any activities on the well and to appoint an independent well examiner to undertake regular assessments of well integrity. In addition to the well examiner scheme, Mr Peter Baker, Director, Hazardous Installations Directorate at the HSE, told us that wells will get "independent inspection by HSE well specialists."[441] HSE and the Environment Agency have agreed jointly to inspect future hydraulic fracturing operations.[442] HSE wrote that "for new and first time shale gas operators, HSE and the Environment Agency will meet and advise them of their duties under the relevant legislation; and conduct a joint inspection of the key operations, such as cementing."[443] The two regulators have a memorandum of understanding which sets out a framework for how they work together and planning interventions.[444] Dr Grayling told us that it was "particularly critical from the point of view of environmental protection that the well is properly constructed and sealed".[445]

Regulatory regime for shale gas production phase

209. The regulatory roadmap produced by DECC covers only the exploration and appraisal phases of shale gas development. The same permissions and permits described above will have to be applied for again if operators wish to move into production.

Effectiveness of the UK regulatory regime

210. Mr Figueira told us that in the UK "we certainly have the capability and the regulatory structure in place to enable the exploratory phase to proceed in line with industry expectations."[446] Mr Smith of Shell said that the UK has "a world class set of regulations".[447] Mr Dorner from the International Energy Agency (IEA) said that "internationally, the UK regime as it stands is very highly regarded".[448] The IEA published a report in 2012 that set out seven principles for the development of shale gas that "can allow policymakers, regulators, operators and others to address these environmental and social impacts."[449] Mr Dorner said he "suspected" that the UK regime already incorporates those principles. Professor MacKay and Mr Lambert pointed out that drilling for and production of onshore oil had successfully occurred in the UK at Wytch Farm for many years.[450]

211. Some witnesses made comparisons between the UK and US regulatory regimes. The UK Onshore Operators' Group wrote that the UK regime is "different and significantly more stringent" than the US regime.[451] Policy Exchange stated that "much of the regulation of shale gas in the US occurs at the state level, meaning there can be significant variations in environmental compliance."[452] Professor Stevens said that many shale gas operations in the US have been done with "little environmental impact assessments."[453] However, Cuadrilla disagreed that regulation was weaker in the US: "contrary to the popular view, American regulation in this sector is extremely experienced, intensive and confident."[454]

SLOW PROGRESS OF EXPLORATION TO DATE

212. Mr Egan told us that "physically, we could drill tomorrow … the thing that takes the longest time, is the planning and permitting process."[455] Mr Austin told us that "the level of consultation and engagement, and the time spent considering applications, has been considerably longer than what would otherwise have been looked at as industry best practice."[456] Dr Grayling told us that since the Government moratorium on hydraulic fracturing ended in December 2012,[457] "the Environment Agency have not yet received any permit applications to undertake hydraulic fracturing."

213. The Committee Clerk wrote to Mr Egan to ask why Cuadrilla had not submitted any applications for permits since December 2012. Mr Egan replied that permit applications for hydraulic fracture and flow test exploration wells (the appraisal phase) were made in August 2012. These applications were delayed as Cuadrilla undertook an Environmental Impact Assessment (EIA) as part of the planning process.[458] Dr Grayling said there was "no disagreement" with Cuadrilla on this matter, "an Environmental Impact Assessment … may reveal issues material to our permitting decisions … permitting need not delay operations if operators make sure that they align their permit applications and submit new ones."[459]

214. Cuadrilla withdrew the original permit applications and is expected to submit new ones, alongside planning applications, for several sites in north-west England later this year.[460] In Mr Egan's view it was "perhaps not wholly unsurprising" that "the timescale involved in delivering these very first permits of their kind in the UK has been very lengthy."[461] Dr Grayling told us that the Environment Agency is "going through a learning exercise as an agency, while the industry was also going through a learning exercise on how to apply for the appropriate permits."[462]

215. There is no indication as to how long the whole regulatory process would take. DECC's regulatory roadmap explicitly states that "the roadmap does not define timescales for the planning and permitting process or individual steps within it."[463] It advises operators to contact the relevant regulatory authorities to establish indicative timelines. The table below summarises the timescales that we have been made aware of for each stage:

