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


Chapter 10: Summary of conclusions and recommendations

Chapter 2: The UK's energy market

259.  There is a growing risk of power cuts in the UK as the margin of electricity generating capacity over peak demand shrinks. It reflects a lack of clarity and consistency in energy policy over many years. UK-produced shale gas could not, of course, contribute to a short term solution. Its development is a separate issue. Indigenous shale gas could, however, provide in the medium term an additional source of supply which, combined with policy changes to encourage investment in generating capacity, could help ensure that competitively priced electricity supplies are maintained at an adequate level for many years to come. (Paragraph 18)

260.  Development of shale gas in the UK on a significant scale could provide substantial benefits:

·  enhancement of energy security through a decreased reliance on imports;

·  an affordable bridge fuel towards renewables-based electricity generation;

·  enable decommissioning of high-emission coal fired generating capacity;

·  reduce the risk of gas price increases or even lead to falls in prices;

·  reduced costs for energy intensive businesses and the petrochemicals sector that also use gas as a feedstock. (Paragraph 28)

Chapter 3: The US shale gas revolution and its global economic impact

261.  Shale development has transformed energy supply in the US. It is now forecast that North America (including Canada and Mexico) will be more than self sufficient in energy within a decade. (Paragraph 35)

262.  The US shale gas revolution has already had far-reaching effects but the full impact on world energy markets has yet to be seen:

·  low US gas prices have displaced US coal to other markets and as a result coal consumption in both Germany and the UK has risen in the last two years;

·  reduced import requirements have diverted gas from the US and have limited price increases in the international market;

·  US exports of natural gas are likely to have a greater effect on the patterns of global trade; so too, in the longer term, would the development of large volumes of shale gas in other countries;

·  if developed at scale internationally, shale gas and shale oil could alter the balance of the international energy market as a whole and undermine the dominant role of energy exporters in the Middle East and Russia, as the pattern of production and trade in oil and gas is redrawn. (Paragraph 51)

Chapter 4: Shale gas in the UK

263.  We recommend that the Government should amend relevant legislation to ensure that subsurface drilling for oil and gas can go ahead without undue delay or cost. This change should ensure that the fact that UK landowners do not own petroleum rights makes little difference to the speed of shale gas and oil development; in practice, it may even make subsurface drilling under third party land easier in the UK than it is in the US. (Paragraph 64)

264.  On the available evidence, there may well be potential for economic development of shale gas in the UK. Estimates of the UK's total onshore shale gas resource are however still incomplete and it is impossible to tell how much of the resource can be economically recovered until exploratory wells are drilled and appraised. It is vital that we get on with it. (Paragraph 73)

265.  The evidence we heard suggests that large-scale production of onshore shale gas in the UK is unlikely before the next decade unless effective and immediate action is taken to bring forward exploration and appraisal. (Paragraph 74)

266.  Despite Ministerial encouragement and eagerness on the part of the industry to get on with exploratory drilling, progress on the ground has been at a snail's pace while industry and officials come to grips with a dauntingly complex regulatory regime for onshore shale gas and oil. (Paragraph 76)

267.  We welcome the industry's introduction of community benefit schemes for localities where drilling for shale gas is to take place. We also welcome the Government's support for the industry's schemes, which should be given the chance to prove themselves. We consider that the industry, as well as the Government, will also need to present the case for shale development more effectively to local communities, including clarity of plans and meticulous compliance with regulation as well as local economic benefits. (Paragraph 86)

268.  At the national level, there is little hard evidence of public opinion on shale gas development and what there is shows mixed results. There is some strident local opposition to fracking. There is a chicken-and-egg aspect to public acceptability: the most convincing argument for onshore shale gas development in the UK would be a successful working example. (Paragraph 90)

269.  We welcome the Prime Minister's and Chancellor's commitment to development of shale gas in the UK. We also welcome Government support for the industry's community benefit schemes and the tax and rates measures the Government have announced to encourage development. But industry's investment decisions will turn mainly on estimated costs and production volumes. These cannot be assessed without exploratory drilling and appraisal, which are being delayed by regulatory constraints and vocal opposition from some groups. The Government must be much more forceful in their public advocacy of the economic benefits of well-regulated shale development. They must also explicitly address the safety issues. (Paragraph 95)

