Shale Gas and Oil Development in the UK 2015 1 Shale Gas and Oil Development in the UK after new Legislation in April 2015 This article was published in the International Energy Law Review in May 2015 and is designed to provide, in broad terms, an overview of the comprehensive regulatory system in the UK for the exploitation of all onshore hydrocarbons which make up a large part of the composition of natural gas and petroleum. As a reminder to the reader, shale gas, mostly methane, is extracted from solid shale rock using a process called hydraulic fracturing, or “fracking”.1 Oil and Gas Briefing 1 HC Library, Standard Note, Shale Gas and Fracking, SN/SC/6073 (February 5, 2015), p.1 Shale Gas and Oil Development in the UK 2015 2 Introduction In this article we provide a detailed explanation of the rapidly evolving regulatory framework for the control of hydraulic fracturing in the UK. Moreover, since all hydrocarbon resources belong to the Crown, the licensing regime for the right to exploit these resources is also briefly explained. However, licences are awarded by the UK Government in periodic rounds. The most recent round closed in November 2014 which means that in the short term the practitioner will need to understand the effect of an award of a licence rather than process of attaining one. A key problem in the UK until this year had been how licence holders gain legal access to shale beds where landowners object to the use of their subsoil for deep horizontal drilling. The recently passed Infrastructure Act 2015 (2015 Act) provides a solution which is explained in some detail in this article. It is important however to appreciate that for access rights as well as the regulatory framework in general, there are significant differences between the Scottish and English jurisdictions. Recent constitutional changes in the UK are also having more of an impact on this area of law. While there are regulatory issues which are the same in these two jurisdictions, there are distinct differences in for instance the planning and environmental permitting regimes which are also highlighted in this article. The regulatory milestones for consent to frack can be summarised in the following steps: • consent to explore for hydrocarbons from the Department for Energy and Climate Change (DECC); • planning permission for operational development from the relevant local planning authority; • environmental permits/licences obtained from the regulator; • Coal Authority consent (if needed); • British Geological Survey to be informed; • Health & Safety Executive approval; and • DECC gives the final consent to drill and “frack”. The above is only a very high level summary and in recent months there have also been a number of announcements which are likely to result in a further refinement of regulation and possibly some further changes taking place in the coming year. Context and public acceptance The robustness of the regulatory system in the UK has been put under the microscope in recent years thanks to the US experience and concern from the public over safety and environmental harm. Investors and operators are also keen to ensure regulatory clarity and certainty to allay public concern. In April 2014 the Economic Affairs Committee of the UK parliament’s upper chamber, the House of Lords, produced a wide ranging report into the Economic Impact on UK Energy Policy of Shale Gas and Oil (House of Lords Report).2 2 HL Economic Affairs Committee, Economic Impact on UK Energy Policy of Shale Gas and Oil, 3rd Report of Session 2013–2014, available at http://www. publications.parliament.uk/pa/ld201314/ldselect/ldeconaf/172/17202.htm [Accessed April 16, 2015]. 3 HL Economic Affairs Committee, Economic Impact on UK Energy Policy of Shale Gas and Oil, para.95. 4 “Moratorium called on fracking” (The Scottish Government Newsroom), http://news.scotland.gov.uk/News/Moratorium-called-on-fracking-1555.aspx [Accessed April 16, 2015]. The House of Lords Report recommended that: 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.”3 These concerns culminated in the passage of the 2015 Act which created new safeguards for onshore hydraulic fracturing in place of a threatened moratorium on all onshore hydraulic fracturing, as has happened in other parts of the EU and in Scotland. The passage of the 2015 Act marked another split in the UK-wide regulatory framework as provisions in relation to hydraulic fracturing and access rights do not apply to Scotland. In the aftermath of Scotland’s 2014 Independence Referendum it has been agreed that such powers will be transferred to the Scottish Parliament after the Smith Commission, set up to consider further devolution of powers to Scotland, proposed changes to the powers of the Scottish Parliament. Instead, and to assuage public concerns, the Scottish Government has imposed a moratorium (using its control of the planning and environmental consenting systems in Scotland) on hydraulic fracturing until further consultation and studies have taken place.4 Shale Gas and Oil Development in the UK 2015 3 Exploration and production in the UK Exploration and production of shale resources has been hampered up until now by the lack of information as to their location. Throughout 2013 and 2014 the British Geological Survey (BGS) undertook a number of studies to determine the likely resource in place, though further exploratory work will of course be needed to determine exploitable resources. The BGS conducted studies to provide resource