This is a controversial subject and, no doubt, your Lordships have heard and will hear many different views. Hydraulic fracturing—fracking—is a technological reality and cannot be uninvented. It is also clear that the Government, and Parliament as a whole, are determined to develop shale gas in the UK. The question is whether this development has been thoroughly thought through in all its ramifications, as we inexorably move towards exploration and production.
Andrea Leadsom, the Minister of State for Energy at the time, said in May 2016 that shale gas could,
“provide jobs for our people and tax revenues for our society”,
“help the UK to decarbonise while we move away from coal to lower-carbon energy sources”.
It could secure energy and bring economic growth and job creation.
The suggestion has been that shale gas development could create between 60,000 and 70,000 jobs, stimulate billions of pounds of investment in the UK, provide energy security and help secure “a bridge to a greener future”. On the face of it, these arguments seem compelling, except that none of them is quite as straightforward as it initially sounds.
Let me start with energy security. The assumption is that we lack it. A House of Lords Economic Affairs Committee report into shale specifically referred to the reliance on Russia, Europe’s biggest gas supplier. The only problem here is that the UK imports virtually no gas from Russia and is unlikely to import significant amounts in the future.
In a Written Answer to me last September, the Minister, the noble Baroness, Lady Neville-Rolfe, responded:
“There are no pipelines that allow Russian gas to flow from Norway (our biggest source of imports) or via shipped Liquefied Natural Gas (which comes mainly from Qatar). Some gas of Russian origin may enter via pipelines from Belgium and the Netherlands. However, Belgium has reported virtually no Russian gas imports over the past three years. The Netherlands does report some Russian imports, but we estimate Russian gas via this route would account for less than 1% of the UK’s gas imports and, therefore, much less than 1% of our total gas supply”.
In fact, the UK has now started receiving direct imports of US LNG so, unless we regard Norway and the US as unreliable partners, the energy security argument does not stack up. Of course, it is always better economically to have our own gas than to import it. There may be some environmental benefits if the amount of carbon produced is less, but that is by no means currently certain.
The billions of pounds of investment and thousands of jobs are presently speculative. Hopes of commercial-scale shale in Poland have faded and many of the majors have already pulled out. The number of licences have been halved. Those leaving include Exxon, Chevron, ConocoPhillips, Talisman and Marathon. Put simply, UK shale may or may not be commercially viable. No one will know until large-scale exploration establishes the level of exploitable reserves. This is, of course, a matter for the companies involved, but the experience in Poland shows that you should not count your chickens or your prospective tax-take.
As for the thousands of jobs, these may or may not just replace those already lost in the North Sea, partly as a result of the hydrocarbon glut and price collapse caused by the US shale revolution in the first place. Oil and Gas UK estimates that 120,000 jobs have been lost in the wider British economy due to the North Sea oil and gas downturn, with a barrel of crude falling from about $115 to around $50 since 2014, with a close correlation with gas prices. The US has also experienced the boom and ghost town experience, where some shale operators which initially did well went bust in the downturn, impacting local economies.
Significant UK shale production and downward pressure on prices could further undermine North Sea operators and squeeze margins in what is already one of the most expensive places in the world to exploit oil and gas. So what about a “bridge to a greener future” and the effect on the environment? Well, this is one of the most contentious issues of all. No doubt the Minister will repeat that the UK’s regulations are some of the strongest in the world and that we have 50 years of successful and safe onshore and offshore oil and gas extraction. Shale gas developments will be very closely monitored, shallow drilling will be banned and seismic movements monitored. That is all true, no doubt, but as Piper Alpha, Deepwater Horizon and the Exxon Valdez disasters showed, accidents do happen. No hydrocarbon explorer or producer can 100% guarantee the integrity of its wells, even if they are much deeper than aquifers. Water contamination is possible and earthquakes are inevitable. We have had several hundred already in the UK as a result of mining operations, quite apart from the notorious Cuadrilla quakes outside Blackpool. The US has had thousands of earthquakes, now indisputably linked to fracking. I am still unsure how the UK will avoid the same fate as the US. Perhaps the Minister will use this opportunity to explain that.
