David Cameron has boldly announced that the UK should fully embrace the American model of widespread fracking of shale for oil and gas, stating: "I want us to get on board this change that is doing so much good and bringing so much benefit to North America".
Supplies of natural gas now economically recoverable from shale in the United States could accommodate the country's domestic demand for natural gas at current levels of consumption for more than a hundred years: an economic and strategic boon home and abroad, and, at least in the near term, an important stepping-stone toward lower-carbon, greener energy. However, as things stand, unconventional oil and gas exploration in the UK is burdened by a powerful anti-fracking movement, led by Greenpeace and Friends of the Earth, ntand a cumbersome planning and environmental permit process.
The Government is seeking to address both of these hurdles by a combination of a rhetoric and (at least the beginnings of) relaxation of restrictions. Nevertheless, it remains the case that any developer wishing to exploit (what is estimated to be) 1,300 trillion cubic feet of shale gas lying underneath British soil still has a steep hill to climb. Extraction of oil and gas from shale is in itself, not a simple process. A well is drilled down vertically to the shale layer and then runs horizontally along it. The rock is fractured by injecting water at high pressure. Small particles (usually sand) are pumped into the fractures to keep them open when the pressure is released, so gas can flow into the well. Small quantities of chemicals are normally added to improve efficiency.
Once the rock is fractured, some of the fluid returns to the surface, where it is sealed in containers before treatment. The gas can then flow through the well to the surface to be processed. Work is carried out in three distinct phases: exploration, appraisal and production. The exploration phase can last anything from two to six months and involves drilling wells at various sites to identify whether oil or gas can be produced profitably. All UK shale gas development is currently in this phase. The appraisal phase is next, and typically lasts from six months to two years. It requires testing of the deposits to establish the strength of the resource and its potential productive life. Finally, the production stage can begin, where numerous wells are drilled, oil and gas is extracted and treated and developers can begin profiteering on their efforts. This phase is expected to last a minimum of 20 years. However, preparing the apparatus and finding a suitable drilling site is only half the battle. Before the government will grant the developer a drill consent, numerous other consents and permissions must first be obtained.
Firstly, landowners must agree to drilling underneath their property. Fracking for shale gas is performed in both vertical and horizontal wells, and horizontal wells can be over a mile long. Therefore, a single fracking operation may require rights to drill under multiple landholdings. As the law currently stands, drilling without landowner consent will amount to trespass and opens extraction companies to the risk of landowners obtaining injunctions to halt the drilling process. In fact, recent press coverage has suggested that those groups opposed to fracking could put a halt to the drilling process by buying up strips of land, known as "ransom strips" in a fracking area and then refusing to grant the necessary property rights underneath that land. However, this could ultimately only be used as a delaying tactic as developers have the right to compulsory purchase the right to drill on somebody else's land.
Secondly, the developer will also require a petroleum exploration development licence. There are currently 176 of these in the UK, and they are offered to developers in rounds. These licences confer on the developer an exclusive right to search, bore for and get hydrocarbons in the licence area. However, this licence alone is not enough to start drilling.
Planning permission is also required from the Minerals Planning Authority (usually being the County Council), including, where necessary, an environmental impact assessment. However, the government has recently simplified the process in this regard by allowing the developer to apply for planning permission without notifying the owners of the land to which the application relates. This should be welcome news to developers and shows recognition by government of the impracticalities of identifying interests in land over large areas in the early stages of seeking the various consents needed.
Fourthly, permits from the Environment Agency will be issued to ensure fracking is not harmful to the surrounding environment. This will be a step heavily scrutinised by environmental campaigners, who advocate that the techniques used in fracking could cause small earth tremors, water contamination and environmental damage. However, the government claims that if there is any risk to the environment, the authority will find this risk unacceptable and not permit activity.
Finally, the Health and Safety Executive must be notified of the well design and operation plan. If satisfied, a well consent will be granted.
Only when all of these consents have been obtained will the government grant a drill consent to the developer.
It's not all bad news. In Cameron's bid to go "all out for shale," the most competitive tax regime in Europe for shale gas has been introduced, saving companies an extra 24p in tax for every GBP 1 they spend on the project. In fact, new developers will now have an effective tax rate lower than the US.
The government is also allowing councils to keep all of the business rates raised from fracking sites, a deal which is expected to generate millions of pounds for local authorities. It is claimed this could be worth up to GBP 1.7million a year for a typical site, funded directly from central government. This has been vilified by critics, with Greenpeace accusing ministers of trying to "bribe councils."
Whatever your stance, fracking continues to be a topic for debate, sparking lobbying and protests from campaigners. However, David Cameron has firmly marked his position; the production of onshore oil and gas is full steam ahead.
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