estimates for several areas in the UK: Midland Valley Scotland, Bowland Shale and Jurassic shale of the Weald Basin. We expect that any development would most likely take place in the carboniferous Midland Valley of Scotland5 and the carboniferous Bowland-Hodder area in Northern England.6 For Midland Valley Scotland the BGS stated that: The range of shale gas in place is estimated to be between 49.4 and 134.6 trillion cubic feet (tcf), with the central estimate for the resource being 80.3 tcf. The range of shale oil in place is estimated to be between 3.2 and 11.2 billion barrels (bbl), with the central estimate for the resource being 6.0 bbl.”7 For that part of northern England between Wrexham and Blackpool in the west, and Nottingham and Scarborough in the east the BGS stated that: The estimate for shale gas is in the form of a range to reflect geological uncertainty. The lower limit of the range is 822 tcf* and the upper limit is 2281 tcf, but the central estimate for the resource is 1329 tcf.” It is clear then that the area for focus of practitioners must include both the English and Scottish parts of the UK mainland and so a choice of regulatory systems can be made. PEDL licensing In the UK, ownership of oil and gas resources, including shale gas, was vested in the Crown by the Petroleum (Production) Act 1934. Developers looking to extract shale gas or oil can only do so under a Petroleum Exploration and Development Licence (PEDL) granted by the DECC as administrator of the licensing system. The Secretary of State issues PEDLs following rounds of applications in which interested parties bid for a licence. Each PEDL grants exclusivity for its holder to search for and exploit hydrocarbons in specified area of the UK. The UK is currently awaiting the outcome of the 14th round of PEDL awards. As part of the licensing process, DECC assess operator competency, safety management systems, well examination scheme and financial capability. PEDLs are granted for a period of time to reflect the typical cycle of a field, and would expire at the end of a set term unless the licensee can illustrate a need to progress into the next stage of the project. The PEDL system applies to Scotland, as for England, but the UK is currently going through a period of constitutional change in the wake of the 2014 Scottish Independence Referendum. Consequently, the PEDL licensing power is to be transferred to the Scottish Government under the new Scottish Bill currently before Parliament. It is therefore understood that no new PEDLs will be awarded in Scotland as part of the current licensing round. On January 28, 2015 the Scottish Energy Minister, Fergus Ewing, announced a moratorium on granting consents for unconventional oil and gas developments in Scotland whilst further research and a public consultation is carried out.8 The Scottish Government intends to: • undertake a full public consultation on unconventional oil and gas extraction; • commission a full public health impact assessment; • conduct further work into strengthen planning guidance; and • look at further tightening of environmental regulation. 5 British Geological Survey, The Carboniferous shales of the Midland Valley of Scotland: geology and resource estimation (2014), available at https://www.gov.uk/ government/uploads/system/uploads/attachment_data/file/324541/BGS_DECC_MVS_2014_MAIN_REPORT.pdf [Accessed April 16, 2015]. 6 Department of Energy and Climate Change, Bowland Shale Gas Study (June 27 2013), available at https://www.gov.uk/government/publications/bowlandshale-gas-study [Accessed April 16, 2015]. 7 British Geological Survey, The Carboniferous shales of the Midland Valley of Scotland: geology and resource estimation, introduction to report, available at http://www.bgs.ac.uk/research/energy/shaleGas/midlandValley.html [Accessed April 17, 2015]. British Geological Survey, Bowland Shale Gas Study (June 27, 2013), introduction to report, available at http://www.bgs.ac.uk/research/energy/shaleGas/bowlandShaleGas.html [Accessed April 17, 2015]. 8 “Moratorium called on fracking” (The Scottish Government Newsroom). Shale Gas and Oil Development in the UK 2015 4 We would speculate that following this process it is likely that a regime similar to that for England under ss.45–50 of the 2015 Act would be established in Scotland. For political reasons it would be unlikely that a lesser form of ‘protection’ and entitlement to community benefits, would be promoted by the Scottish Government. Physical access to unconventional hydrocarbons The single biggest issue facing this nascent industry was, until recently, gaining underground access rights from landowners. In English and Scottish law it is an established principle that, save for reservations to the Crown or others, the owner of the surface also owned everything to the centre of the earth below the property. This principle was, however, seen to be a potentially major obstacle to development where agreement with landowners could not be reached, effectively giving a power of veto to landowners regardless of whether other legal consents were in place. Mines (Working Facilities and Support Act 1966) Prior to the 2015 Act coming into force, holders of a PEDL needed to reach agreement with landowners before underground access to deep level land (or other land) would be allowed. If agreement could not be reached then an application process, under s.7 of the 1966 Act, via the Secretary of State and court to be granted access rights referred to in