The Energy and Climate Change Secretary Edward Davey announced on Thursday 13 December 2012 that exploratory fracking for shale gas will be allowed to resume in the UK. The announcement was contained in a detailed Ministerial Statement which set out the Minister's conclusion that the risk of seismic activity posed by fracking can be adequately mitigated with additional controls.
The go ahead follows the Government's recent announcement of a new Gas Generation Strategy which envisages a significant increase in gas-fired power generation in the UK by 2030 (see our e-bulletin of 7 December 2012 for further detail). It is expected that this new generation capacity will replace coal-fired and other aging plants. It will also provide flexible generation, which will help balance the relatively inflexible and intermittent low-carbon generation to be developed with support from levies on fuel bills in accordance with Government policies promoting low-carbon technologies.
In view of declining indigenous gas production in the UK North Sea, the Gas Generation Strategy also contemplates a special tax regime for shale gas extraction to promote domestic gas production and enhance security of gas supply.
To date there has been no commercial shale gas production in the UK. As discussed in detail in our e-bulletin of 24 April 2012, exploratory fracking operations had been undertaken by Cuadrilla Resources in Lancashire in early 2011, but were voluntarily suspended after being linked to two earth tremors in the region.
An independent study concluded that although the seismic activity had in all likelihood been caused by fracking, the risk posed by such tremors was low and the size of such tremors would not cause significant property damage, although they might cause public alarm.This study was then put out for public consultation.
Meanwhile, a subsequent report by the Royal Society and Royal Academy of Engineering in June 2012 (the RSRAE Report) concluded that the health, safety and environmental risks associated with the technique could be effectively managed.
2. Controlling seismic risk for shale gas fracking operations
In the Ministerial Statement, which can be read in full here, Edward Davey stated that shale gas "could contribute significantly to [the UK's] energy security, reducing our reliance on imported gas, as we move to a low-carbon economy", and that the seismic risks associated with fracking "can be managed effectively with controls". Mr Davey emphasised that this conclusion was based upon the latest scientific research, including the RSRAE Report, advice from leading experts, and responses to DECC's consultation.
Exploration drilling will now be subject to new controls including requirements to:
- assess the seismic risk and the existence of faults before exploratory fracking begins;
- submit a fracking plan to DECC showing how seismic risks will be managed;
- monitor seismic activity before, during and after fracking; and
- implement a new traffic light system categorising seismic activity and setting out appropriate responses, including a trigger mechanism to stop fracking operations in some circumstances.
The announcement paves the way for Cuadrilla Resources (to date the only operator to have actually undertaken any exploratory fracking in the UK) to resume exploratory operations and it has already confirmed that it will do so as soon as possible. In addition, other operators are understood to have obtained planning permissions and are likely to closely follow suit.
The Minister has set the level at which a red light event will be triggered under the traffic light system referred to above for Cuadrilla's current exploration fracking operations. If the red light is triggered, this would require immediate suspension of operations. The Minister further observed that as experience of such operations develops, it may prove to be the case that these trigger levels can be adjusted upwards without compromising the controls.
For the first few fracking operations, DECC will have an independent expert on site to observe operations and monitor compliance.
3. Controlling seismic risk for other fracking operations
Although last Thursday's announcement was primarily concerned with fracking for shale gas, Mr Davey also stated that there will be additional controls for other oil and gas fracking activities. These have been carried out onshore and offshore in the UK for many years and use smaller volumes of fluid than are used in fracking for shale gas. Oil and gas operators proposing such fracking will now be required in all cases to:
- submit an analysis of the risks of any seismic activity being caused by the proposed operations;
- conduct appropriate monitoring; and
- inform planning authorities and local residents of planned operations.
DECC will impose appropriate levels of control wherever the risk is more than negligible.
4. Existing regulatory controls
The Minister emphasised that the new controls do not remove any of the existing regulatory requirements. Fracking activities will be subject to intense regulatory scrutiny, not only by DECC but also the Environment Agency (EA) (or the Scottish Environment Protection Agency in Scotland), the Health and Safety Executive (HSE) and planning authorities. The EA has already published guidance setting out its role in relation to exploratory shale gas operations (available here), which covers issues such as water abstraction, groundwater, waste and radioactive substances.
Tony Grayling, Head of Climate Change and Communities at the EA noted that it has established a Shale Gas Unit "to ensure there is an effective, streamlined approach for the regulations that fall within our responsibility". The EA has also published a paper with the HSE on their joint approach to unconventional oil and gas developments more generally (available here).
5. Mandatory environmental risk assessment
The Minister stated that DECC will require licensees to carry out a comprehensive high level assessment of environmental risks of proposed exploration or production operations and to consult with stakeholders including local communities as early as practicable in the development of their proposals.
This assessment will be in addition to requirements imposed by current planning procedures (which may include a requirement for an Environmental Impact Assessment), the Environmental Permitting (England and Wales) Regulations 2010 and under the Health and Safety at Work Act 1974.
6. Recent developments in the US and the EU
The Ministerial Statement refers to the extensive experience of shale gas fracking in the US and also highlights the robust regulatory controls on oil and gas activities in the UK including:
- the role of the Environment Agency (in respect of England and Wales) and the Scottish Environment Protection Agency (in respect of Scotland) in relation to water use and disposal of waste water;
- the HSE's responsibility for scrutiny of well design and operational plans;
- the requirement for an independent competent person to review well operations; and
- the need for planning permission.
Responding to requests that the EU intervene to stop shale gas activities, the European Commissioner for the Environment released a statement in November 2012 noting that the European Commission is not endowed with the competence to do so, nor is it empowered to impose an EU-wide moratorium. However, the statement confirms that the European Commission has commenced work on a risk management framework for unconventional fossil fuels, in particular shale gas developments, and is currently assessing what form such framework might take (read statement in full here).
There have been differing policies towards shale gas exploitation amongst the Member States. Germany's coalition government rejected a motion to prohibit fracking on the same day as Mr Davey's Ministerial Statement, and the Polish government has long been a strong advocate of shale gas operations, with exploratory drilling there well underway at a number of sites and new legislation governing its production due to emerge in early 2013. Conversely, earlier this year the French government voted in favour of maintaining its moratorium on fracking, and Bulgaria became the second EU country to do likewise. The Netherlands has also imposed a temporary moratorium.
7. Useful links