Chapter 5: Potential economic impact of the UK's shale gas

270.  Even if its economically recoverable reserves of shale gas prove substantial, the UK is not likely to see gas price cuts on the scale of those in the US. Indigenous production would however be cheaper than imports of liquefied natural gas (LNG), improve the balance of payments and provide better security of supply. (Paragraph 102)

271.  Substantial shale gas production in the UK could help retain and develop energy intensive industries and provide feedstock to petrochemical plants. If however there is no prospect that the UK's shale gas resource will be developed within a reasonable timescale, energy intensive industry is likely to move elsewhere. (Paragraph 104)

272.  The UK's shale gas and oil could help create a new, viable and internationally competitive industry attracting investment, creating jobs and skills which would make a strong regional impact in areas such as North- West England, providing secure energy and yielding revenue. This would be a valuable prize, obviously better in the national interest than increased, costly and perhaps unreliable imports which would weigh on the balance of payments. But the benefits cannot be quantified until exploratory drilling and appraisal show what the UK's economically recoverable reserves of shale gas and oil are. (Paragraph 107)

Chapter 6: Shale gas and climate change

273.  We find persuasive Professor MacKay's conclusion that the carbon footprint of shale gas, including fugitive methane emissions, is similar to that of conventional gas production and substantially less than coal. We endorse the recommendation in his report for a monitoring programme, jointly managed by the Government and the industry, to measure the level of fugitive methane when shale gas extraction begins in the UK. (Paragraph 117)

274.  We consider that development of shale gas in the UK is compatible with the UK's commitments to reduce greenhouse gas emissions. There is an acknowledged role for gas in the UK's energy mix as it moves towards fulfilment of its commitments. The carbon footprint of home-produced shale gas would be smaller than that of imported LNG (which needs to be processed and transported). Substitution of home produced shale gas for imported LNG should therefore make a positive contribution to achievement of the UK's commitments on climate change. (Paragraph 124)

Chapter 7: Environmental impact of development of shale gas in the UK

275.  Concerns about pollution of groundwater by fracking fluid seem largely based on reports of past practice in the US, where greater transparency is now enforced. The position in the UK is clear: the regulators require full disclosure of chemicals used in fracking fluid, they do not permit use of hazardous chemicals and operators do not use them. Provided that the regulator enforces this prohibition, hydraulic fracturing fluid poses no risk to groundwater in the UK. (Paragraph 133)

276.  The weight of scientific opinion is that the risk of methane migrating up natural faults and into aquifers is "difficult to conceive" and "hard to imagine" in the UK. With strict regulatory oversight and monitoring, the risk of methane contamination of aquifers through natural fractures is very low. (Paragraph 142)

277.  The only significant risk posed to groundwater by hydraulic fracturing is of methane or wastewater entering aquifers as a result of a poorly constructed or sealed well. This is also a risk for conventional onshore gas and oil production. The risk is low as long as independent monitoring ensures that wells are properly constructed and sealed. (Paragraph 147)

278.  In the US, disposal of flowback water after hydraulic fracturing has in recent years aroused some environmental concerns, now being addressed. In the UK, by contrast, flowback water is subject to the regulations on mining waste and its disposal and treatment is carefully controlled. (Paragraph 158)

279.  Fears of water shortages arising from shale gas development have been overplayed: demand for water from onshore shale operators, even at high levels of activity, would be comparable to demand by other industrial users; regulators will not permit levels of water consumption that threaten household supplies; and technological advances such as the substitution of saline water and recycling of flowback water are likely to reduce demand for fresh water. (Paragraph 164)

280.  The Government have introduced stringent planning and monitoring requirements governing the activities of onshore oil and gas operators which might lead to induced seismicity. On the evidence we have heard, there should be no risk that seismic activity caused by hydraulic fracturing would be of sufficient magnitude to constitute any risk to people and property. (Paragraph 173)