the legislation as “ancillary” rights. Section 7 (1) of the Petroleum Act 1998 allows the holder of a PEDL to use the 1966 Act to acquire ancillary rights (such as access) to allow development. This section remains in force and, unlike the relevant 2015 Act provisions, also applies to Scotland. This method of achieving access rights has only been used once and established principles for compensation were set out in the cases of BP Petroleum Developments Ltd v Ryder9 and Bocardo SA v Star Energy UK Onshore Ltd10. It is widely considered to be a method of consenting not fit for purpose due to the potential length of time involved and, some would argue, disproportionate use of the court system for what could be dealt with by non-judicial means. Infrastructure Act 2015 The 2015 Act, which received Royal Assent on February 12, 2015, introduced important reforms for access rights in England and Wales which came into force on April 12, 2015. S. 43 of the 2015 Act creates a new property right for operators to use deep level land that is in the ownership of other parties, in any way for the purposes of exploiting petroleum or deep geothermal energy (Right of Use). Deep level land is any land at a depth of at least 300 metres below surface level in an onshore PEDL. Although the 2015 Act creates an automatic right of access to deep level land, interested operators will still require consent from landowners for surface access above 300m. The Right of Use can be exercised in a number of ways by altering deep level land (by fracturing it); installing and using infrastructure in it; insertion of substances into it; and keeping, using or removing substances put into that land (2015 Act s.44(1)). This right would enable operators to search for petroleum, assess the feasibility of its exploitation, prepare for that exploitation and any decommission post exploitation (2015 Act s.44(2)). The Right of Use is a property right but does not permit the extraction of petroleum or deep geothermal energy which as explained, is dealt with under PEDL regime. The Right of Use includes the right to leave deep-level land in a different condition from the condition it was in before an exercise of that right (2015 Act s.44 (3)). However of particular significance to energy companies is the limitation on the Right of Use; it can offer no greater rights or relief from obligations and liabilities than if the property right had been granted by agreement with landowners. Further, if any damage is caused by a company while exercising the Right of Use, the landowner would not be liable in tort for any loss or damage caused to third parties (2015 Act s.44(5)), unless the loss or damage was attributable to deliberate omission of the landowner (2015 Act s.43(6)). 9 BP Petroleum Developments Ltd v Ryder  2 E.G.L.R. 233;  R.V.R. 211 Ch D. 10 Bocardo SA v Star Energy UK Onshore Ltd  UKSC 35;  3 W.L.R. 654;  3 E.G.L.R. 145. Shale Gas and Oil Development in the UK 2015 5 The 2015 Act enables DECC to create, by future regulations, a Payment Scheme and a Notice Scheme (2015 Act ss.45, 46). The Payment Scheme (2015 Act s.45) may require relevant energy undertakings to make payments in respect of the proposed or actual exercise of the Right of Use. The regulations can require payments be made to owners of or those with an interest in land and to other persons for the benefit of areas in which the relevant land is situated. The level of payments can be set by these regulations or they may determine a method by which the payments are to be calculated. These regulations may also state that information is provided to the Secretary of State on the Right of Use in a given circumstance or on the making of payments. The Notice Scheme (2015 Act s.46) may require notification be given to the owners of land or other specified persons of the proposed exercise, or exercise, of the Right of Use. Notices may also have to be displayed in the area and published. The regulations can make provision for the type of information contained in the notices and specify the manner of display and publication. These regulations may also require that information is provided to the Secretary of State on the Right of Use. The Payment Scheme and Notice Scheme may also contain enforcement provisions and financial penalties for any breaches (2015 Act s.47(1)). It is likely that no formal regulations on the Payment and Notice benefit scheme will be forthcoming as there is a requirement under section 50 of the 2015 Act to have such a scheme in place prior to the grant of hydraulic fracturing consent (see p. 8 and 9 below). This is because the industry itself and individual operators are proposing a fairly generous benefit and notification schemes which will discharge this requirement. The House of Lords Report considered that industry developed schemes should be given a chance to prove themselves, and so the Payment Scheme may be seen as a last resort power: 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.”11 Regulatory framework at UK level Gaining a PEDL and right to access resources is a precursor before interacting with the formal regime to explore and exploit shale resources. The 2015 Act confirms that DECC will be responsible for granting the final ‘hydraulic fracturing consent’ once operators have obtained other relevant consents and permits. The consenting regime between obtaining a PEDL and DECC’s hydraulic fracturing consent is further complicated by the quasi-federal structure of the UK. This next