UK Shale Conference
Michael Fallon speech to the UK Shale Conference.
Introduction
Recent events in the Ukraine and Iraq have brought into focus the importance of energy security. Now more than ever we need here in Britain more home-grown energy of all kinds which will also deliver economic benefits.
That means having a diverse energy mix and exploiting the full use of technologies from renewables to CCS, from nuclear to shale gas and shale oil.
Gas as the cleanest, greenest fossil fuel, with half the carbon footprint of coal for electricity and has an important role to play and can help us replace unabated coal as it is phased out in the run up to 2030.
Why we need shale
But, as North Sea production diminishes from a peak of over 100bn cubic metres in 2000 to 19bn cubic metres by 2030, the question is how much we import.
10 years ago we were net exporters of gas and without shale we will be importing 70% of our consumption or more by 2025.
That is not just an issue for the UK. Europe is reliant on imports and may be importing 80% of its gas by 2030 with implications for our import bill – which would rise to over £10bn a year for imported gas.
Given the continuing need for gas, we cannot afford to ignore the potential for domestic sources. As well as giving us greater energy security, home-grown energy production of course means jobs and tax revenues stay in UK.
So the benefits to the UK of using homegrown shale are clear – we can:
- Displace a proportion of gas imports – increasing resilience and energy security.
- Benefit in terms of jobs, tax revenues and growth, mitigating some of the falling revenues from the North Sea. EY’s recent supply chain report found that industry could support around 64,000 direct and induced jobs.
- And control the carbon emissions created by production inside our carbon budgets.
What we’ve done
Since becoming Minister responsible for shale last Spring, I have focused on what needs to happen if we are to take advantage of this opportunity: industry needs to be ready, the community needs to be on board, we need of course to maintain environmental standards, and there needs to be investment.
In the last year we have taken a number of steps to ensure we can explore this potential:
- In December we published the Regulatory Roadmap setting out the robust regulatory framework in place for exploration.
- In addition, in response to the Mackay Stone report on emissions, the Environment Agency has agreed to make green completions a requirement of environmental permits for shale gas production.
- We have also published environmental risk assessment guidance for operators to assess risks at an early stage in line with the Royal Society/Royal Academy of Engineering report.
- We have also have clarified and streamlined the regulation of exploration activity. The Environment Agency has developed a single application form for permits. We will introduce standard rules environmental permits later this year cutting permitting times from 13 weeks to 2- 4 weeks for lower risk activities.
- Industry has committed to a community benefit package that will pay £100,000 to communities per hydraulically fractured well site at exploration and 1% of revenue if the site proceeds to production.
- Local councils will also benefit by retaining 100% of the business rates they collect from productive shale gas and shale oil developments - doubling the 50% rate retention previously given. That could be worth up to £1.7m a year for a typical 12 well site.
- In the Autumn Statement 2013, we introduced the most competitive tax regime in Europe for shale gas and shale oil.
We’ve announced 2 million pounds public money to support companies looking to develop innovative processes for shale exploration or production, to help UK firms develop products and services in this new sector. All of these steps will encourage the responsible development of shale gas and oil.
However, industry has argued that addressing underground access is essential to the success of shale in the UK.
We have considered those arguments carefully and believe that the existing system does not strike the right balance between the legitimate interests and concerns of landowners, and the benefits to the community and nation at large of permitting development, where that development is otherwise acceptable in planning and environmental terms.
Similar issues affect the nascent geothermal sector.
Our new proposals, now out for consultation, aim to address this problem by simplifying procedures which are costly, time-consuming and disproportionate for new methods of underground drilling.
There are three elements to the proposal: a right of underground access below 300m for shale and deep geothermal companies, a community payment in return for access and a notification system for the community,
Allowing underground access at depths below 300m can have no impact on landowners – this is a six inch hole, ten times the depth of the deepest tube platform. We expect fracking to take place over a mile down.
There is cross party consensus on this issue – I welcome confirmation that the Labour Party will not oppose our plans in Parliament. Our proposalsensure that safety remains at the heart of shale production - this does not change any other aspect of the existing regulatory system, such as procedures for surface access, planning or environmental permits, or safety controls.
The consultation runs until August and we will consider the responses before confirming our plans.
Announcement – New licence terms
Although the UK has been extracting onshore for almost a century, the shale industry has some important differences. For example unlike conventional oil and gas, shale gas is not concentrated in small high value fields but is likely to be dispersed across large areas with ‘sweet spots’.
Traditional petroleum licence terms do not reflect this. They limit the amount of acreage that can be retained beyond certain deadlines and impose fees to incentivise the voluntary surrender of acreage. This could undermine the exploitation of shale gas in the UK.
So I can announce today that I have taken steps to make licences fit for purpose whilst increasing public transparency about fracking. I am removing unnecessary barriers and introducing a new flexibility to licences that allow the retention of greater areas than before. This will replace inflexible rules with an improved approach based on a system of “Production Plans” which are part of the licensed area that is being used for production; and “Retention Agreements” which are areas with work plans agreed between DECC and the licensee.
These changes will reduce costs to the licensee but they won’t lead to land-banking as plans for meaningful activity will have to be approved.
We will also improve the transparency of information about the fracturing of shale and the flow rates achieved. It is important that everyone has access to this information earlier so I have decided that DECC will require licensees to submit reports about each well that involves the fracturing of shale, and that the confidentiality period for this information should be reduced from four years to just six months.
I have signed the Order that implements these Model Clauses changes.
Future plans
Government is working to encourage the development of shale gas and will continue to do so but the next stage is for industry to undertake exploration to determine the extent of the resource and potential.
There are around a dozen companies putting plans forward:
- Last year Cuadrilla welcomed Centrica as a 25% investment partner in Lancashire Bowland licence area;
- In January, Total acquired the acquisition of a 40% stake in two shale gas exploration sites;
- GDF Suez acquired 25% share in 13 UK licences held by Dart Energy.
We have created competitive tax incentives, we are developing our understanding of the geology with the British Geological Survey, major investors are buying in, and we are making the regulatory system streamlined and clear.
So exploration is happening and, while it is, we should remember how important it is for the UK and how our regulatory system will keep risks low.
We should remember that we need gas and producing more here has many benefits.
We should be talking about how this is a national and local opportunity to grasp new technology and build energy sources for the future. And we should be talking about how communities will benefit from secure supply, jobs and investment.
Thank you.