By the very nature of fracking and unconventional gas, where production falls off after 18 months, the UK will need to develop thousands, not hundreds, of shale gas wells. This has caused problems in the wide open spaces of the US. How will it work in this densely populated island of ours? What about the truck movements? In the US, the environmental picture has not been great. In 2014, Oklahoma experienced 585 earthquakes with a magnitude of three and over. According to the US Geological Survey, these were caused by the disposal of wastewater reinjected into the wells by the shale operators. A study by the University of Alberta, co-authored by the Geological Survey of Canada, confirmed a definitive link between fracking and almost every large earthquake recorded in Alberta and British Columbia since 1985.
The Pennsylvania Department of Environmental Protection reported that 234 private drinking water wells in Pennsylvania have been contaminated by drilling and fracking operations in the last seven years. Meanwhile, a US Environmental Protection Agency scientist identified groundwater pollution in Pavillion, Wyoming, as a result of fracking. A separate report in April 2016 concluded that there were,
“dangerous levels of chemicals in the underground water supply used by the 230 residents of Pavillion ... Levels of benzine, a flammable liquid used in fuel, were 50 times above the allowable limit, while chemicals were dumped in unlined pits and cement barriers to protect groundwater were inadequate”.
Furthermore, there is serious concern about the amounts of methane released during fracking. Recent attempts in the US under President Obama to limit methane emissions look likely to be overturned by President Trump. Of course, the industry will tell us that it will all be different in the UK. It cannot happen here, the US is different and the regulations will be tighter. Perhaps the Minister would like to comment further on that. However, some states and regions think differently. Maryland in the US has put a moratorium on fracking, as have Scotland, Northern Ireland and France. Fracking was banned in New York in December 2014. What do they know that we do not, or do Her Majesty Government have a monopoly of wisdom on the subject? The UK’s Labour Party also supports banning fracking, with shadow energy Minister Barry Gardiner stating:
“The real reason to ban fracking is that it locks us into an energy infrastructure that is based on fossil fuels long after our country needs to have moved to clean energy”.
We will continue to be dependent on fossil fuels in the foreseeable future, at least up to 2040 or 2050. Her Majesty’s Government are committed to reducing our carbon emissions by at least 80% by2050, compared to 1990 levels. Professor Kevin Anderson, former director of the Tyndall Centre for Climate Change Research, has said:
“From a climate-change perspective this stuff simply has to stay in the ground”.
The Environmental Audit Committee reported in 2015:
“Ultimately, fracking cannot be compatible with our long-term commitments to cut climate changing emissions unless full-scale carbon capture and storage technology is rolled out rapidly, which currently looks unlikely”.
The Committee on Climate Change also thought that the implications for UK shale gas exploitation for greenhouse emissions,
“are subject to considerable uncertainty”,
and are not compatible with UK carbon budgets unless strict measures are taken.
Finally, a recent survey showed that only 19% of people back shale exploration in the UK despite the various inducements offered to local communities. The Financial Secretary to the Treasury said in the other place last November that the Prime Minister has been very clear:
“Local people must come first”—[Official Report, Commons, 21/11/16; col. 727.]
Will the Minister therefore pledge that local communities will in future decide local planning issues?
My Lords, I congratulate the noble Lord, Lord Truscott, on obtaining this debate and on his introduction to it. However, I shall come to some very different conclusions from those that he reached.
I chaired the Economic Affairs Select Committee, which reported on this subject in May 2014. According to our own press department’s survey, that committee’s report obtained one of the widest levels of attention of any Select Committee report produced at that time. That was partly, of course, because of the concerns of environmental groups but it went much wider than that.