section sets out the relevant consents required in England and Scotland, though the hydraulic fracturing consent under the 2015 Act s.50 applies to England only (though DECC must give final consent to drill in Scotland). Environmental Risk Assessment As a matter of good practice, DECC has advised that an Environmental Risk Assessment (ERA) is undertaken as soon as possible, and in any case, before an operator applies for planning consent. Upon securing a PEDL and property rights, licensees will be required to carry out an ERA of the full life cycle of proposed shale gas activities, including risks associated with wastes and well abandonment, before commencing operations. The purpose of an ERA is to provide a prioritised review of key environmental risks from the outset of proposed activities and to maintain an ongoing assessment of the project as it develops. When framing the issues in an ERA, developers should provide a highlevel overview of the geological, hydrogeological, and biodiversity characteristics of the operational area, as well as identify environmental (including health) impacts that activities may have on personnel associated with the activities and the public. While it is recognised that current evidence on shale gas development in the UK remains limited, DECC has recommended a selection of “good practice” guidance to help operators understand the risks associated with proposed activities. An ERA should be based on comprehensive evidence, as the assessment could subsequently be used to inform the operator’s application for an environmental permit or any Environmental Impact Assessment that may be required by the relevant planning authority. Coal Authority consent Consent of the Coal Authority in the UK under the Coal Industry Act 1994 (1994 Act) is required for any well entering into or passing through a coal seam. This will be given by way of a formal application process which may result in a permit being issued by the Coal Authority. 11 HL Economic Affairs Committee, Economic Impact on UK Energy Policy of Shale Gas and Oil, paras 86, 95. Shale Gas and Oil Development in the UK 2015 6 British Geological Survey To commence the drilling process, the Mining Industry Act 1926 makes provision for the “notification of intent to sink boreholes and shafts and subsequent provision of information”. Such powers have been transferred to the Natural Environment Research Council by the Science and Technology Act 1965. The BGS requires information on any borehole that is intended to penetrate to a depth greater than 30.5m or the deepening of an existing well12. Health & Safety Executive Drilling activities are also regulated by the Health and Safety Executive (HSE), the body responsible for monitoring well integrity and site safety during onshore oil and gas operations under the Health and Safety at Work etc Act 1974 and associated regulations. In light of evidence from available case studies, a major health and safety focus in the UK is on well construction and design. Where groundwater contamination has happened in the US, this has been attributed to structural faults of wells. Operators must satisfy stringent safety requirements before construction of a drilling site. Under reg.6 of the Borehole Site and Operations Regulations 1995 (BSOR), operators must notify the HSE of the well design and operation plans at least 21 days before drilling is planned to ensure likely impacts on well integrity and major accident risks can be addressed. This requirement is in addition to the duty to notify the Environment Agency (EA), the Scottish Environmental Protection Agency or Natural Resources Wales of the intention to drill. HSE specialist wells inspectors will assess well notifications submitted by operators to ensure proposed designs are compliant with industry standards and requirements of the Offshore Installation and Wells (Design and Construction) Regulations 1996 (DCR), which also applies to wells drilled onshore with a view to extracting shale gas. In addition to undergoing the HSE notification procedure, the DCR requires operators to establish a Well Examination scheme and appoint an independent Well Examiner to verify proposed and actual drilling operations throughout the lifecycle of a well, from design through to abandonment. The HSE works with the Scottish Environmental Protection Agency, the EA and DECC to share relevant information on well design and construction to ensure that there are no material gaps between the safety, environmental protection and planning authorisation considerations. DECC consent to drill and frack Following satisfactory assessment by the HSE and the environmental regulators, DECC will consider granting consent to drill. This is subject to investigation of the operator’s competency and stability. During construction of a drilling site, HSE inspectors will continue to monitor well operations based on weekly reports submitted by the operator. The duty is on operators to ensure that wells are cased using steel and cement, and rigorously tested for pressure integrity, leak-offs formation integrity and quality of cement bonds. Suitable well control equipment must also be provided to protect against uncontrolled release of materials from wells. In the exploration phase, the HSE and regional environmental regulator will conduct joint investigations of drilling operations with particular focus on new or first time shale gas operators. If an operator plans to conduct hydraulic fracturing operations on a specific