TABLE 2

Indicative Timescales

Stage	Length of time
DECC
Issue of PED licence	Granted through licensing rounds
Environmental risk assessment	No indication given
Approval of hydraulic fracturing plan	No indication given
Consent to drill	No indication given
Local authorities
Planning permission[464]	21 day consultation[465] 16 weeks if EIA required, 13 weeks if not[466]
Environmental Impact Assessment (EIA)
Agree plan for site restoration
Environment Agency
Notice of intention to drill	Served 1 month prior to drilling[467]
Environmental permits[468]	13 weeks to 26 weeks[469]
Health and Safety Executive
Notice of intention to drill	Served 21 days prior to drilling[470]

216. Table 2 above lists the stages in the regulatory process that are described above and provides indicative timescales where available. As no operator has been through the whole process since the publication of the regulatory roadmap, it is not clear how long the various stages, or the whole process, would take in practice. There could also be delays if planning and permitting decisions where subject to legal challenge.

217. Figure 13 below shows how the regulatory process looks to industry. It outlines Cuadrilla's view of the expected timescales for certain stages, including the requirements of Environmental Impact Assessments.

FIGURE 13

Cuadrilla's view of key steps and associated timelines

Key Steps and Timeline in Securing Approvals to Drill, Hydraulically Fracture and test the flow rate from a Shale Gas Exploration Well

The high level timeline tabulated below is for securing a Planning Consent only and assumes that an exploration site has already been identified.

In parallel with applying to the County Council for a Planning Consent the applicant will also apply to the Environment Agency for up to 8 or 9 separate Environmental Permits required for the drilling, hydraulic fracturing and testing the flow of gas from an exploratory shale well. It is assumed that from a timing perspective this is carried out within the minimum 16 month period outlined below required to secure a Planning Consent.

Activity

Duration

Commentary

1) Complete all surveys required for an Environmental Impact Assessment (EIA), e.g. Newts, Wintering Birds, Bats, Traffic, Noise etc.

Approx. 6 months

Certain surveys can only be carried out at particular times of year (e.g. Wintering Birds)

2) Complete EIA and associated Planning Application (including getting an EIA Scoping Opinion from the County Council and carrying out pre-application consultation with local communities and stakeholders)

6 months (some overlap possible with step 1 above, incremental time assumed to be 3 months)

EIA Scoping opinion from Council typically 5 to 6 weeks. Pre application consultation process typically 3 to 4 months

3) Submit Planning Application and associated EIA to County Council. Council consults with statutory consultees and decides.

Minimum of 4 months for an EIA planning application.

Council should respond in 16 weeks from application but can take longer.

4) Fulfil any associated planning conditions (if application approved)

Typically 1 month

Conditions could include widening road access or other such provisions

5) Prepare Exploration site (foundation, drainage, security etc.) and mobilise drilling equipment

2 months

Start Drilling

16 months later

Note: it is possible that a successful Planning consent and/or Environmental Permit application could be subjected to a Judicial Review (JR) challenge. The JR process could add approx. 12 months to above timeline, post the completion of step 3.

Source: Cuadrilla Resources Limited

IS THE UK REGULATORY REGIME EFFECTIVE?

218. Asked whether he would invest in the UK at the moment, Mr Wright said that "if you had rigorous but crisp and clear environmental regulations, and you had a way to align the community and move quickly, I would do it in a heartbeat, but that is not there today … If the business climate was here, it would happen."[471] He said that "certainty to move quickly" was required.[472] Mr Egan said that if the UK was to move into a production phase, the regulatory regime "will require a step change in the pace and scale of operation."[473]

219. Mr Hughes said "objectively the regulation regime … is probably okay"; but local residents did not have confidence because "the industry has done a lousy job of providing the reassurance that is necessary … the industry is not gaining the benefit of the doubt … the regulatory machine probably has to go beyond what is objectively required in order to win that confidence back."[474] He told us that there is "probably a need for a step up in the regulatory regime, and one that is communicated in such a way that it will reassure them."[475]

220. The UK's regulatory framework for onshore exploration and production applies to conventional as well as shale gas and oil. There is no special regime for shale gas and oil, except that extra rules govern hydraulic fracturing. Applicable regulations in the UK are rigorous and thorough and address the environmental and health risks. We heard that they are well respected internationally. We were also told of measures to improve coordination in the system so as to deal more effectively with development of shale gas and oil.

