Government lifts moratorium on UK shale gas hydraulic fracturing

Practical Law UK Legal Update 3-523-4610 (Approx. 7 pages)

Government lifts moratorium on UK shale gas hydraulic fracturing

by PLC Environment

Background

In May 2011, the Energy and Climate Change Committee (a House of Commons select committee) published its Fifth Report: Shale Gas, which considered the prospects for, and risks of, shale gas extraction in the UK. The Committee concluded that shale gas drilling in the UK should be permitted (see Legal update, House of Commons Select Committee approves UK shale gas extraction). Shale gas is an "unconventional" fossil fuel, which can be extracted using a combination of directional drilling and a process called hydraulic fracturing (or "fracking").

As a result of earthquakes that were felt in the Blackpool area on two occasions in spring 2011, fracking operations (including those of Cuadrilla Resources Ltd (Cuadrilla) whose activities at Preese Hall were suspected to have caused the tremors) were suspended pending an investigation of the causes of the tremors and the scope for mitigation of seismic risks in future operations of this type.

Cuadrilla were asked to undertake a technical study to find out if there was a relationship between the earthquakes and their operations. Cuadrilla submitted their report and supporting technical information (Well Preese Hall 1 - The mechanism of induced seismicity, prepared for Cuadrilla Resources Ltd (10 October 2011)) to DECC in November 2011. DECC asked three experts in the fields of seismology, induced seismicity and fracking, to review Cuadrilla's submissions. In April 2012, DECC published a report by the three experts. The report said that the earthquakes were induced by the fracking but that there was no reason to stop fracking operations if its recommendations to mitigate the risks of earthquakes were adopted (see Legal update, Independent experts' report gives qualified go-ahead to shale gas fracking).

In December 2012, as part of the 2012 Autumn Statement, DECC published a Gas Generation Strategy, which confirmed that gas will continue to have a major role in electricity generation. DECC said that shale gas could form a part of the UK’s gas supply in the longer term, but before this could be known for certain, more exploration and testing was needed to establish a meaningful reserve estimate. To take this forward:

DECC said it would set up an Office for Unconventional Gas and Oil to working with other government departments to provide a single point of contact for investors and ensure a simplified and streamlined regulatory process.
The government has said, in the 2012 Autumn Statement, that it would consult on a tax regime for shale gas.
DECC said it would consult on how its licensing regime could be modified to support the particular characteristics of shale gas developments.

(See Legal update, DECC publishes Gas Generation Strategy: environmental implications: Shale gas.)

Ministerial Statement on exploration for shale gas

On 13 December 2012, Edward Davey, Secretary of State for Energy and Climate Change published a ministerial statement on the outcome of the investigation into the tremors felt in Blackpool in 2011 and the way forward for shale gas exploration in the UK.

The ministerial statement says that following a review of all the evidence and a report by the Royal Academy of Engineering and Royal Society on shale gas extraction in the UK (Academies' Report), the Secretary of State has decided that:

Appropriate controls are available to mitigate the risks of seismic activity and that those new controls will be required by DECC for all future shale gas wells.
On the basis of those controls, he is prepared, in principle, to consent to new fracking proposals for shale gas where all other necessary permissions and consents are in place.

The ministerial statement also summarises the main environmental and health concerns associated with shale gas exploration and production, which include:

The possibility of seismic activity being induced by fracking.
The impact on regional water resources as fracking requires a lot of water.
Contamination of drinking water with gas or toxic chemicals.
Air pollution.
Disturbances such as traffic, noise and night-time lighting as a result of the exploration or production of shale gas.

Finally, the ministerial statement summarises the existing regulation that is already in place to address these concerns and says that a number of new controls will be put in place to strengthen the existing regulation.

Further information has been placed on DECC's website on the:

Questions raised during the investigation and the government's response to those questions.
Government's response to the Academies' Report. The government accepts all the recommendations and work is already in hand to implement the recommendation on exploration.

(See DECC: Response to Royal Academy of Engineering and Royal Society report on "Shale Gas Extraction in the UK: a review of hydraulic fracturing" and Synopsis of main questions raised in responses to DECC consultation on mitigation of seismic risks from hydraulic fracturing for shale gas, with government responses (13 December 2012).)

Seismic risk controls

The following new controls will apply to all future fracking operations for shale gas:

Operators will have to review the available information on the faults in the area of the proposed well to minimise the risk of activating any fault by fracking.
Background seismic activity will have to be monitored by operators before operations commence.
Real-time seismic monitoring will continue during fracking operations and for 24 hours after each stage of fracking operations. This monitoring will be subject to a "traffic light" control regime so that operations can be paused and the data reviewed if unusual levels of seismic activity are observed.
Operators will have to take a more cautious approach to the duration and volumes of fluid used in fracking. They must submit a fracking plan to DECC before consent to fracking is given. The fracking plan should be progressive, that is, it should start with injecting small volumes of fluid and analysing the resulting data before progressing to the full stage. Each stage of the fracking should only use just sufficient fluid to create a sufficient fracture to allow the gas to flow. A flow-back period will be required after each stage of the fracking to re-balance the pressures. The real-time monitoring data will then be analysed to see if there is abnormal seismic activity induced by the fracking.
Operators will have to monitor the growth in the height of the fracture away from the borehole. This will enable the effectiveness of the fracking to be evaluated and also to allow analysis of whether the fracture is conforming to its design and that it is not getting near any aquifers.
For the first few fracking operations, DECC will place an independent expert on site to observe the operator's compliance with the requirements outlined above and also to monitor the operator's interpretation of the monitoring data.

