Speech

UK onshore production: Michael Fallon

A speech by Energy Minister Michael Fallon to the UK Shale 2013 "Making it Happen" conference.

Thank you very much for having me here today.

Shale gas has risen rapidly up the news agenda since this conference last convened nearly a year ago.

Rarely now does a day pass when fracking is not in the headlines.

The increased profile for shale means we have had to work hard to explain shale gas and fracking; how it operates and the implications it has for the country and local communities.

Cutting through speculation and hearsay to inform reasoned opinion is only likely to become more important as we look to engage communities in the next exploratory phase of UK shale.

The scale of that communication challenge became clear to me with one question from a reporter recently.

The reporter asked: “do we need to build new power stations to use shale gas?”

That shale gas is the same methane used to power our existing gas plants is a simple answer, but it struck me that we cannot be complacent nor presumptuous.

We have to be clear in the way we communicate.

So I would like to take this opportunity today dispel what are perhaps some more commonly held myths about shale gas and fracking.

  • This first myth is that onshore oil and gas production in the UK began recently.

  • The second is fracking is a new technology.

  • The third is that Government is holding back shale development

Role of gas

The first thing to say is oil and gas is vital to our economy.

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.

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.

UK onshore production

So let me turn to the myths I mentioned.

And led me start with the myth that onshore oil and gas production in the UK began recently.

In the public perception, it is North Sea offshore production I suspect that comes to mind for most when they think of the UK’s oil and gas.

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

The first UK well was drilled onshore in 1919 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, and onshore production continues to take place in areas across the country from the south of England to Scotland.

Just last week I visited IGas operations in the South Downs National Park in Sussex. It is a good example of how oil and gas operations can work - even in the most sensitive of environments.

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.

Fracking is not a new technology

The second myth I’d like to challenge is that fracking is a new technology.

Because put simply - it is not.

It has been estimated some 2.5 million hydraulic fracturing jobs have been performed on oil and gas wells worldwide.

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.

This perception of fracking as a new phenomenon perhaps finds its roots in its revolutionary success, and the growing realisation that the intensive use of the technology creates huge opportunity for development worldwide.

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 India to China have looked on at this boom and are joining in.

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

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

Government progresses shale

And that is the third myth I’d like to debunk - that this Government is holding back shale development.

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 is some areas.

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

We have done that in a number of ways.

Firstly, we announced fracking could resume with robust regulation last December and there is nothing now preventing licensees from bringing on new drilling plans.

Secondly, 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 I can also confirm that our knowledge of shale resources will be further enhanced when we publish estimates for the Weald Basin in the South of England by March next year.

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

And getting it right will benefit industry where it matters - in the long term.

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 operations of fracking including the cementing and main hydraulic fracture.

We will provide tax incentives to create a fertile ground for shale to prosper.

As you will hear later this afternoon from the Treasury, we’ll very shortly consult on a new pad allowance that could help unlock investment and provide significant support to the industry, particularly during the critical exploration phase.

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

And we are creating a streamlined planning and regulation system with a high degree of local scrutiny and prior consultation, which we will set out in guidance to be published shortly.

This guidance will not cover every issue when considering proposals for shale gas. It will need to be read alongside other planning guidance and the National Planning Policy Framework.

But it will carry weight in the planning system.

Unfortunately, Nick Boles has had to pull out of the conference due to Parliamentary business, but I know he would want me to make some key points on how planning will contribute to the overall picture.

We in Government have heard loud and clear what the industry and others have said about the importance of clarifying 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 rests largely with the other key regulators.

For example, seismic activity, which is regulated by my Department under our licensing arrangements.

Or pollution of groundwater, which falls to the Environment Agency.

Or the design and integrity of the wells, which rests with the Health and Safety Executive.

It will of course remain critical for planning authorities to be content, at planning decision-making stage, that the issues which fall to other regulators will be adequately regulated.

It remains our strong view that there should be strong, early and constant engagement with local communities and the key regulators before submission of a planning application.

We therefore welcome the industry’s commitment, in its Community Engagement Charter, to engage early with local communities, and to be transparent in their activities.

But close engagement with the regulators by firms is also beneficial, helping to identify issues to be addressed as part of the planning application and other approvals at an early stage.

This the right approach to create a sound basis for a shale industry that provides energy security, jobs and investment.

As an example of progress, the industry itself has said we can expect 20-40 exploration wells drilled in the UK in the next couple of years.

Nowhere is the opportunity greater than in the North of England.

From the days of the Industrial Revolution, The North of England has a strong heritage powering this country’s growth.

With an estimated 1,300 trillion cubic feet of gas in place, should it be commercially successful, shale could provide a great boost to the region in terms of skills, supply chain and innovation.

But that success will only come if development is done in partnership with communities.

We must recognise that responsible development means a responsibility to the communities that host shale operations.

There are two vital areas to achieving this.

First, communities must be engaged from the start of every shale application.

And second, as well as jobs, local people should feel they are getting their fair share from the development of shale.

I think the industry has made good strides in both these areas.

The Community Engagement Charter adopted recently through the industry trade body, The United Kingdom Onshore Operations Group is a very laudable move in the right direction to get communities on board.

The Group plan to publish details of how the charter will operate in practice and will be engaging with communities and other stakeholders as they develop the proposals further.

With the Charter comes a package of community benefits provided by industry.

£100,000 for each exploratory well, with one per cent of revenues for communities at the production stage.

That is as much as £5-10m during production, according to industry estimates.

It is a good offer - millions of pounds that can help with money off bills, building playgrounds and sports halls or even providing regeneration schemes.

But we must not forget, that if shale is successful, this is a long term commitment we are making with communities that will last for the life of a productive well - which could be up to 25 years.

So I’m pleased that you the industry have pledged to keep this offer under review in the light of operating experience to ensure communities continue to get their fair share.

Conclusion

In summary, as we move to a low-carbon future oil and gas will continue to be a key part of our energy mix for decades to come.

The government therefore believes that shale gas has the potential to provide the UK with greater energy security, investment and jobs.

We have a strong regulatory system which provides a comprehensive and fit for purpose regime for exploratory activities, but we want to continuously improve.

And as much as is it absolutely essential that we get these basics right we must also work tirelessly to engage people with clear evidenced based information so they have the hard facts to make an informed decision about fracking.

Thank you.

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