Given the wide-ranging background and knowledge of the members of the Select Committee—on the environment, climate change, economic issues; we had all these things—I had thought that it would be very difficult to reach agreement. In fact, we had a unanimous report, having heard from a very wide range of expert witnesses. Therefore, my main conclusion remains, as was the conclusion in the report, that the benefits far outweigh the risks, and the risks can be controlled. My main concern is that it is still far from certain that the benefits will be realised and achieved.
What have been the developments since our report was published? First, the Government have made some beneficial changes to legislation. Senior Ministers, past and present, have confirmed that in principle they are strongly in favour of shale gas exploration and production as a major contributor to our energy mix, employment, import savings and other benefits.
Secondly, it is widely recognised that our regulatory and other environmental requirements are fit for purpose. Thirdly, the Government have made some helpful changes to planning and tax legislation and offered community benefits to those affected. All this is very commendable but progress is just too slow, there is no clear drive and few results have been obtained so far. The history to date is of limited progress and no real awareness among the wider public of the benefits of shale gas as compared with the media attention given to protesting local and environmental groups. Since 2004, government and Parliament have striven to meet all the environmental, planning and other concerns, as have the industry and regulators, and compensatory benefits have been given to local communities. All that is now in place. Yet still no exploration drills have been drilled since 2011, so we still do not know the full potential or can fully cover all the risks. So shale gas drilling is still at a pre-exploratory stage, no commercial operations have been authorised and a lengthy application process must be completed before drilling can take place.
Meanwhile, the world is passing us by. Only this week we learned that shale output from the Permian Basin in Texas is expanding faster than the world thought possible. The founder of Pioneer Natural Resources there said:
“People just don’t seem to realise how big the Permian is. It will eventually pass the Ghawar field in Saudi Arabia, and that is the biggest in the world”.
He also says:
“We have had such efficiency gains that break-even cost in the Permian are close to $25. It took us 40 days to drill a well in 2014. We’re already down to 20 days”.
Meanwhile, we in the UK have not even started. The US will get all the benefits, unless we get a move on.
The companies involved in the UK are running out of money quite quickly. The economic valuation is less favourable because the gas price has fallen considerably. The US is finding much more shale gas than originally anticipated and companies there are reducing costs dramatically. There could be a wave of imports in the next few years, making it less favourable for companies to develop here, at a cost to the balance of payments, to employment possibilities and to security of supply. I have not dealt with the wider security aspects, but they are there too.
The Government are committed to shale gas development in the UK. In our report we called for a Cabinet committee to be set up to get the right mix of incentives, to remove or substantially reduce obstacles, and to give a strong steer to all the departments, local authorities and others to make real progress. It has not yet happened. The benefits are likely to far outstrip the costs and the risks, and the latter can be controlled. Yet the benefits are still far from certain to be realised. In my view, swift progress to shale gas production needs greater public and political recognition and support—and we need to get on with it.
My Lords, I think that I would have congratulated my noble friend Lord Truscott on introducing this debate if I had not had to listen to the way he introduced it, which was another example of all the scare stories that we have heard about fracking in the past. I am disappointed to hear them reiterated, because they have all been roundly disproved. The earthquake stories have been recycled again, but even if there was a slight worry about earthquakes, if monitoring of fracking in this country should show anything like 0.5 on the Richter scale I do not think that the earth would be moving, even for my noble friend. We have the toughest fracking safety regulations anywhere in the world.
I do not understand the idea that, apparently, anybody else can do fracking—it does not matter where else it is done—but it cannot be done here. We do not care if it is done in Qatar, or what the conditions are. We do not care about the fact that if it is liquefied and then de-liquefied that in itself causes emissions. Apparently that is okay with my noble friend.
The plain fact of the matter is that gas will continue to be used in this country, for 20, 30 and even more years. It is the largest source of electricity, accounting for around 45% of electricity generation, which has allowed the share of coal-fired generation to fall to record lows. Gas-fired power stations can run continuously or as flexible back-up for intermittent wind and solar energy.