well which has been drilled, they must separately request for a hydraulic fracturing consent from DECC. 12 Department of Energy and Climate Change, Onshore oil and gas exploration in the UK: regulation and best practice (December 17, 2013), available at https:// www.gov.uk/government/publications/regulatory-roadmap-onshore-oil-and-gas-exploration-in-the-uk-regulation-and-best-practice, [Accessed April 17, 2015]. Shale Gas and Oil Development in the UK 2015 7 Planning and environmental permitting in England Planning Companies seeking to undertake exploratory investigations and test for shale gas in England and Wales must apply for planning permission. The Minerals Planning Authorities (MPA) will process an application for operational development (e.g. construction of on-site facilities) under the Town and Country Planning Act 1990 (1990 Act) and Town and Country Planning (Development Management Procedure) (England) Order 2015, based on planning guidance, both national and local, and within the English ‘National Planning Policy Framework’ (NPPF). As part of that process public consultation will take place before and after submission of any planning application. Within the planning process in England and Wales, in addition to requirements for consultation there will usually be the need, depending on the size of development, to provide an Environmental Impact Assessment (EIA) under the Town and Country Planning (Environmental Impact Assessment) Regulations 2011 (2011 Regulations) although industry advice is that all proposals for hydraulic fracturing should provide an EIA. Prior to the submission of a planning application a developer should submit a request for a screening opinion to the LPA to confirm that an EIA is required. The likely significant effects of the project should be set out in the EIA. The MPA will make a decision on the merits of the application and can make any planning permission subject to reasonable conditions. An Environmental Statement will be submitted along with any planning application to the MPA which requires an EIA. As explained below, under section 50 of the 2015 Act hydraulic fracturing is banned for operations in protected areas such as National Parks and Areas of Outstanding Beauty although not for operations outside these areas which may horizontally drill under these areas and such proposals will be determined at the planning stage dependant on the EIA. It is also important to note that a separate planning permission is required for each stage of the process, exploration, commercial appraisal and finally production. Environment Under the current regime, onshore oil and gas exploration sites require bespoke environmental permits from the EA. However, the EA has confirmed an intention to produce standard rules permit.13 Under the Environmental Permitting Regulations 2010 (SI 2010/675) (EPR 2010) operators are advised to discuss permitting requirements with the EA if shale gas activities will involve the following “regulated activities”: • groundwater activities where there is a risk of an indirect discharge to groundwater from the proposed operations. Operators must ensure that hydraulic fracturing will not take place within a groundwater source protected zone (SPZs), as designated by the EA under the Water Framework Directive 2000/60/EC; • mining waste activities where a well is being drilled and extractive waste is being managed. • radioactive substances activity to manage Naturally Occurring Radioactive Materials (NORM) from a well that is producing oil and gas. A permit is needed for the flow-back fluid if radioactive substances are present and treatment and disposal may take place on-site; • water discharge activity if surface water run-off becomes polluted; and • industrial emissions activity if an operator intends to flare more than 10 tonnes of waste gas per day. Regulation 17 of the EPR 2010 provides that a single environmental permit can be granted for all of the above activities, subject to a public consultation on the application. Further applications may need to be submitted where an operator intends to move from exploration to commercial exploitation of shale gas. As noted above, hydraulic fracturing relies on high volumes of water. Operators intending to abstract water of at least 20 m3 per day directly over a period of 28 days from each surface or groundwater source will need a water abstraction licence from environmental regulators under s.24 and s.25 of the Water Resources Act 1991 (WRA 1991). Prior groundwater investigation consent will also be required from the EA to perform drilling and test pumping for potential abstraction. Each abstraction licence will impose a maximum time limit of 12 years, although a longer period may be granted subject to additional requirements. Under the WRA 1991, all shale gas operators must notify the EA of their intention to drill a borehole and to search for or extract materials. The notification must illustrate how operators intend to protect water resources, including groundwater, during the construction and use of a borehole. Importantly, operators must disclose to the EA the chemicals they propose to use for drilling and for well stimulation. Finally, a flood defence consent would be required if a proposed site is near a main river or a flood defence. Given the complexity of regulations surrounding exploration activities, the EA recommends that operators apply for planning permission and environmental permits in parallel to avoid unnecessary delays. 