221. The regulatory framework is however unnecessarily complicated, with responsibilities shared between various Departments and agencies. Wytch Farm apart, it has no track record of dealing with large scale onshore operations. Bureaucratic complexity and diffusion of authority are not the best basis for clear and effective regulation of a new and fast-evolving industry. It is not clear how long the whole regulatory process, or its various stages, would take. We set out recommendations below to reduce the complexity and increase the transparency of the regulatory regime.

Reducing the complexity and increasing the transparency of the regulatory regime

REDUCING THE COMPLEXITY OF THE REGULATORY REGIME

222. The Royal Society and Royal Academy of Engineering report into shale gas recommended that a single body should take the lead for regulatory responsibilities relating to shale gas.[476] Professor Mair told us that at present, "there is DECC, there is HSE, there is the Environment Agency. We said that there should be one organisation that oversees the whole process."[477] Duarte Figueira said that DECC set up the Office of Unconventional Gas and Oil in March 2013 to "provide exactly the sort of coordinated approach that was recommended in the Royal Society report, so there was clarity on the roles and responsibilities of different regulators".[478] The Minister for Energy told us that following the publication of the regulatory roadmap in December 2013, "the system is now crisp and clear."[479] Regrettably, however, that is not the case.

223. Despite the introduction of the Office of Unconventional Gas and Oil and the regulatory roadmap, responsibilities are still fragmented. For example, DECC must approve operators' plans to mitigate the risk of induced seismicity;[480] the Environment Agency approve operators' plans for air emissions to mitigate the risk to public health;[481] and the Health and Safety Executive monitor well integrity that mitigates the risk of groundwater contamination.[482] Although the Environment Agency and Health and Safety Executive intend to carry out joint well inspections; the EA will be assessing the risk to the environment, the HSE the risk to health and safety.[483]

224. There are also significant levels of duplication. For example, operators must discuss plans to mitigate the risk of groundwater contamination in four different contexts:

· the environmental risk assessment required by DECC;[484]

· the Environmental Risk Assessment required by the Minerals Planning Authority;[485]

· an application to the Environment Agency for a groundwater permit;[486]

· and the Health and Safety Executive will ultimately review the design of wells to ensure that nothing can escape into aquifers.[487]

225. Some witnesses questioned whether the individual regulators had sufficient resources to manage when activity increases. Mr Parr said his question was "whether they have the capacity to manage the sort of expansion that is being proposed and to develop whole new areas of understanding and expertise".[488] The Environment Agency was of particular concern. Mr Bennett told us that "there are already very significant concerns about a lack of capacity within regulators like the Environment Agency to even deliver on their current expectations".[489] Professor Smythe wrote that "the weakest point of the regulatory process concerns the Environment Agency" and said they appear to have "insufficient in-house expertise".[490] It was reported earlier this year that the total number of staff at the Environment Agency was to be reduced from 11,250 to around 9,700 by October 2014.[491]

226. The Minister for Energy said that "we are always looking to see, in the regulatory process, where there is the possibility to reduce intervals and to streamline and avoid overduplication."[492] However, he did not believe that setting up a new body would make regulation easier.[493] His concern was "not just the time that it would take to set it up, but that people might feel that it was completely pro any kind of development."[494]

INCREASING THE TRANSPARENCY OF THE REGULATION REGIME

227. As discussed in Chapter 7, groundwater contamination through a failure of well integrity is a significant risk for all onshore oil and gas drilling. That risk is low as long as wells are properly constructed and sealed and the regulations on well design and integrity are rigorously enforced.[495] Mr Cronin said that "we have a very strict regime for well integrity in this country. It is sufficiently more stringent than the US's."[496] Discussing well integrity, Mr Austin told us that "the UK has gold standards throughout the North Sea, which … are the same standards that are applied onshore … So this is not us policing ourselves but a well established regulatory system that is being applied to an established industry".[497]

228. However, Ms Rothery told us that "there are no actual onshore regulations … [the regulations that apply] are based on offshore regulations."[498] Mr Michael Hill wrote that "there is a clear need of specific onshore industry specific regulations. At present there are none."[499] Mr Petts disagreed, "I think it is wrong to say that there are no onshore regulations … It is covered through lots of our existing legislation."[500] Describing the Offshore Installations and Wells (Design and Construction, etc.) Regulations 1996, he said "it is a mistake in the way the regulations were titled … there is a lot of regulation out there … it is just a bit clunky and disjointed, or appears that way to people who are not familiar with it."[501] Wytch Farm, for example, is an outstandingly successful large onshore oilfield regulated under the existing system.