I shall partly repeat what the noble Lord, Lord MacGregor, said, because it was nice to hear a voice telling us about the real benefits that we can expect from fracking, assuming that we actually get round to doing it. At the moment we are significantly dependent on imports, not only of liquid natural gas but also of pipe gas. Whether or not we worry about energy security, surely we should be worried about price volatility, because we do not control the import prices. That exposes the UK to international currency fluctuations, with imported LNG, for example, priced in dollars.
This also harms the UK’s balance of trade, which apparently does not really matter to my noble friend. In 2015 the UK spent over £14 billion on net primary fuel and energy imports—crude oil, oil products, natural gas, coal and electricity. It is estimated that by 2030 imports of gas alone could cost the UK economy £10 billion a year. We could be producing that ourselves.
Among the benefits would be energy security and employment. What do we know about shale gas? We know that potentially there are billions if not trillions of cubic feet of gas here. We do not know for sure, but even taking the most conservative estimates—taking only 10%, say—that would give years and years of gas supplies. Employment does not seem to matter any longer either, but there are potential skilled jobs there. We have set up training colleges to train people, but apparently that does not matter either.
I listened carefully to my noble friend’s arguments, but I direct him to the report by the American Environmental Protection Agency, which looked at 38,000 wells. I did not notice it issuing an instruction that fracking had to stop immediately. If it were such a serious environmental danger, listening to my noble friend one would think that the whole of the US water supply was poisoned. That is just not the case.
The UK has the industry experience to make a success of shale gas production. More than 2,000 wells have been drilled onshore, with around 200 having been hydraulically fractured at lower volumes to enhance recovery. The Wytch Farm oilfield is located in an area of outstanding natural beauty on a world heritage coastline whose property prices are among the highest in the country and it produced 100,000 barrels of oil a day at peak production, yet I never noticed the whole of Dorset being contaminated as a result. Today the industry has 230 operating oil and gas wells onshore on 120 sites, producing about 8 million barrels of oil equivalent per year.
We have very large potential shale gas resources and what we are doing about them beggars belief—including, unfortunately, the decision taken by my own party to endorse a ban on fracking—when we could be using them to reduce the cost of fuel. If we cared about fuel poverty, I would have thought that that would be uppermost in our minds.
Unfortunately, in the green movement there are many scare stories. My noble friend talked about leaving it to local people to decide. I would be happy if it really were local people who decided, but we know that, as soon as there is any local activity in relation to fracking, the usual opponents flood the area, spreading scare stories about earthquakes and poisonous substances. The fact that 99.5% of the substances consists of sand and water did not stop Friends of the Earth claiming that the silicon used caused cancer. On that basis, I presume that none of our children will be playing on beaches any longer, because to my knowledge—although I do not claim to be an expert chemist—that is what sand consists of. These are irresponsible scare stories. Why people persist in spreading them is beyond me.
I do not want to exaggerate the impact of shale gas but, according to the British Geological Survey, in the Bowland shale there are something like 1,300 trillion cubic feet of shale gas. If only 10% of that could be extracted, it would be equivalent to 40 to 50 years of UK gas consumption. Surely that is worth doing. I cannot understand the opposition. If we were in the situation where there were not sufficient safety regulations, I would be the first to endorse the concern, but that is not the case. This Government have ensured the tightest set of safety regulations. My view is that there are real economic and energy security benefits, as well as employment benefits, to this country if only we could get on with the production of shale gas.
My Lords, it is always a great pleasure to follow the noble Lord, Lord Young of Norwood Green, who speaks a great deal of common sense on these issues. I declare my interests in energy as listed in the register—they are mainly in coal, which is threatened by shale gas, and so I should be against it but I am not.