13 Environmental Agency, Onshore oil and gas exploration operations: draft technical guidance (July 31, 2013), available at https://www.gov.uk/government/ consultations/onshore-oil-and-gas-exploratory-operations-draft-technical-guidance [Accessed April 17, 2015]. Shale Gas and Oil Development in the UK 2015 8 Section 50 of the 2015 Act Although the planning and environmental regimes noted above were widely considered to be robust the House of Lords Report noted that “onshore shale gas cannot be developed in the UK without public acceptance”.11 In an effort to assuage public concerns on the robustness of the regulatory framework, section 50 of the 2015 Act, which will enter into force at a date to be confirmed by DECC, would impose new safeguards on hydraulic fracturing operations by the creation of a separate “hydraulic fracturing consent” (HFC) under section 4A of the Petroleum Act 1998 (1998 Act). Accordingly, hydraulic fracturing would be prohibited under any circumstances in land at a depth of less than 1000 metres. However, operators would only be able to frack at a depth of 1000 metres or more in accordance with a HFC from DECC despite all other consents being in place. Only a licensee can apply for a HFC (new s.4A of the 1998 Act), which means only those who have been granted a licence to search and bore for and get petroleum (s.3 of the 1998 Act). The HFC can only be issued if DECC is satisfied that the following preconditions have been achieved by an operator: • appropriate arrangements have been made to enable ongoing monitoring of emissions of methane into the air (new s.4A(6) (a) of the 1998 Act); • a scheme is in place to provide financial or other benefit for the local area (new s.4A(6)(b) of the 1998 Act); and • regulatory and planning conditions set out in col.1 (below) have been fulfilled prior to seeking consent. Evidence of documentation listed in col.2 (below) would allow the Secretary of state to be satisfied that the associated condition has been met. Importantly, a HFC can be granted subject to additional conditions “which the Secretary of State thinks appropriate” and a breach of conditions would be treated as a breach of a well consent (s.4A(8) of the 1998 Act, as amended by the 2015 Act). Column 1: conditions Column 2: documents The environmental impact of the development which includes the relevant well has been taken into account by the local planning authority A notice given by the local planning authority that the environmental information was taken into account in deciding to grant the relevant planning permission Appropriate arrangements have been made for the independent inspection of the integrity of the relevant well A certificate given by the Health and Safety Executive that it: (a) has received a well notification under reg.6 of the Borehole Sites and Operations Regulations 1995; (b) has received the information required by reg.19 of the Offshore Installations and Wells (Design and Construction, etc.) Regulations 1996; and (c) has visited the site of the relevant well The level of methane in groundwater has, or will have, been monitored in the period of 12 months before the associated hydraulic fracturing begins An environmental permit has been given by the relevant environmental regulator which contains a condition that requires compliance with a waste management plan which provides for monitoring of the level of methane in groundwater in the period of 12 months before the associated hydraulic fracturing begins Appropriate arrangements have been made for the monitoring of emissions of methane into the air An environmental permit which contains a condition requiring compliance with a waste management plan which provides for the monitoring of emissions of methane into the air for the period of the permit The associated hydraulic fracturing will not take place within protected groundwater source areas A decision document given by the relevant environmental regulator (in connection with an environmental permit) which indicates that the associated hydraulic fracturing will not take place within protected groundwater source areas 11 HL Economic Affairs Committee, Economic Impact on UK Energy Policy of Shale Gas and Oil, para.78. Shale Gas and Oil Development in the UK 2015 9 Column 1: conditions Column 2: documents The associated hydraulic fracturing will not take place within other protected areas A notice given by the local planning authority that the area in respect of which the relevant planning permission has been granted does not include any land which is within any other protected areas In considering an application for the relevant planning permission, the local planning authority has (where material) taken into account the cumulative effects of (a) that application; and (b) other applications relating to exploitation of onshore petroleum obtainable by hydraulic fracturing A notice given by the local planning authority that it has taken into account those cumulative effects The substances used, or expected to be used, in associated hydraulic fracturing (a) are approved; or (b) are subject to approval, by the relevant environmental regulator An environmental permit has been given by the relevant environmental regulator which contains a condition that requires substances used in associated hydraulic fracturing to be approved by that regulator In considering an application for the relevant planning permission, the local planning authority has considered whether to impose a restoration