229. Mr Hill told us that the Offshore Installations and Wells (Design and Construction, etc.) Regulations 1996 were "aimed at offshore development" and the Borehole Sites and Operations Regulations 1995 were introduced prior to high volume hydraulic fracturing.[502] Professor Riley said that

"the entire approach to oil and gas has been focused on offshore. Recalibrating for onshore will be a major task … The problem is not the focus on fracking but the traditional oil and gas problems: security of the wellhead and ensuring that flow-back waters cannot seep into the ground. All this is known to the regulators, but we have never had to deal with it on any scale onshore."[503]

230. The Offshore Installations and Wells (Design and Construction, etc.) Regulations 1996 only require the well operator and well examiner to take account of the risk to "the health and safety of persons" when designing and examining a well.[504] They are not required to take account of the risk to the environment which is likely due to the original focus of the Regulations on offshore development. The Royal Society and Royal Academy of Engineering report recommended that the scheme "should be widened so that well integrity is also considered from an environmental perspective. Wider expertise within or outside the oil and gas sector may need to be drawn upon."[505]

231. We agree with the Royal Society and the Royal Academy of Engineering that a single body to regulate onshore development of shale gas and oil would be desirable in principle. We fear, however, that the necessary reorganisation would cause delays. We therefore recommend a more coordinated and responsive regulatory approach within the existing framework, with a lead regulator identified by the Government, following the five principles of good regulation advocated by the Better Regulation Task Force and adopted by the present Government:

Transparent

"Regulators should be open and keep regulations simple and user-friendly"[506]

We recommend that the Government should consolidate the applicable provisions in the confusingly titled and potentially misleading Offshore Installations and Wells Regulations and Borehole Sites and Operations Regulations into one clearly labelled set of regulations for onshore oil and gas operations.

As recommended by the Royal Society and Royal Academy of Engineering, the consolidated regulations should specify that well integrity is to be considered from an environmental perspective as well as a health perspective. The Environment Agency and Health and Safety Executive should make it much clearer to the industry and the public exactly how and when they would inspect well sites.

Accountable

"Regulators must be able to justify decisions, and be subject to public scrutiny…There should be well-publicised, accessible, fair and effective complaints and appeals procedures"[507]

The Government should provide a single, clear appeals process for operators in the event that an application for planning permission is refused by a local authority.

Proportionate

"Regulators should only intervene when necessary. Remedies should be appropriate to the risk posed, and costs identified and minimised…Policy solutions must be proportionate to the perceived problem or risk and justify the compliance costs imposed"[508]

Operators are often required to submit the same information to different regulators. The Office of Unconventional Gas and Oil should provide a single point for data input to remove duplication and reduce costs for operators.

Consistent

"Government rules and standards must be joined up and implemented fairly"[509]

The Government should ensure that operators are able to make all the required planning and permit applications in parallel, in order to speed the process. There is room for much greater coordination, particularly in relation to information sharing between local authorities and the Environment Agency.

Targeted

"Regulation should be focused on the problem, and minimise side effects"[510]

A targeted approach by the regulators should include a clear timetable for decision-making, agreed beforehand with the operators.

INDEPENDENT WELL EXAMINERS

232. The Offshore Installations and Wells (Design and Construction, etc.) Regulations 1996 require the design and construction of onshore wells to be examined by an "independent and competent person".[511] This well examiner is commissioned and paid for by the operator. The Regulations do not prohibit the well examiner being an employee of the well operator's organisation."[512]

233. The Royal Society and Royal Academy of Engineering report recommended that the guidelines should be clarified to ensure that the well examiner is independent of the operator.[513] Professor Mair told us they "expressed strong views" on this in the report: "In some cases, under existing practice, that well examiner can be an employee of the operator's organisation. We felt that that was undesirable and that the well examiner should be truly independent."[514] Ms Rothery said of the well examiner scheme that "to us that is not regulation; that is self-regulation."[515]

234. Mr Baker said "it is right that operators have the option of using someone they directly employ … it does not necessarily follow that having your own people do third-party verification is a bad thing."[516] The Secretary of State for the Environment, Food and Rural Affairs thought that the existing regime had already proved itself, "we should not devalue what we have achieved."[517]

235. We recommend that regulations should make explicit that the well examiner for onshore oil and gas operations should be independent of the well operator.

