11/02/14 – Myths and Reality of Fracking and how fracking may affect energy costs

Speakers: Lord Deben Chair of the Committee on Climate Change (CCC), and Ashutosh Shastri of EnerStrat Consulting

The All Party Parliamentary Group on Energy Costs

11 February 2014 – meeting notes

‘Myths and reality of fracking’ with Lord Deben (John Gummer), Chair of the Committee on Climate Change (CCC), and a presentation from Ashutosh Shastri on how fracking may affect energy costs, both in the UK and elsewhere.

The meeting was Chaired by Lord Palmer who gave a brief introduction to our speakers.

Lord Deben began by explaining that the idea that the CCC had given the “green light” to fracking was “curious”; the committee’s view was that there was simply no fundamental scientific reason for fracking not to be acceptable.

Speaking in a personal capacity, Lord Deben argued that the committee had been dragged into the argument that there are lots of fossil fuels that had already been discovered, all of which could not be used without disastrous effects on the climate; and therefore, there was no need to look for any new fossil fuel resources.

He explained that fracking was acceptable in the context of tough environmental regulation, and where costs were reasonable. He also said it was worth considering the fact that much of the best areas for fracking are in the south, with no history of industrial activity and low water supplies, amongst other issues.

Lord Deben acknowledged the difficulties fracking projects faced in gaining local support, needing permission from authorities and buy-in from local communities, amongst other things.

Further, he made clear that much was still unknown about the market, that claims made by either side in the argument had to be considered in this context; claims about cheaper gas should be considered in the light of the fact that gas prices are regional, so there would always be a European price for gas and therefore fracking would not make gas cheaper in the UK. Additionally, the high cost of fracking processes meant the price of the product would be high. Fracking in the UK would not be considered a solution to all problems, but it would be part of the mix, all contained within the same carbon budget.

There followed a presentation from Ashutosh Shastri after which a Q&A session with both speakers followed. Detailed slides from the presentation are available on request.

Ashutosh Shastri began by arguing that, on balance, fracking in the UK would be a good idea, fitting into the UK carbon budget, given that in the coming years the country would rely more and more on imported gas.  A UK shale gas initiative could be used as a bargaining chip against international price rises.

Gas is the fuel of the future: a globalising market. He observed that the US experience gives good precedence for the UK to look at and learn from; suggesting that the way in which fracking programmes, compliance, disclosure and environment had been navigated by the Federal authorities was worth studying. There had been opposition and debate there as well. Shale in the US has been the single biggest game-changer in the global gas market, which will also have an impact on geopolitics.

Ashutosh took the opportunity to debunk one current idea, that with the UK could rely on the UK/USA special relationship and simply import supplies from the US, a market which is actually selling its supplies to other parts of the world.

The energy market is moving more towards gas on gas traded markets. Within this context, Ashutosh argued that it would be important for the UK to embrace shale gas, and that the country’s energy security would be well served by having a shale gas development strategy.

The cautionary note for the UK was that being at the end of the pipeline from Russia is not necessarily a secure situation which would always guarantee supplies.

Ashutosh concluded that a shale gas programme would give the UK an opportunity to become a centre of excellence in the industry and that there is currently an opportunity for the UK to position itself well in the global supply chain for shale gas exploration and production, as a competitive alternative to the US.

Questions from the floor

Dan Byles MP (Chair of APPG on Unconventional Oil and Gas and Member of the Energy and Climate Change Select Committee,) – Is it fair that small groups of anti-fracking campaigners might get to decide the agenda?

Lord Deben defended the right of campaigners to campaign and get their message across as part of a democratic society and pointed out that the planning system is designed to allow for local decision-making and the importance of decision-making in the locality.

Dan Byles MP explained that this is a complicated planning issue and should be discussed in that way, for example, as if it were a local discussion about a waste plant in the locality, rather than there being something “scary”. Lord Deben agreed that this was absolutely the approach to be taken. Ashutosh Shastri recommended looking at the US example to learn from what happened regarding compliance and transparency in local communities in the USA.

At current market price levels, 60p a therm, is fracking in the UK worthwhile?

The panel concluded that it was hard to say since the composition of the gas resource is unknown. This all needs to be explored, with drilling in order to get a better estimate of the cost of exploration and production.

What would need to happen to change the law to make the mineral rights ownership more like that in the US?

The speakers agreed there would be no hope of making such a change to the law, with Dan Byles MP suggesting this might not even be helpful.

In terms of public policy and energy strategy the real question is not “yes or no” but “when?”

The speaker stated that, from the perspective of energy security this is an additional and flexible resource. Further holes can be sunk within the licence window when additional gas is required, so the gas needs to be priced accordingly. Further, we were reminded that pricing could not even be  considered until the investigatory work had been undertaken to clarify the cost and volume of  UK’s supply.

In the US the infrastructure for shale gas was installed over a long period, how would the infrastructure needed in the UK be put into place quickly enough?

The panel accepted that, yes, start-up would be difficult, but that is not a reason not to pursue the market in the UK.

Would the tax take from the UK shale gas market be a game changer?

This is unlikely: the actual figures do not suggest that.

Is there an opportunity for CCS  – will we ever see a commercialised project of scale? Could North Sea initiatives create future competition for investment in shale gas?

The North Sea issue is a good question, but no one knows the answers to that question.

The key concern on CCS is how you balance the range of alternatives to provide energy needs. CCS for gas would be very helpful and that there would be a real chance of being able to do that.

Lots of people think of gas in their taps and in the water table. Is there an opportunity to revive local democracy, with local revenue share deals and voting for local people in areas earmarked for fracking?

According to one speaker water table depths are much shallower than the depths at which shale gas fracking happens. Only bad practices could create the potential for gas in the water table.

To answer the opposition to fracking, is there an argument to make regarding likely job opportunities in the areas where fracking would happen?

Both speakers agreed that a lot more work needs to be carried out before any figures can be guaranteed, it depends on the resources found, once real investigatory work has been done. The supply chain jobs might be quite permanent, technology and data businesses would be stable.

The large area of current flooding coincides with the next parcels of fracking licenses, what is the view of the compatibility of fracking in areas below sea-level and susceptible to flooding? Also, in areas of little water, how is the choice made about what to do with the limited supply of reservoir water?

In the case of water management there has been a lot to learn in the US, with a lot which has gone very well. Compliance, best practice sharing and disclosure regimes are of use. Here the speakers diverged, with Lord Deben recommending that that there needed to be more compulsion and regulation than had been the case in the US. It was made clear that these things are worked out in practice. Whilst there are issues about water, there is a priority system about how water is used, fracking would simply fit into that system.

Lord Deben recommended that the environmental movement concentrate on the big issues on climate change and not focus on the marginal issues and, in the bigger picture, fracking could be categorised as a marginal issue.

The meeting closed at 6pm.