Government should seize shale gas as an economic opportunity

8 May 2014 11:41 AM

The House of Lords Economic Affairs Committee has today called on the Government to do more to bring forward development of the UK’s shale gas and oil resource and ensure that the UK enjoys the substantial benefits shale gas can bring to the economy, to national energy security and to the environment.  

• Report: The Economic Impact on UK Energy Policy of Shale Gas and Oil (HTML)
• Report: The Economic Impact on UK Energy Policy of Shale Gas and Oil (PDF)
• Oral and written evidence: The Economic Impact on UK Energy Policy of Shale Gas and Oil ( PDF 4.2 MB)
• Inquiry: The Economic Impact on UK Energy Policy of Shale Gas and Oil
• Economic Affairs Committee

'Go all out for shale'

The Committee fully supports the Government’s commitment to ‘go all out for shale’. It says the UK is ‘exceptionally fortunate’ to have substantial shale gas and oil resources and that exploration and appraisal is urgently needed to establish their economic potential.

But the Committee is disappointed that the exploratory drilling with hydraulic fracturing (“fracking”) needed for shale gas development has hardly begun. It found that since the lifting of a moratorium on hydraulic fracturing in 2012, the Environment Agency has not received or approved a single application for the permits necessary for exploratory drilling. The report calls for a simplified and clear regulatory regime to encourage development of shale and reassure communities that risks of harm to the environment or human health are low. The Committee express concern that complex regulation may be causing unnecessary delays.

Substantial economic benefits

• Reducing energy imports and helping to maintain security of supply, especially valuable given the continuing fall in output from the North Sea and Europe’s reliance on Russia, its biggest gas supplier, highlighted by the crisis in Ukraine.
• The creation of new jobs, particularly in areas such as North West England.
• Retention and development of energy intensive and petrochemical industries; in the US, these industries are returning from overseas locations due to new sources of energy and feedstock; development of the UK’s shale resource should similarly help retain and promote these industries
• Benefits to the balance of payments and to tax revenue to the Exchequer in years to come. 

The benefits cannot be quantified however until exploratory drilling and appraisal establishes the UK’s economically recoverable reserves of shale gas and paves the way for development.

The Committee welcomes the community benefit schemes announced by the industry for localities where fracking takes place.

Climate change

The Committee also points to the positive contribution that shale gas development would make to achievement of the UK’s commitments on climate change. The carbon footprint of shale gas extraction and use is estimated to be around half that of coal and lower than that of liquefied natural gas (LNG). The Committee believes shale gas has an important role to play in the transition to low-carbon energy.

Strengthen public confidence

Although some concerns such as earth tremors have been much exaggerated, the Committee believes that legitimate concerns raised by opponents of fracking about possible harm to the environment and health should be taken seriously. The Committee concludes however that, with appropriate regulation, the risks are low. The Committee point out that the UK's existing regulatory regime is well regarded internationally but suggests improvements; for example in order to  strengthen public confidence in the safety of drilling sites, well inspectors should be independent and not employed by the company involved in the drilling, as can be the case at present.

The Committee also says that Government and industry must do a much better job of explaining to the public the potential economic and environmental benefits of developing a thriving shale gas industry in the UK and propose the establishment of a new Cabinet Committee to drive forward the Government’s commitment to "go all out for shale".

Chairman's comments

Commenting Lord MacGregor, Chairman of the House of Lords Economic Affairs Committee, said:

“A successful shale gas industry in the UK would be good for our economy and energy security. The United States has raced ahead with the development of shale gas and oil in recent years, with enormous benefits to US industry and the economy generally. The Committee strongly supports the Government’s decision to go ‘all out for shale’. But here in the UK was have not yet left the starting gate. Developing a successful shale gas and oil industry in the UK must be an urgent national priority.

“Only exploratory drilling with hydraulic fracturing, then appraisal, can show how much of the UK’s shale resource can be developed economically. But there seems to be a regulatory logjam; the Environment Agency has not received or approved a single permit application to undertake hydraulic fracturing since 2012.  The Government has made attempts to simplify the regulatory regime for development of shale but these measures have not gone far enough.  Our report shows that unnecessary duplication and diffusion of authority are still rife throughout the regulatory process.  The Government must do more to simplify regulation to ensure that exploratory drilling and development can go ahead. Regulation around shale should be robust, but should move quickly and be easy to understand.

“Although the economic opportunity offered by shale gas and oil cannot avert any near-term shortfall in the UK’s electricity generating capacity, in the medium term UK shale gas could help ensure that competitively priced electricity supplies are maintained at an adequate level for many years to come.”

“We have particularly examined environmental and other concerns about the impact of fracking. We have concluded that legitimate concerns can be addressed through appropriate regulations. The UK regulatory framework is well regarded internationally but we suggest some improvements, for example that well inspectors should be independent and not employed by the drilling company.”