As the referendum on Scottish Independence fast approaches, this article examines recent developments in the regulation of shale gas and the potential implications of a "yes" vote for this emerging industry.

In a recent speech to the UK Shale Conference Michael Fallon MP, Minister of State for Energy, expressed the government’s commitment to shale gas as part of the UK’s energy security strategy. However, the forthcoming referendum on Scottish Independence creates uncertainty for the sector, particularly regarding issues such as regulation of future exploration and extraction. As the referendum fast approaches, we examine some recent developments in this area which sets the scene upon which the referendum is taking place.

The current legal landscape

Several regimes interact to govern "fracking'" in the UK, which includes the drilling of exploratory wells and production. Presently, the main consents which would  be needed for shale gas exploration include consent from landowner(s), planning permission from the relevant local planning authority and a petroleum exploration and development licence (PEDL) from the Department for Energy and Climate Change (DECC). In addition, once an exploration project has proven the extraction of shale gas/oil is viable, further consents will be needed for field development and production.

"Go all out for shale"

The House of Lords Economic Affairs Committee has recently published a report on the Economic Impact on UK Energy Policy of Shale Gas and Oil (May 2014) urging the Government to seize shale gas as an economic opportunity. The report recommends that the exploration and development of shale gas and oil should be recognised as an "urgent national priority", as a means to reduce the UK's dependence on fuel imports. Of particular significance was the proposal to amend the law of trespass to enable operators to exploit gas reserves under privately-owned land, in spite of the owners' objection.

What are Scotland’s shale gas reserves?

A report by the British Geological Survey (BGS) published on 30 June 2014 indicates that shale gas reserves in Scotland may be lower than those south of the border.  The amount of shale gas available in the Midland Valley of Scotland is estimated to be considerably lower than the amount available in the Bowland-Hodder shales in Northern England (1,300 trillion cubic feet) and the shale oils estimates in the Weald Basin of southern England (4.4 billion barrels). The BGS has identified that around 80 trillion cubic feet of shale gas and six billion barrels of oil lie beneath central Scotland which the BGS considers is a "modest" amount.  Further exploratory work is needed to confirm the recoverable shale resource of both Scotland and England.

DECC Consultation

Right of underground access

Shortly after the House of Lords Report noted above was published, DECC launched a consultation on new measures for access to land for drilling, which closes on 15 August 2014. The government believes that existing procedures are costly, disproportionate and may prevent the development of the shale industry as the current procedure allows individual landowners power to delay developments where horizontal drilling would take place beneath the surface of their property. 

Currently a company wishing to carry out underground operations might pass through land which belongs to a number of owners and will have to approach each landowner on an individual basis to negotiate access to land both at surface and underground level. Where negotiations fail, oil and gas operators can make an application to the Secretary of State for a case to be referred to the High Court in England or Court of Session in Scotland (although there is no precedent for this procedure in the shale gas industry).

The government has sought to tackle this issue by proposing underground access rights for companies extracting gas in land at least 300m below the surface. Any works less than 300m below surface will continue to require an agreement with the individual landowners or a court order granting access rights.

Payment in return for right of access

Currently, where agreement is voluntarily reached with landowners, they will generally receive a contractually agreed payment in return for rights of access granted. However, the DECC Consultation proposes that a voluntary payment is made to the relevant community which will be affected by the development. The shale gas industry has already proposed a £20,000 one-off payment for each horizontal well which extends by more than 200m laterally. Alongside this the DECC Consultation proposes a public notification system where the developing company will outline its proposed measures. However, like the community payment, it is proposed that this will be delivered through an industry voluntary agreement rather than new legislation.

DECC has confirmed that its consultation applies to both Scotland and England, though some changes may require the consent of the Scottish Parliament.  The UK government is of the opinion that a statutory right of access would be an appropriate solution to current difficulties encountered by developers seeking to explore the UK’s shale gas reserves.

Tighter policy controls in Scotland?

By contrast, Scotland’s Planning Minister has announced what some view as tighter planning controls on shale gas development going forward. Policies contained in the Scottish Planning Policy (SPP) to reduce the impact of hydraulic fracturing on communities include:

  • Applicant proposed buffer zones to protect communities and environmentally sensitive areas. Distances of proposed buffer zones must be assessed by the planning authority and statutory consultees, with the expectation that planning permission should be refused if they are unacceptable.
  • Requiring applicants to undertake risk assessments to identify onsite activities (such as the emission of pollutants and disposal of waste) and determine the appropriateness of buffer zones. Risk assessments should follow an evidence-based approach.
  • Requiring operators to disclose their plans and engage in consultation with communities.
  • Planning conditions to ensure that hydraulic fracturing does not take place where permission has not been sought. Developers will be required to submit a new planning application, subject to consultation, if they subsequently intend to commence fracking operations.

Though it might be argued that these policy changes will constrain development of the shale gas industry in Scotland, it should be noted that they could come to represent best practice in this emerging industry. In addition, the revised SPP may not be unduly onerous in practice as developers are already accustomed to undertaking significant community engagement before submitting planning applications.

Future developments

At present, there is strong support for shale gas industry in Westminster, and this is reflected in DECC's recent proposal to relax property restrictions in favour of shale gas development. This is tempered by changes to SPP which suggests a more cautious approach to shale gas north of the border. Notwithstanding the outcome of the referendum, the different UK jurisdictions will continue to have separate planning regimes for shale gas developments.

Though the planning systems are separate, if the referendum results in a "yes" vote, there would still be an intervening period where the DECC regime remains in its current form while an independent Scottish government was established. However, the future of regulations currently administered by DECC (such as petroleum licensing regime) remains uncertain.

Decisions regarding policy and future regulations will be determined by successive governments based on the viability of shale gas as an energy resource in Scotland and, of course, national needs. As indicated in the Scottish government's publication Scotland's Future, "decisions on alternative fuel sources, or the appropriate energy mix, will be for future Scottish governments".