We are entering a period of potentially significant change for the extractive industries in the UK. The UK Government has recently launched its Consultation on proposals for Underground Access for the Extraction of Gas, Oil and Geothermal Energy. Shortly after this, the new Infrastructure Bill was introduced into the House of Lords. Further, Key Recommendations were tabled by a recent Committee Report (endnote 1) comprising:
- a new Cabinet Committee under the Chancellor to action the commitment to “go all out for shale”;
- streamlining of the regulatory structure;
- Government to promote the economic benefits of shale, while reassuring the public that with the correct framework any environmental risks are low; and
- Industry to engage with communities, meticulously observe regulations and build on its community benefit schemes.
The Government is pushing forward with the proposals at speed. While the Infrastructure Bill does not yet contain the legislative provisions to amend the access rights regime, these may well (subject to the outcome of the consultation), be included as Government amendments as the Bill progresses through Parliament
Accessing the Shale
Access to shale is complicated by the nature of land ownership in the UK where the landowner’s permission would be needed to extract shale. If permission is denied, compulsory acquisition may be possible but the ancillary rights procedure is not fit for purpose. The Committee recommends that legislation be amended to ensure that subsurface drilling for oil and gas can go ahead without undue delay or cost, as contained in the recently published Consultation on Underground Drilling Access. This Consultation makes the radical proposals outlined below for shale gas and oil:
- Unfettered right of underground access to land below 300 metres (circa 1000 feet) from the surface to companies exploring and/or extracting oil, gas or geothermal energy.
- Payment in return for Access: Government supports the industry’s voluntary offer for a payment system to involve a £20,000 one-off payment to an agreed community body for each unique lateral (horizontal) well that extends by more than 200 metres laterally.
- Voluntary notification system for the community through the same industry voluntary agreement as the payment above, rather than set out in statute. The notifying company would outline matters such as the relevant area of underground land, coupled with details of the payment that will be made in return for the access.
Incentives and Public Engagement
Identification of economically recoverable reserves is a key issue that cannot be addressed until enough exploratory wells are drilled and production tested. Based on the evidence heard, the Committee was of the opinion that large scale production will not take place until the next decade – unless immediate and effective action is taken. The snail’s pace of exploration is partly attributed to issues of public acceptability, although the support of ministers and potential for community benefits are noted as positives. But ministers do not support proposals to enshrine community benefit schemes in legislation, preferring a “legally binding commercial transaction”.
The environmental impact of shale gas development in the UK is not seen as a potential block on the industry; it is the planning or regulatory regime which may constitute such a hurdle. Any risks to groundwater from methane or waste water entering aquifers is considered by the Committee to be ‘very low’, so long as independent monitoring ensures that wells are properly constructed and sealed. Controls introduced by DECC to mitigate the risks of seismic activity meant that the Committee stated that:
“there should be no risk that seismic activity caused by hydraulic fracturing would be of sufficient magnitude to constitute any risk to people or property.”
Impacts on health were also viewed to be low provided there was proper regulation. However, the Report stresses that legitimate and exaggerated fears must still be taken seriously, and tackled by industry and government.
The Regulatory Regime
The regulatory system is summarized in the report and was noted to be a “world class set of regulations” by some witnesses. The Secretary of State for the Environment and the Environment Agency noted plans to standardise some permits but the Committee doubted that these could happen without further change to the overall framework.
The slow progress of exploration to date appears to be in part due to the planning and permitting process but also from the Environment Agency being on a ‘learning curve’ which is resulting in bureaucratic complexity and diffusion of authority.
Impact of the Government Announcements
The Consultation on access and an Infrastructure Bill present an opportunity for many of the
Committee Report’s recommendations to be given legislative effect. The Second Reading of the
Infrastructure in the House of Lords is took place on 18 June 2014 and the results of the
Consultation should come out soon.