281.  Public Health England (PHE) has recently reviewed all the available evidence on the risks to public health arising from air emissions from shale gas activities, including US studies brought to our attention by opponents of shale gas development. We find persuasive the conclusion of PHE's preliminary report that the risks to public health from shale gas exploration and production are low with proper regulation. (Paragraph 180)

282.  We find persuasive the view of Public Health England that shale gas development would be very unlikely to have a significant effect on radon levels in homes. (Paragraph 181)

283.  The Committee recognises that development of shale, like any other industrial activity, would cause an increase in traffic and disruption in some places, especially during periods when wells were being drilled. Although planning controls may mitigate disturbance, there should be a role for the industry's community benefits scheme to compensate those affected individually. (Paragraph 185)

284.  On the evidence available to us, Cuadrilla's operations at Balcombe appear usually to have observed prescribed noise limits, with occasional minor lapses. (Paragraph 189)

285.  It is widely believed, by opponents and others, that exploration and production of shale gas in the UK would pose dangers to the environment and to public health. Government, regulators and the industry need to take these fears, legitimate and exaggerated, seriously and tackle them. We heard an impressive amount of scientific evidence that with a robust regulatory regime the risks to the environment and public health are low. With such a regime in place, we consider the environmental risks to be small, whereas the benefits if shale gas development takes place are substantial. (Paragraph 191)

Chapter 8: The UK's regulatory system

286.  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. (Paragraph 206)

287.  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. (Paragraph 220)

288.  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. (Paragraph 221)

289.  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

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

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

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

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

A targeted approach by the regulators should include a clear timetable for decision-making, agreed beforehand with the operators. (Paragraph 231)

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

291.  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. (Paragraph 240)

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

293.  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. (Paragraph 248)

Chapter 9: Promoting Shale Gas Development in the UK

294.  A clearer, more coherent and less complex approach to regulation is needed to facilitate speedy development of the industry while providing reassurance to the public that development can go ahead safely. Only the Government can provide the leadership and reassurance needed. The Chancellor of the Exchequer's assurance to us that the Government are doing all they can to give the UK's shale industry a good start in life is welcome, but there is at present a striking contrast with the slow pace of progress on the ground and the frustration felt by the industry over regulatory complexity. The Government have failed to translate their ambitions for development of the UK's shale gas into action at the speed needed. (Paragraph 253)

295.  The Government must take decisive measures to quicken the pace of exploration and development of the UK's shale gas resource, including to:

·  simplify the current unwieldy and slow regulatory structure and accelerate the decision-making timescales;

·  take the lead in reassuring local communities that with clear and rigorous regulation in place, shale gas can be developed with low risk to health and the environment;

·  set out more clearly the potential economic benefits for local communities and for the country as a whole if significant volumes of shale gas can be developed commercially. (Paragraph 254)

296.  We recommend that, since several Departments share responsibility for policy on shale gas, the Government should take measures to improve coordination, clarity and speed of policy making and its implementation. We recommend in particular that the Prime Minister should establish a Cabinet Committee or Sub-Committee, chaired by the Chancellor of the Exchequer, to direct and coordinate policy on development of shale gas, with a mandate to promote well-regulated exploration and development of the UK's shale gas resource. (Paragraph 256)

297.  The UK is exceptionally fortunate to have substantial shale gas and oil resources. Much work needs to be done but it is clear that successful development would bring jobs and relatively low cost supplies of fuel. It would also be of direct benefit to the balance of payments and could at least partly reduce the UK's dependence on international markets at risk of disruption from political instability. Public concerns about shale gas need to be confronted if the development of this strategic national asset is to go ahead. Although some of the concerns are ill founded, others have to be addressed through a clear and simplified regulatory regime which can build trust and promote efficient development without more delay. (Paragraph 257)

298.  Exploration and appraisal of the UK's shale resource base have been too slow. Shale gas and oil are a potential economic prize which the UK should grasp without further delay. Exploration, appraisal and then development of the United Kingdom's substantial shale gas and oil resources is an urgent national priority. (Paragraph 258)


 
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