I first visited a shale gas well in Pennsylvania in 2011 while writing a report for a think tank, the Global Warming Policy Foundation, founded by my noble friend Lord Lawson. At that time, most energy analysts were still arguing that shale gas was a flash in the pan. I concluded that that was almost certainly wrong and that we were witnessing an energy revolution of huge significance. And so it proved. America went from importing to exporting gas. The shale boom pumped hundreds of billions of dollars into the American economy through domestic production and lower prices. The environmental problems were minimal. President Obama’s Energy Secretary confirmed this in 2015, when he said:
“I still have not seen any evidence of fracking per se contaminating groundwater”.
Over the past decade, America has cut its carbon dioxide emissions faster than any country, thanks almost entirely to the shale gas revolution. It did so while simultaneously bringing heavy industry back onshore, whereas we have driven it away. Saudi Arabia tried to kill the shale drilling business in 2014 by flooding the market and cutting prices. It failed—the technology keeps improving and, as my noble friend Lord MacGregor said, the break-even price gets lower and lower.
Last November, I was on a shale-oil site in Colorado watching the new quiet-fracking fleet do its work: an operation that takes about the same length of time as building a wind turbine and is as limited in area, but produces hundreds of times more energy and is about 2% as prominent in height in the landscape when it is finished.
In 2011, I wrote that,
“shale gas faces a formidable host of enemies in the coal, nuclear, renewable and environmental industries—all keen, it seems, to strangle it at birth, especially in Europe”.
I was right about that too. What was the reaction of the environmental movement to this gift from the gods? To oppose it with all its might, even at the cost of telling the truth. This year, Friends of the Earth was forced by the Advertising Standards Authority to withdraw several misleading claims it had made about shale gas. As the noble Lord, Lord Young, said, it even resorted to arguing that sand is carcinogenic. It did not quite have the brass neck to complain about dihydrogen monoxide, which is injected in large quantities into shale gas wells—for those whose chemistry is rusty, that is H2O, or water.
Who is behind this anti-shale propaganda? Let us look at who stands to suffer from a successful shale revolution here. First, the subsidy-drunk renewable energy industry, still trying to justify things like burning American forests for electricity. The former DECC chief scientist, the late Professor David MacKay, found that in particular circumstances, using wood pellets to generate electricity could have a carbon footprint almost twice that of coal and four times that of gas, and yet we subsidise foreign wood pellets and stand in the way of shale gas.
The second group with an interest in undermining British shale gas, apparently, is a foreign power. Anders Fogh Rasmussen, the former NATO Secretary-General, has accused Moscow of campaigning to undermine shale gas. Here is a quote from National Review magazine in 2015:
“Russia has ramped up covert payments to environmental groups in the West. By supporting well-intentioned environmentalists with hard cash (often without their knowledge), Russian intelligence gains Western mouthpieces to petition Western audiences in its favor.”
“frackers are the moral equivalent of paedophiles”.
“RT runs anti-fracking programming, highlighting environmental issues and the impacts on public health. This is likely reflective of the Russian Government’s concern about the impact of fracking and US natural gas production on the global energy market and the potential challenges to Gazprom’s profitability”.
This is what we are up against. The noble Lord, Lord Truscott, knows Russia well. Given what I have said, can he shed any light on which anti-fracking protesters in this country are funded directly or indirectly by Russian interests?
We will be burning gas for decades to come under any policy. Even the national grid’s extreme “gone green” scenario for future energy policy sees us burning almost as much gas in 2035 as we burn today. But more than that, we have a huge chemical industry in this country, employing hundreds of thousands of people directly and indirectly. It needs methane and ethane, derived from natural gas wells, as feedstock. That industry will disappear rapidly if we do not exploit domestic shale. It has repeatedly warned us of this. As the GMB union puts it, if exploratory drilling reveals a plentiful supply of UK shale gas reserves,
“is it not a moral duty for Britain to take responsibility for providing for our own gas needs from those supplies rather than importing gas from elsewhere”?