ABANDONED WELLS

236. Following abandonment of a well, mineral planning authorities are responsible for ensuring proper restoration and aftercare of a site through imposition of suitable planning conditions.[518] Operators are required to notify the Health and Safety Executive of the abandonment. The HSE would receive weekly reports of the abandonment process and it would be reviewed by the well examiner. Unless there is unusual or adverse development during the abandonment process, no subsequent monitoring is required. The operator remains liable for the well and is expected to remedy any subsequent problems.[519]

237. The main risk from an abandoned well arises from a subsequent sealing failure that allows methane or other contaminants to enter groundwater. Dr Grayling said that operators have to develop a "closure and rehabilitation plan and they have to implement it before they can surrender their environmental permits to us."[520] The Secretary of State for the Environment, Food and Rural Affairs said that "Permits will not be issued if there is an unsatisfactory programme at the end of the life of the well … there is absolutely no question of cutting corners at the end of a well's life".[521] He confirmed that he thought concerns over abandoned wells were "groundless."[522]

238. Professor Davies said that the UK had around 2,100 wells onshore already, drilled from 1902 to the present day: "we have gone looking for the wells, and you cannot physically put your hands on about 65 per cent of them. That means they would be difficult to monitor."[523] Operators today are required to submit plans for well abandonment and DECC has a database that documents the location of wells.[524] However, once a well has been abandoned there are currently no requirements for continuous monitoring arrangements. The Royal Society and Royal Academy of Engineering report said that

"monitoring arrangements should be developed to detect possible well failure post abandonment … continuous ground gas monitoring and aquifer sampling could be similar to that carried out before and during fracturing operations … Monitoring would be at a reduced frequency, perhaps every few years."[525]

239. Sir David King said that the "major problem" was the "orphaned wells for which no company is responsible any longer."[526] The Royal Society and Royal Academy of Engineering recommended that "consideration should be given to establishing mechanisms, such as a common liability fund, to ensure funds are available to respond to well failure post-abandonment in the case that the operator can no longer be identified."[527] Dr Grayling said that there were "live discussions between the Office of Unconventional Gas and Oil and the industry to develop appropriate arrangements."[528]

240. We recommend that, as proposed by the Royal Society and Royal Academy of Engineering, rules should be introduced to monitor wells abandoned in future, and a common liability fund established by the industry in case of default by an operator.

European developments

EUROPEAN COMMISSION UNCONVENTIONAL HYDROCARBONS INITIATIVE

241. The European Commission recently reviewed the European legislative framework for unconventional hydrocarbon extraction which includes shale gas. This legislative framework comprises a number of environmental Directives which are already applicable in the UK. Mr Alan Seatter, Deputy Director General, Environment, European Commission, told us that the Commission's objective

"is to enable the safe production of shale gas by addressing two factors. The first is the degree of public acceptance … the second … does the framework provide a clear and predictable framework for investors in this industry … Those are the objectives that we have put forward … consistent … with our overall climate change objectives."[529]

He said that there was "a public perception … of a certain number of risks … our legislation already covers those … we have to be very clear to the public about whether those risks can be managed adequately by this legislation so that people feel reassured that it is possible to have safe extraction of shale gas."[530]

242. The Commission adopted a Recommendation[531] in January 2014 which sets out a number of minimum principles that Member States are "invited to give effect to."[532] On the whole, the UK regulatory regime appears to incorporate the minimum principles. A possible exception is Recommendation 9.2(e) which says Member States should ensure that operators,

"ensure well integrity through well design, construction and integrity tests. The results of integrity tests should be reviewed by an independent and qualified third party to ensure the well's operational performance, and its environmental and health safety at all stages of project development and after well closure."[533]

As discussed above, well examiners in the UK do not have to be independent of the operator and the current regulations only take account of the risk to health and not the environment.[534] That is why we recommended at paragraph 235 above that regulations should make explicit that the well examiner for onshore oil and gas operations should be independent of the well operator.

