Speech

Speech to a Tudor Pickering Holt seminar

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Michael Fallon addressed the Tudor Pickering Holt seminar: UK in Focus - government’s role in the investment environment.

The Rt Hon Sir Michael  Fallon MP

Introduction

Thank you inviting me to speak today.

We should not forget the US experience in the UK. The United States has felt the great difference shale gas can make.

Shale has reinvigorated its economy; gas prices have halved, reducing costs for industry and consumers, and it has created billions in new investment and thousands of jobs.

Nations including Argentina to China have looked on at this boom and are joining in.

Conditions vary from country to country of course, and it is clear that the shape and development of the industry in the UK will be significantly different to the US.

While we have the advantage of learning from the US experience, the UK is more densely populated than the US, which has implications for where and how you can drill. The geology of our shale is also much thicker in some areas.

But we are committed to ensuring the industry can prosper if the conditions are right.

Rationale

Let us look at what shale gas and oil can offer in the UK.

Just over three quarters of the UK’s current energy demand is met by oil and gas and even as we move to lower carbon sources, 70 per cent of the primary energy consumed in the UK will come from oil and gas by 2020.

As we become more reliant on gas imports, this will be a home-grown energy source that offers a welcome boost from jobs tax revenues and can protect us from shocks in international prices.

For every billion pounds spent on oil and gas production in the North Sea an estimated 15-20,000 jobs are created.

Currently, the oil and gas industry supports at least 440,000 jobs across the UK.

It shows how much oil and gas are an important part of our economy.

And they will remain so for decades to come as we move to a low-carbon economy.

This Government has already committed to developing it as part of a diverse low-carbon energy mix that gets the most out of the resources available to us, including nuclear and renewables.

And if shale gas can be properly and responsibly developed worldwide, it has the potential to put downward pressure on gas prices and wean the world off more damaging coal.

Developing the industry

So I say to you categorically – the UK is getting serious about shale.

We have done that in a number of ways.

First, we have provided industry with much fuller geological data of the gas resource in the Bowland-Hodder basin thanks to the work of the British Geological Survey.

And our knowledge of shale resources will be further enhanced when we publish a similar survey for the Weald Basin in the South of England by Spring next year.

Secondly, we are putting in place tax incentives that will create a fertile ground for shale to prosper.

Industry now need to determine how much of the UK’s shale gas resources are recoverable. To help unlock the significant investment this will need, the government is committed to putting the right fiscal framework in place.

Over the summer we consulted on a shale gas pad allowance that would reduce the tax rate for companies on a portion of their profits from 62% to 30%. It would work similar to our existing successful field allowances for offshore oil and gas.

Thirdly, the Government has been extremely active creating the right framework to accelerate shale gas development in a responsible way.

Across Government we are creating a coherent and concerted approach to shale.

We have created the Office of Unconventional Gas and Oil to co-ordinate the activity of the regulatory bodies and Departments.

We have a world class safety and environmental regime with a joint approach to inspecting new exploratory shale gas operations.

Which for new and first time shale operators means they will inspect key aspects of operations including the cementing and main hydraulic fracture.

We are creating a planning and regulation system with a high degree of local scrutiny and prior consultation, but one that does not duplicate and is clear to all.

That’s why we have set out guidance on the planning system, responding to the call from the industry and others to clarify that the main focus of planning is on the surface issues – traffic, noise, visual impact and so on. And that the responsibility for regulating activities beneath the surface, or wider environmental impacts, rests more with the other key regulators.

And the Environment Agency are taking a number of actions to streamline the permitting process.

And we expect industry to bring the public along with this. We therefore welcome the industry’s commitment, in its Community Engagement Charter published in June, to engage early with local communities, and to be transparent in their activities.

Communities hosting shale developments must be able to have their say at the start of every shale application, but they should also be able to see the evidence and feel informed in doing so.

So I was glad to welcome David Mackay and Tim Stone’s report into the emissions from shale gas in September that concluded the net effect on GHG emissions from shale gas production in the UK will be relatively small with the right safeguards in place.

And I am equally encouraged by independent research.

Particularly like last month’s Public Health England report, which shows the potential risk to public health from shale gas production in the UK is low.

And that is why I am pleased that the water industry are looking at shale gas and its water impact and working closely with the oil and gas industry.

As of 2010, it is thought that 60 per cent of all new oil and gas wells are hydraulically fractured across the world.

Even in the UK, it has been happening in some form for the past 60 years, with around 200 wells fracked.

And with all this activity, there is no confirmed evidence of contamination of aquifers caused by fracking, anywhere.

But, we know public acceptability depends on confidence about water issues.

That is why the Environment Agency will not permit the use of hazardous chemicals in fracking.

That is why the Health and Safety executive use the same regulations for onshore wells as for riskier offshore wells.

And, while operating a fracked well for a decade uses the same amount of water as watering a golf course for a month, we also understand concerns about water usage.

So the environmental regulators and water companies have the tools to ensure that water is provided sustainably.

And it is important that industry also consider all of these issues and how risks can be addressed.

Next steps

The Government’s been explicit about its support for exploring shale gas in the UK and we are creating a world leading environment for investment.

As well as the Government’s support, I have outlined our package of measures on tax, planning and community benefits that will help kick-start exploration.

We aim to support the industry in its early stages when costs are likely to be higher and risks of unsuccessful exploration are greater.

Ultimately we have consulted on a generous regime that provides value to the tax payer and we look to industry to make the next steps.

We can already see the results of these efforts in new investments. As Centrica and GDF Suez have recently made into existing licences.

And next year we plan to launch a new round of onshore licensing, where we expect a great deal of interest.

The industry itself has said we can expect 20-40 exploration wells drilled in the UK in the next couple of years.

Conclusion

What may be a surprise is that this country has invested in oil and gas onshore for nearly 100 years.

The first UK well was drilled onshore in 1919 at Hardstoft in Derbyshire, more than forty years before the start of the North Sea boom.

Since then more than 2,100 conventional wells have been drilled onshore, and production continues to take place in areas across the country from the south of Dorset to Northumberland.

The UK has a century of experience of oil and gas production with no history of chemical spills or gas leakages comparable to the US experience.

A century in which we have put in place robust regulation to ensure oil and gas operations are safe for people and the environment.

So, given the last century of on-shore exploration and the Oil and Gas expertise and robust industrial supply chain that exists as a result of North Sea extraction, Britain is well placed to make the right decisions about shale.

We must get on and explore our resources in order to understand the potential.

Published 22 November 2013