LABOUR POSITION ON SHALE GAS EXTRACTION

In recent weeks, the Rishton Councillors have been sent an increasing number of form letters questioning their stance on shale gas extraction, or 'fracking' as it is commonly known. The Labour party have issued this statement to set out the official position:

Gas has a role to play in a future balanced energy mix, along with renewables, nuclear and CCS. However, shale gas is unlikely to be a game changer for consumer bills or energy security and there are important regulatory questions which must be answered before large-scale extraction can begin.

Concerns about the safety and environmental impact of shale gas extraction are valid. The appropriate response to such concerns is to ensure that we have the right regulatory and monitoring framework in place before large-scale fracking begins.

It is not just the robustness of the regulation, but the comprehensiveness of the monitoring that is important. Assurances are required from the Environment Agency and the Scottish Environment Protection Agency that they will be able to carry out such monitoring.

Labour have set out 6 regulatory conditions that must be met before Shale Gas extraction can proceed:

•  Evidence of seismic activity led to the suspension of operations in Lancashire in 2011. As Labour set out in an article for Business Green on 7 March 2012, baseline conditions should be assessed prior to any exploratory work with micro-seismic monitoring, in order to discriminate natural from artificially induced seismic events once the drilling begins. An early warning detection system should also be implemented, similar to that used in the Netherlands and Germany, which would allow measures to be taken before seismic activity has a noticeable impact. 
• There has been a lack of transparency and control in the USA on exactly what is being used to fracture shale rocks and extract the resulting gas. In the UK, the chemicals used must be restricted to those that are proven to be non-hazardous. Further, there should be mandated disclosure of all the chemicals to be used in fracking, including their toxicity levels. 
• The integrity of each shale gas well must be assured to prevent water contamination. An independent assessment of the well design, the cement bond between the casing and well bore, in addition to the composition of the casing to determine its ability to resist corrosion, is essential.  
• The level of methane in groundwater should also be assessed prior to any drilling. Methane can occur naturally in groundwater, but there is concern from the experience in the USA that it may occur as a result of fracking. In each case, that needs to be assessed prior to any activity, so there is robust baseline information to monitor against. 
• All potential shale exploration sites should be subject to screening for an environmental impact assessment – at present, those below one hectare do not need to undertake such an assessment. This assessment should include the level of water used, how much can be recycled and the availability of water in each case. 
• All of the monitoring activity referred to above should take place over a twelve month period, to allow sufficient time to gather all of the evidence required to make an informed decision on whether to proceed with exploration. 

Since Labour announced this position, the Government has conceded on 4 of the 6 points we made last December. They have not included the baseline survey of methane being assessed prior to drilling, and they have not specified that the monitoring activity should take place over a 12 month period. Further, concerns remain, particularly regarding the effectiveness of the monitoring process and the capacity of the relevant bodies to undertake that monitoring if there is further exploration of shale gas.

To date, only a small number of exploratory licenses have been issued. 3 onshore exploratory wells have been drilled. Shale is covered by the normal UK regime for all oil and gas exploration and development. A UK Petroleum Exploration and Development licence (PEDL) allows a company to pursue a range of exploration activities, including exploration and development of unconventional gas, subject to necessary drilling/development consents and planning permission.

A separate license will be required for full-scale fracking, meaning that it is unlikely that Shale Gas could be extracted in meaningful quantities before the next general election.

George Osborne has announced that has production profits from shale will initially be taxed at just 30%. At present, gas production profits are taxed at 62%, rising to 81% in some North Sea cases when the Supplementary Charge and corporation tax are combined.

Labour does not believe that announcing tax breaks before properly addressing legitimate environmental concerns is an appropriately proportionate and cautious approach to shale gas.

The Chancellor argues that these tax incentives are required to stimulate a market dealing with a number of unknowns – size and recoverability of resources, regulatory framework, etc – while Labour argues that it is precisely these issues that need to be clarified before there is any consideration of advantageous tax treatment. The economic cost of extraction of shale is one factor which companies with licences will need to consider. The case for differential allowances for marginal fields, as in the North Sea, may be relevant for atypical fields but should not be the norm.

Shale Gas extraction in the US has driven down the cost of energy for consumers and businesses, providing a competitive advantage to some industrial sectors and therefore to the wider economy.

However, this has in part been the result of the fact that the US is not able to export gas. As supply increases in this closed market the cost correspondingly decreases. By contrast, the UK is well-connected to the European gas network. The cost-reducing benefits of an increase in supply will be shared with the rest of the continent, dissipating the impact, particularly as extra-Europe demand for gas is likely to increase rather than decrease.

The benefit to the UK is more likely to be in relation to energy security as an indigenous source of energy will make us less reliant on foreign imports, particularly as our own North Sea gas reserves are declining and we now import more gas than we produce – a position which has changed over the last 10 years.

The geography of the two countries also makes exploration less likely than in the UK. Many of the areas in the US where production does take place are largely deserted, however in the UK we are more densely populated which will impact upon exploration and extraction permissions from local authorities.

So a simplistic extrapolation of the US experience of shale gas is not an informed contribution to the debate.

A frequent objection to shale gas is that it will divert investment from renewable energy and lock the UK into a fossil fuel industry. The Government have perpetuated this line of thinking by establishing a false opposition between shale gas extraction and renewable investment, suggesting that they back ‘cheap gas’ over ‘expensive green’.

The Labour Party reject this dichotomy. Gas will continue to play a part of our short and medium term energy mix and meeting this obligation will require some investment. There is no reason why this should preclude heavy investment in renewable generation, which represents the long-term future of our energy sector.

This is also why it is important that there are other signals from the government towards a low carbon generation mix, and why we are committed to a 2030 decarbonisation target.

Possible extraction of shale gas is not inconsistent with the binding carbon targets the UK has legislated for – we will continue to need gas for peaking capacity, and as a source for heating.

Despite these concerns, Shale Gas nevertheless remains a positive potential opportunity for the UK, one that we should not dismiss.With around 80% of houses using gas for heating, we will continue to need gas in the UK for some years to come.

Shale gas is not the silver bullet for all of our energy needs as the Chancellor and others seem to suggest. Nor is it likely to be extracted in great volumes in the immediate future. However, while it is right to be cautious and proportionate in our approach to shale gas exploration, we should not rule out the use of an indigenous source of gas to replace the depleted North Sea gas reserves and displace some of the gas we currently import and improve our security of supply, so long as it can be extracted safely.