My Lords, I join in the thanks to the noble Lord, Lord MacGregor of Pulham Market, and pay tribute to his leadership over the several years in which he has chaired us in several complex and important inquiries. This report is one of those and it is a very helpful contribution to the debate on shale oil and gas, which of course is primarily about gas.
As we say, the aim of the report is to focus on the facts. Some have been established, as far as we were able, but many have not because either they are unknown or they need further work. We need to know the extent of shale gas and oil that could be extracted. We need to know where it is, offshore and onshore; we need to understand the commercial viability of extraction, and thus the possible extent of applications for extraction; and we need to understand the negative environmental impact of extraction that might arise, in all its detail. I have much sympathy with residents in areas that could be affected who are asking legitimate questions about the environmental impact. Their concerns need clear answers. I think that this means there is a need for a regulatory regime that is fit for purpose, understandable to the general public, transparent and independent of commercial interests.
These issues all relate primarily to shale extraction policies—but, as we have heard, the role of shale in promoting security of supply remains a major consideration. I believe that we have to reduce energy imports. We have become over-reliant on North Sea output, which is declining, and on imports, which have grown over the past decade. The Department of Energy and Climate Change estimates that we could be importing three-quarters of our gas before 2030. We heard some convincing evidence that home-produced shale gas would displace imported gas rather than displacing renewable energy and would reduce the need for coal to be used more, with all the impacts of that on carbon targets. I want to be clear that I think that we have to maintain investment in renewables because shale gas cannot be the answer to all our energy needs—but shale can give the renewables sector time to grow.
I was impressed when hearing evidence from the British Geological Survey, which was cautious, refusing to jump to immediate conclusions on the capacity for extraction. It said, though, that 40 times the annual UK gas use should be extractable from the Bowland-Hodder area in the north of England. But as we conclude in paragraph 70, there are no well grounded assessments of economically recoverable reserves of shale gas, and we need to know what that potential is.
Mention has been made of the USA, and there are some comparisons that can be made. However, we have to remember that there are large differences between this country and the USA in the scale of the land area; experience and expertise; regulation; and landowner rights. Still, we can learn from the US experience, and I have become increasingly concerned about reports from the USA of a rising tide of opposition to shale extraction. We read recently in the Financial Times of rising public opposition to fracking in Colorado on environmental grounds. There are accusations that shale extraction is industrialising rural landscapes and being committed in city suburbs very close to people’s homes. North Dakota, another state that has substantial shale extraction, and which is perhaps more remote, is clearly facing social pressures, not least the very high cost of housing.
We say in our report that the development of shale gas cannot go ahead without public acceptance. We say that shale development has to be properly regulated and that we must reduce or eliminate risk, and I agree. But I want to express support for the rights of local people in areas that have been or could be subject to licensing applications. Such local concerns are understandable and must be clearly answered because fracking must be safe.
Public concerns relate to issues around ground-water contamination, flow-back water, tremors, noise, traffic, fugitive methane and destruction of the countryside. These all need clear answers. Fugitive methane, as the report indicates, can leap from well-heads during the extraction process or when being transported. As we say in the report, this will need to be monitored, even though levels of fugitive methane emissions are estimated to be similar to conventional gas production.
Concerns that ground-water contamination could arise from chemicals in the fluid used to fracture the rock have also been made. In the USA, leaks from faulty shale gas and oil wells have contaminated water supplies, but fracking itself is not to blame. Well integrity is essential. The Royal Society, as I think we have heard, and the Royal Academy of Engineering have told us that none of the claims of contaminated water shows evidence of chemicals found in hydraulic fluids. Cuadrilla said in its evidence that 99.95% of its fracking fluid is water and sand. The other 0.05% is polyacrylamide, as used in cosmetics. The regulators would need to confirm that this continues to be accurate to allay any public concerns. Concerns about flow-back water, traffic noise and impact on the natural environment are very understandable—which is why effective regulation is so important.
Some have given the public the impression—not in your Lordships’ House—that this report is calling for relaxation of fracking regulations. It most certainly is not. The trouble is that the regulatory system is so confusing even though we have a tighter regulatory regime than the USA—and I think it is pretty clear from all the evidence we have received that we do. That regulatory regime has to be applied and it has to be seen to be applied. The operators say it is a complex system, but it is complex for the general public, too. I support streamlining the system to make it more robust.
There are three different UK bodies responsible for licensing and regulating above and beyond the planning system. The Department of Energy and Climate Change issues exploratory licences, requires environmental risk assessment, approves hydraulic fracturing plans and grants final consent to drill to mitigate the risk of induced tremors. The Environment Agency grants environmental permits, jointly inspects well sites with the Health and Safety Executive and is responsible for mitigating risks to public health. The Health and Safety Executive approves well design and jointly inspects well sites with the Environment Agency to prevent ground-water contamination.
I find the relationship somewhat confusing and wonder how it can work in practice, which is why the report’s recommendations to identify a lead regulator to oversee all stages of licensing is important and why we should consolidate all regulatory provisions relating to onshore oil and gas development into one clearly titled set of regulations. My last point is that there should be an explicit recognition in the regulations that well examiners must be independent of the well operator—not appointed by the operator. This would create a more robust and more transparent regulatory system, because nothing less will build public confidence.
In conclusion, we have heard about the potential benefits; the difficulty is that we do not know how great those are. We think that energy-intensive industries might grow. We think that there will be benefits to the balance of payments and to tax revenues, but the truth is the benefits will be unknown until exploratory drilling takes place. We need that evidence but we also need strict environmental protection in place in the areas affected.