The United Kingdom has one of the most pro-shale administrations in Europe: only Poland rivals it. Since 2012, it has taken a number of steps not only to reduce the administrative burden on companies seeking to exploit shale gas in the UK, but also to provide fiscal incentives for them to do so. It has established a cross-departmental government entity, the Office of Unconventional Gas and Oil, to coordinate government action and policy. The government notes on its official website that it believes shale gas has the potential to provide the UK with greater energy security, growth and jobs.1
The Prime Minister, David Cameron, describes his government’s philosophy as ‘going all out for shale.’ We suspect that Britain the political climate will remain broadly positive no matter which party (or parties) hold power after the General Election in 2015.
Survey data suggest that the UK enjoys substantial shale gas reserves. The leading recent study, The Carboniferous Bowland Shale Gas study: geology and resource estimation,2 estimated that there were 37.6 trillion cubic meters of gas-in-place as its ‘central scenario.’ Although the study declined to estimate how much of that resource was recoverable, there appears to be a very promising baseline.
Regulatory regime — Overview
Consistent with its policy at the European level (see the European Position article), the UK government has been reluctant to introduce new regulation to govern shale exploitation. It has generally taken the view that environmental concerns regarding unconventional gas are no greater than for other gas extraction methods, so existing regulation should be considered adequate until circumstances suggest otherwise.
There is a lot of existing regulation. Recognising that complexity, on 17 December 2013 the government published a ‘regulatory roadmap’ set of documents.3 It is clear that the government wishes to do more. In July 2014, the new Minister responsible for the industry, Matthew Hancock, described shale gas as the ‘holy grail’ of UK energy policy and said ‘I want to speed up shale. It takes too long at the moment. We have to ensure that instead of an array of complicated permissions we have very firm but very clear rules.’4
The 14th Onshore Licensing Round
In 2014, the UK launched a new licensing round for onshore oil and gas. This licensing round had been in development for many years: preparations had begun in 2010 but were interrupted when fracking operations in Lancashire triggered two earthquakes, in April and May 2011. The earthquakes prompted investigations by various public bodies into the health and safety of shale gas exploitation, and some reform proposals, which have been incorporated into the licensing round.5
This licensing round could theoretically result in fracking operations being conducted in National Parks and Areas of Outstanding Natural Beauty. The government has promised to balance the interests of the environment and the British economy.6
The application period for new licenses ran until 23 October 2014. We expect an announcement about licence awards before the end of the year.
2014 legal reforms
As a token of its zeal to promote Britain as open to shale gas development, the UK government took steps in 2014 to pre-empt moves by anti-fracking groups to thwart shale gas operations.
In the UK, it is a basic legal principle that the owner of the surface of land is the owner of the strata beneath it, including the minerals that are to be found there, unless there has been an alienation of them to someone else by a conveyance, at common law or by statute. So if a shale operator wishes to carry out underground operations — which, by its nature, may require going underneath the land of many landowners — then, as a matter of basic principles, it must obtain each landowner’s permission to do so. Failure to obtain that permission may result in the operator committing a trespass in relation to that (subsurface) land.
No doubt alarmed by proposals by anti-fracking groups to buy up ‘ransom strips’ of land, with the attendant threat of an action in trespass, to prevent, or at least hinder, operator development of the UK’s shale resources, the UK government has proposed a change in law. By analogy with the arrangements under s51 of the Coal Industry Act 1994 it proposes a ‘right of underground access’ to companies extracting petroleum or geothermal energy in land at least 300 meters below the surface. The purpose of this change appears only to be to remove the threat of an ‘underground’ trespass action: all other relevant permissions would still be needed (for example, those relating to environmental and planning matters).
The government ran a public consultation on its proposals from 23 May to 15 August 2014. It published its response to the results of that consultation in September 2014. Despite 99% of those responses being against the government’s proposed reforms it has decided to proceed with them and will, via a new Infrastructure Bill, put before Parliament primary legislation to implement the reform proposals set out in its policy paper.
The government’s proposals in full are as follows:
- a change in trespass law to allow a right of underground access for companies extracting petroleum or geothermal energy at least 300 metres below the surface;
- that well operators should make a voluntary payment, proposed to be £20,000 for each horizontal drilling of more than 200 meters, to the local community; although voluntary, the government hopes to encourage compliance through its reserved right to mandate payments through regulation if necessary; and
- the introduction of a public notification system, under which operators would be required to explain the proposed works and payments to the local community.
The UK has put in place a number of taxation arrangements designed to encourage the oil industry’s development of UK shale reserves. The Finance Act 2014 (UK) included a number of pro-shale measures, including a shale gas ‘pad allowance’ designed to stimulate shale exploration and production.
In January 2014, the UK government announced a new incentive for local councils to approve shale gas projects within their territory. Local councils will be entitled to retain 100% of the business rates they collect from shale gas sites, double the previous figure of 50%.
A report published in April 2014, Getting Ready for UK Shale Gas: Supply chain and skills requirements and opportunities,7 provided detailed views on what the UK shale industry could bring in terms of investment, jobs and new markets. It estimated that a British shale gas industry could create 64,500 new jobs and entail a total spend of £33 billion from participants.
The report noted that there is uncertainty around the size and recoverability of the UK’s shale reserves. It called for workforce training to address a national skills shortage and to enhance the understanding of shale gas within related industry sectors so that domestic businesses could better understand how they can participate in, and benefit from, the developing shale gas market.
The UK economy was also central to the thinking of the House of Lords Economics Affairs Committee in its 8 May 2014 publication The Economic Impact on UK Energy Policy of Shale Gas and Oil.8 In preparing its report, the Committee heard from 62 witnesses, representing a range of interests, from government, academia, industry and environmental campaigners. The report gave a positive view on the UK’s potential to develop its own shale industry but noted that the government must do more to simplify the regulatory environment and reassure the public about environmental dangers.
Even though the government is very much in favour of exploring the potential of shale gas there remains significant public concern about the effects of hydraulic fracturing on the environment, especially in relation to pollution of the water supply near shale wells. Anti-fracking protests near the village of Balcombe gained national attention in the summer of 2013.