243. The Secretary of State for the Environment, Food and Rural Affairs told us that he thought in respect of the minimum principles, the UK is "well covered."[535] In an explanatory memorandum setting out DECC's position on the Recommendation, the Minister for Energy said that "we already in the UK practice or require much of what is recommended."[536]

244. Before publication of the Recommendation, there were fears from Government and the industry that the Commission would propose new legislation. The Minister for Energy said that "We have been arguing very strongly that there is no need for further European legislation in this area".[537] Mr Figueira told us that "we must ensure that EU action is proportionate and does not result in new regulation in the industry that is not required … we want to get the exploration phase away as soon as possible".[538] Mr Cronin said that the UK industry "does not really want any further regulation … additional regulation will not improve public perception but the enforcement of the current regulation will."[539]

245. Mr Seatter told us that "we have never had in mind coming out with some beautifully comprehensive thing that is going to take a very long time to discuss and decide … we are talking about principles and standards, not detailed provisions".[540] However, the Recommendation said that the Commission will review its effectiveness in 18 months and as part of that review, "will decide whether it is necessary to put forward legislative proposals with legally-binding provisions on the exploration and production of hydrocarbons using high-volume hydraulic fracturing."[541] DECC thought that the 18 month timetable was "likely to be insufficient to enable the Commission to undertake an evidence-based assessment."[542]

ENVIRONMENTAL IMPACT ASSESSMENT DIRECTIVE

246. The Environmental Impact Assessment Directive requires environmental impact assessments to be carried out for projects that are likely to have significant effects on the environment. The Commission proposed a revision to the Directive in 2012.[543] The main objectives of the revision were to simplify the assessment process and enable the process to reflect emerging challenges like climate change. The European Parliament used the opportunity of the revision to propose an amendment that would add shale gas operations to the list of projects requiring a mandatory assessment.[544] A blocking minority of Member States in the Council of the EU (including the UK) would not agree to the Parliament's amendment and were successful in December 2013 in preventing the amendment.[545]

247. We agree with the Government that there is no need for new European legislation on shale gas.

248. The regulatory framework governing development of shale gas in the UK is dauntingly complex and largely untested. Industry, public and even regulators seem uncertain how it would apply in practice. No single body has clear lead responsibility. We do not believe there is any trade off between speed and rigour in the regulatory process; complexity does not increase the quality of regulation. Unless the Government act to streamline the system so that regulation is effective as well as rigorous, the UK will be unable to take full advantage of the economic opportunity offered by shale gas.

403 Better Regulation Task Force (2003) Principles of Good Regulation. Back

404 See https://www.gov.uk/government/policy-teams/better-regulation-unit Back

405 DECC (2013) Onshore oil and gas exploration in the UK: regulation and best practice, 17 December. The roadmap does not cover the production phase. Back

406 This chapter outlines the regulatory regime for England since this is where exploration is expected to take place first. DECC have produced separate roadmaps for the regulatory regimes in Scotland, Wales and Northern Ireland. The Roadmap for each regime is available here: https://www.gov.uk/government/publications/regulatory-roadmap-onshore-oil-and-gas-exploration-in-the-uk-regulation-and-best-practice Back

407 Petroleum Act 1998, section 2(1) and 2(2). In Northern Ireland, ownership of petroleum is vested in the Ministry of Commerce under the Petroleum (Production) Act (Northern Ireland) 1964, section 1(1). Back

408 DECC (2013) Onshore oil and gas exploration in the UK, Op, Cit. Back

409 Most local authorities do not consider that seismic investigations require planning permission. Operators must notify landowners, planning authorities and DECC if they plan to conduct seismic surveys in the licence area. Back

410 DECC (2013) Onshore oil and gas exploration in the UK, Op, Cit. Back

411 Ibid. Back

412 Ibid. Back

413 Separate applications are required for each stage. Applications for both stages can be made within one application. Back

414 Department for Communities and Local Government (2014) Planning Practice Guidance: Minerals, 6 March. See http://planningguidance.planningportal.gov.uk/blog/guidance/minerals/ Back