condition in relation to that development A notice given by the local planning authority that it has considered whether to impose such a condition The relevant undertaker has been consulted before grant of the relevant planning permission A notice given by the local planning authority that the relevant undertaker has been consulted The public was given notice of the application for the relevant planning permission A notice given by the local planning authority which confirms that the applicant for the relevant planning permission has certified that public notification requirements, as set out in a development order, have been met. Shale Gas and Oil Development in the UK 2015 10 Planning and environmental permitting in Scotland The Infrastructure Act s.50 will not apply to Scotland which also has its own planning and environmental consenting regimes. Planning Unlike England, the Scottish planning system does not have an MPA. Scotland has planning authorities who also deal with minerals applications for their regions under the Town and Country Planning (Scotland) Act 1997 (as amended by the Planning etc (Scotland) Act 2006). The framework for decision making comes from the Town and Country Planning (Hierarchy of Developments) (Scotland) Regulations 2009 and the Town and Country Planning (Development Management Procedure) (Scotland) Regulations 2013. An EIA may also be required though the legislative framework is slightly different from England coming under the Environmental Impact Assessment (Scotland) Regulations 1999 (amended 2002), and the Town and Country Planning (Environmental Impact Assessment) (Scotland) Regulations 2011. In outline, pre-application consultation will take place after which a planning application and EIA would be submitted to the planning authority for consideration. In order to be granted planning consent a proposal would need to be in line with the relevant development plan and wider Scottish Planning Policy, which in relation to this form of development also states that applicants should suggest buffer zones between developments and communities. However, as mentioned above the Scottish Government for the time being has imposed a moratorium on hydrolic fracking. Therefore, no planning consent may be granted in Scotland until further consultations and studies have taken place. Environment The Scottish Environmental Protection Agency (SEPA) is responsible for controlling environmental impacts associated with the exploration and extraction of unconventional gas. However, as SEPA does not have power to directly regulate the fracturing of rocks, fracturing activities would largely be managed through water pollution controls under the Water Environment (Controlled Activities) (Scotland) Regulations 2011 (the CAR regime). CAR is the main licensing regime for regulating large industrial water users in Scotland. Operators will require a CAR licence to undertake the following activities associated with shale gas exploration and extraction: • borehole construction. Operators intending to construct a borehole with a depth greater than 200m will require a licence from SEPA; • injection of fracturing fluid. Operators must obtain prior authorisation from SEPA to inject fracturing fluid underground, subject to groundwater monitoring conditions; • details of all the chemical additives contained in drilling and fracturing fluid must be submitted in the application. Abstraction of water to be used during fracturing, unless supply is sourced through a water company; • abstraction of flow-back water where groundwater is abstracted from a borehole; and • management of abstraction fluids on site. Any authorisations granted by SEPA will be granted subject to conditions and monitoring requirements. As in England, the production of flow-back fluid from hydraulic fracturing is a mining waste activity and would require an agreed waste management plan approved by SEPA. Under the Management of Extractive Waste (Scotland) Regulations 2010, operations will need to have a waste management plan in place and be able to demonstrate to planning authorities how they will store and dispose of waste materials safely. In addition, a pollution and prevention and control (PPC) permit is required under the Pollution Prevention and Control (Scotland) Regulations 2012 for the processing of gas on site. However, it should be noted that a PPC permit would not apply to initial exploratory drilling operations associated with shale gas development. The PPC regime applies to activities involving refining of gas, gasification or other heat treatments, combustion, or disposal of solid and liquid wastes. The production of oil and gas is classed as a NORM Industrial Activity under the Radioactive Substances Act 1993 (RSA 1993). Authorisations must be obtained from SEPA where extraction activities will result in the keeping, accumulation and disposal of materials with concentrations of radioactive substances beyond a specified threshold (set out in Sch.1 to the RSA 1993). In relation to fracking operations, fluids that flow-back to the surface after fracking operations will likely contain NORM. Under the Environmental Liability (Scotland) Regulations 2009 (ELR), SEPA must be notified where operators have caused, or are likely to cause, land or water damage as a result of shale gas development. Further, the Scottish Natural Heritage should be notified if damage is caused, or likely to be caused, to protected species and natural habitats. Shale Gas and Oil