The Secretary of State notes that these new controls should not be regarded as definitive at this stage. Initial operations subject to these new controls will be monitored and the new controls will be reviewed to ensure that they are proportionate to the risks.

Fracking operations are not only used for shale gas extraction. Fracking operations using smaller volumes of fluid have been carried out both onshore and offshore in the UK for many years. Although these activities have not, to date, been associated with seismic risk, oil and gas operators proposing fracking will have to:

Submit an analysis of the risks of seismic activity being caused by their proposed operations to DECC.
Conduct appropriate monitoring.
Inform planning authorities and local residents of their plans.

Controls on Cuadrilla's operations

For Cuadrilla's exploration programme, the remedial action level (that is, the red traffic light) will be set so that fracking will stop if an earthquake of a 0.5 magnitude or above is observed. This was the level recommended by the independent experts' report that was published in April 2012. It is possible that this level will be revised upwards depending on how this control operates in practice.

DECC's investigation concluded that Cuadrilla's response to the tremors demonstrated weaknesses in its management of environmental risks. Following discussions with DECC, Cuadrilla has reinforced its management structure by making one board member responsible for health and safety and by reinforcing the technical skills of the operational team. External consultants are reviewing the effectiveness of these measures. The ministerial statement says that the Secretary of State will not give consent to new fracking operations until the conclusions of the external consultants have been discussed with Cuadrilla and any remaining concerns addressed to his satisfaction.

Further fracking operations by Cuadrilla are contingent upon them obtaining new planning permission and permits from the Environment Agency (EA). On 16 January 2013, the EA announced that it was consulting on Bowland Resources Ltd’s (a subsidiary of Cuadrilla's) permit applications to safely manage waste generated by exploring for shale gas at three sites in Lancashire. The consultation runs until 13 February 2013 (see EA press release, Consultation starts for shale gas permits, 16 January 2013).

Other control measures

The government has set up a Strategy Group on Shale Gas comprising senior representatives from the main government departments engaged in shale gas regulation, and the EA and the Health and Safety Executive (HSE). The Group will ensure that the work of the various bodies is well coordinated. The Office for Unconventional Gas and Oil (announced in the Gas Generation Strategy) (see Legal update, DECC publishes Gas Generation Strategy: environmental implications: Shale gas), will support the work of this group.

Future moves to large-scale production of shale gas

The ministerial statement says that if exploration activities result in the production of shale gas, different considerations would arise (local concerns about impacts on health and the environment and national concerns such as the impact of shale gas production on the UK's climate change policies and investment in renewable energy).

The ministerial statement says that the following steps will be taken to strengthen the existing planning, environmental permitting and licensing regimes for production activities:

Licensees will have to carry out a comprehensive high-level assessment of environmental risks, including risks to human health, covering the full cycle of the proposed operations including the abandonment of wells to be drilled. Licensees will have to consult with stakeholders including local communities as early as practicable in the development of their proposals. This assessment will inform and complement the risk assessments already required (for example under the environmentally permitting regime or for an environmental impact assessment (EIA)).
The Health Protection Agency is currently reviewing the evidence on the health impacts of shale gas, focussing particularly on the health impacts of emissions to air, land and water.
In addition to the existing requirement to reduce venting of methane to the minimum that is technically possible, DECC will also require licensees to reduce flaring of methane to the economic minimum; where cost effective options exist for the use of methane, they must be used.
Although methane emissions currently represent less than 1% of the UK's total greenhouse gas (GHG) emissions, DECC will commission a study on the possible impact of shale gas extraction on GHG emissions.
DECC has commissioned more detailed work from the British Geological Survey (BGS) on the shale gas resources in Great Britain. This work is due to be published in early 2013.
The new Office of Unconventional Gas and Oil will act on the recommendations in the Academies' Report that the regulatory bodies should assess the requirements for effective regulation of significant future production of shale gas.
The EA is already reviewing the implications of shale gas for its regulatory responsibilities, and considering whether further controls and monitoring requirements are needed for methane emissions.
The strategic environmental assessment (SEA) of new onshore licensing was started by DECC in 2010 but was put on hold while the investigation into the Blackpool tremors was underway. DECC will be commissioning further work on the environmental implications of future licensing that will consider all the new knowledge that is now available. A full public consultation of the extended SEA will take place and the results of this consultation will be considered before any decisions are taken on new licensing.

Comment

Predictably, environmental groups have expressed concerns about the announcement. The Committee on Climate Change, the government's own advisers on the UK's climate change budgets, have also said that shale gas will be a more expensive way to secure energy supplies than renewables (see Gas 'will add more to energy bills than renewables' - government advisers, guardian.co.uk, 13 December 2012).

Key environmental questions remain, including whether the:

Controls announced in the ministerial statement will be sufficient to control seismic risk.
Existing controls will prevent the pollution of air and water that environmentalists fear.
Government's approach to shale gas means that it will water down the UK's commitment to cutting GHG emissions.
Production of shale gas will have an impact on the investment needed in renewable energy to meet the UK's renewable energy targets.

Government lifts moratorium on UK shale gas hydraulic fracturing | Practical Law