Underground or Underhand Drilling Access?
The UK’s Coalition Government ran a “public consultation” between May and August, 2014, on a proposal designed to simplify existing procedures for underground access intended to exploit oil, gas or geothermal resources. Behind the initiative was a desire to facilitate hydraulic fracturing (“fracking”) for gas and oil in the UK, where existing procedures (especially the capacity of landowners to block access) are considered costly and time-consuming. The resulting report from the Department of Energy & Climate Change: “Underground Drilling Access: Government Response to the Consultation …” was published on September 25th. The Report has aroused several concerns.
The Report makes it clear that the main focus is on freeing up access to gas and oil which may be located over 300 metres below surface level. Over 99% of respondents opposed the proposal, and most of these came from those who object to shale gas exploration, recovery and use because they oppose the avoidable use of fossil fuels; and supported campaigns to block it. Their views were set aside primarily because they did not address the consultation questions. Even for someone like myself, who supports shale gas exploration and recovery through fracking in principle, provided clear safeguards and compensatory mechanisms are in place in case something goes wrong, there was something disturbing about the effective dismissal of such a large body of opinion. The fact that most of this opposition came from those who appear immune to what the former Secretary of State at the Department of the Environment, Owen Paterson, has referred to as “the intense public dissatisfaction with heavily subsidized renewable energy technologies, in particular onshore wind” does not entirely eradicate this concern.
As someone who began to have concerns about UK energy policy in the face of emerging challenges over twenty years ago, especially the failures to achieve early follow-up of advanced nuclear technologies and greatly expanded natural gas storage, it will occasion no surprise that I remain deeply concerned. Shale gas will provide some modest benefit, and shale oil too, especially if recent price weaknesses for oil and gas are reversed. I also have sympathy with the view that a single landowner, or small group of landowners, should be discouraged from holding up a seemingly desirable development by refusing access. But in my view two crucial issues remain: the need to ensure that, if anything goes wrong, there is full compensation for victims (including no costs incurred in taking action to seek resolution) provided by the developers for all time – so full upfront and perpetual insurance cover; and landowners should themselves receive significant compensatory payments where drilling is taking place beneath their land – albeit 300 or more metres below. The Government’s (DECC’s) Response is unsatisfactory on both counts.
Shale gas drilling seeks a scale layer which is often over 1.5 kms. below surface level, and then can be pursued horizontally for at least 3 kms.. Currently deep and lateral drilling requires the consent of all landowners beneath whose land drilling may pass, and there is no suggestion that this is to be changed for drilling less than 300 metres below ground level. But even in the most sensitive landscapes (National Parks, Areas of Outstanding Natural Beauty, etc.) there are loopholes under “planning permission should be refused except in exceptional circumstances and where it can be demonstrated they are in the public interest.” (para. 2.132) Given the facts that onshore wind energy developments have been given permission to go ahead where rolling average capacity factors achieved are below 20%, and in 2010 nearly 60% of onshore wind energy developments in England failed to make 20% (yet the previous Government’s renewable energy planning guidance claimed capacity factors ranged between 20% and 50%), and the official claims that the simple burning of palm oil is an example of renewable energy use (regardless, apparently, of associated carbon dioxide emissions, deforestation, and habitat and rare species loss), there is bound to be some cynicism about governmental interpretation of facts, public interest, and exceptional circumstances.
Then there is concern that a government in proposing to accept voluntary agreements on payment may not take (or quickly take) a reserve power to enforce such payments through regulation if they are not made voluntarily. How quickly will regulations be enacted, and how successful will they be? The Government’s Response goes on to state that: “the operator is responsible for the safe decommissioning of the well(s) and for restoring the well-site to its previous state or a suitable condition for re-use.” (para. 2.93) This concern is reinforced by the Government’s rather insouciant reference to the possibility that a company may be difficult to identify in attaching liability: “for instance, in the case of a company that becomes insolvent.” (para. 2.100) These concerns have been given added justification by the fact that, after the Consultation closed, the Government has introduced a new measure permitting firms to put any substance into the area they have fracked and leave it there permanently – including under homes.
The second concern that I have is that whereas the industry had originally offered £100,000 per site in community benefits at the exploration stage plus 1% of revenues at the production stage (para. 4.37), the Government’s Response was much more restrictive and less generous. The Government has now accepted the industry’s revised offer of a one-off payment of £20,000 for each horizontal well drilled in excess of 200 metres (surely a derisory offer in cash terms), and this only to be paid to communities. The Government seeks to avoid payment to landowners: “due to the higher administrative burden of individual payments and the nominal sums that would be received in an individual payment.” (para. 4.40) Both rural communities and landowners have justification if they once again feel incensed by this cavalier treatment of their immediate environment and risk to their assets.
Michael Jefferson is a Affiliate Professor of Energy Policy at ESCP Europe Business School, Visiting Professor at University of Buckingham and Member, International Advisory Board, Energy Policy journal. Michael past positions include Chief Economist of The Royal Dutch / Shell Group and Deputy Secretary-General of the World Energy Council.
Research Centre for Energy Management (RCEM) at ESCP Europe Business School is a Natural Gas Europe Knowledge Partner.