Development in the UK 2015 11 To complete the pre-drilling process in Scotland, operators will need to seek a consent from DECC to fracture, in addition to the consent to drill, once all planning permission and environmental permits have been obtained. In contrast to the requirement for a HFC in England, the consent to fracture in Scotland is based on the regulatory regime which existed prior to the 2015 Act. While not required by statute, DECC would only grant a consent to fracture once it is satisfied, following communications with the HSE and the Scottish Environmental Protection Agency, that all operational and management systems are in place. Future changes England The new Right of Use under the 2015 Act came into force on 12 April 2015. Section 50 which created the new HFC has not at the time of writing had a confirmed date for coming into force. It is clear that going forward in England we can expect further regulations to be made on the 2015 Act’s Payment and Notice Schemes as well as in relation to the HFC under section 50. Scotland As noted above, the Scottish Government is taking forward new work streams relating to the evidence base whilst the moratorium is in place for decision making by: • undertaking a full public consultation on unconventional oil and gas extraction; • commissioning a full public health impact assessment; • conducting further work into strengthen planning guidance; and • Looking to further tighten environmental regulations. It may be that s.50 of the Infrastructure Act will be seen as a model equivalent for new legislation covering Scotland after the above work streams reach their conclusions. On 22 January 2015, the UK Government published a Command Paper containing draft clauses which aim to take forward the proposals contained in the Smith Commission Agreement between all five main Scottish political parties on more powers for the Scottish Parliament. Paragraph 69 of the Smith Commission Agreement stated that: The licensing of onshore oil and gas extraction underlying Scotland will be devolved to the Scottish Parliament. The licensing of offshore oil and gas extraction will remain reserved.” Draft cl.31 of a proposed Scotland Bill will devolve to Scottish Ministers the current regime for the licensing of exploration and extraction of oil and gas. Further, the clause will transfer to the Scottish Parliament legislative competence for the licensing of onshore oil and gas exploration and extraction.14 Paragraph70 of the Smith Commission Agreement also stated that: Responsibility for mineral access rights for underground onshore extraction of oil and gas in Scotland will be devolved to the Scottish Parliament.” Draft cl.31 confers legislative competence on the Scottish Parliament in relation to access rights for onshore oil and gas. Subsection II transfers executive functions to the Scottish Ministers in relation to access rights for onshore oil and gas.15 There will follow a process of consultation before a new draft Scotland Bill is laid before parliaments. According to the UK Government’s Command Paper, the next session of the UK Parliament will see these clauses brought forward in a new Scotland Bill. In order for the Bill to be ready the coming months will see work to further refine the clauses, to consider questions of commencement and consequential amendments to other legislation, and to prepare the documents that usually accompany a Bill on introduction. 14 Scotland Office and The Rt Hon Alistair Carmichael, Scotland in the United Kingdom: An enduring settlement (January 22, 2015), available at https://www.gov.uk/government/publications/scotland-in-the-united-kingdom-an-enduring-settlement [Accessed April 17, 2015], p.76. 15 Scotland Office and The Rt Hon Alistair Carmichael, Scotland in the United Kingdom: An enduring settlement, p.77. www.bonddickinson.com This communication is provided for general information only and does not constitute legal or other professional advice. You should consult a suitably qualified lawyer on any specific legal problem or matter. BD.1722 Claire Brook Partner, Bond Dickinson LLP T: +44 (0)113 290 4421 E: claire.brook @bonddickinson.com Anthony McNamee Solicitor (Qualified in Scotland and in England & Wales) T: +44 (0)117 989 6778 E: anthony.mcnamee @bonddickinson.com Kevin Gibbs Partner, Bond Dickinson LLP T: +44 (0)117 989 6930 E: kevin.gibbs @bonddickinson.com Key contact(s) Conclusion The new regulations for England and any new Scotland Bill are both to some extent dependant on the new Government to determine the form of regulations to be made under the 2015 Act and new Scotland Bill clauses. Further, the Scottish Parliament also holds elections in May 2016 which will impact on the consenting regime in Scotland. Therefore whilst there are still some uncertainties ahead, particularly relating to Scottish devolution, the regulatory framework for shale activities in the UK is now mostly in place. From any viewpoint it is a legally robust framework which should provide the necessary re-assurance, that in the UK at least, safety and environmental risks will be minimised. Whilst this article explores the overall regulatory framework for hydraulic fracturing, it does not address the wider question of impact of the technology on climate change which is an ongoing political debate. However, in the UK, the Government has to date decided to pursue the technology as part of the country’s future energy mix, but as has been explained, subject to a very strict regulation.