Beneath Lancashire and Yorkshire, in the Bowland shale, lies one of the richest shale gas resources ever discovered. As the noble Lord, Lord Young, said, just 10% of it would be enough to provide 50 years of British needs. We know how to get it out, using sand and water to make millimetre-wide cracks a mile and a half down, with minimal environmental risks. The tiny group of middle-class southerners who go north to protest about this stuff are not representative of public opinion. Let us not us give in to the 21st-century Luddites, commercial interests or foreign crony-capitalists who do not have our interests at heart.
My Lords, I welcome this important debate introduced by the noble Lord, Lord Truscott. Shale gas and its extraction by the process of hydraulic fracturing, known as “fracking”, remains a controversial subject. In discussing the environmental benefits of shale gas, it is also important to address potential environmental risks from a science and engineering standpoint. These risks have been referred to by the noble Lord, Lord Truscott.
I speak from my experience as chairman of the committee that produced in 2012 the Royal Society and Royal Academy of Engineering report, Shale Gas Extraction in the UK: A Review of Hydraulic Fracturing. That independent review was requested by the Government Chief Scientific Adviser, at that time Sir John Beddington. It arose from experiences of seismicity in the Blackpool area in 2011 shortly after the fracking of an exploratory shale gas well at the Preese Hall site. Our remit was to review the available scientific and engineering evidence associated with fracking, identify the major risks and consider whether these could be managed effectively in the UK. We were asked to address two major questions. One, what are the environmental risks, particularly in relation to possible groundwater contamination? Two, what are the risks of earthquakes? In our review we consulted with and received evidence from around 70 experts and organisations, including environmental organisations such as Greenpeace, Friends of the Earth and WWF.
Our report concluded the following. First, the fracking process itself is unlikely to contaminate groundwater. To reach overlying freshwater aquifers, the fractures in the shale would have to propagate upwards towards the surface for many hundreds of metres to reach them. The risk of this happening is very low, provided that fracking takes place at great depths—it is typically undertaken at depths of several kilometres. It is important not to conflate the fracking process with shale gas well operations. Groundwater contamination is much less likely to be due to the fracking process than to faulty well construction. The only realistic way that any contamination of groundwater may occur is if operations are poorly regulated and faulty wells are constructed as a result. Ensuring well integrity must remain the highest priority to prevent contamination. If wells are properly constructed, sealed and managed, the risk of contamination is very low. Our report therefore concluded that shale gas extraction can be undertaken safely in the UK, provided that operational best practices are implemented and enforced through robust regulation.
Secondly, our report concluded that earth tremors resulting from fracking are minimal, smaller than those caused by coal mining. In this context, “earth tremor” is a much more appropriate term than “earthquake”. The effects felt from earth tremors caused by fracking would be no worse than those from a passing heavy lorry. The noble Lord, Lord Truscott, referred to earthquakes in Oklahoma. More significant earthquakes have been reported in the USA, all arising from reinjection of waste water into disposal wells, not from fracking itself.
We recommended various regulatory safeguards to manage these risks. Vital to effective management of the risks is comprehensive and rigorous monitoring. In particular, methane and other contaminants in groundwater should be closely monitored, as well as potential leakages of methane and other gases into the atmosphere. Similar conclusions on the importance of rigorous monitoring were reached by Public Health England in its 2014 report and in other recent reports by science and engineering academies within Europe and elsewhere, including the Australian and Canadian academies. Our Royal Society and Royal Academy of Engineering review made 10 major recommendations, all of which the Government accepted. The Task Force on Shale Gas, chaired by the noble Lord, Lord Smith of Finsbury, reached similar conclusions and made similar recommendations in its final report, published in 2015.
We should nevertheless be careful to distinguish between exploratory activities and full-scale production. Shale gas extraction in the UK is presently at a very small scale, involving only exploratory drilling. There is greater uncertainty about the scale of production activities should a future shale gas industry develop nationwide. We will need to pay attention to the way in which risks scale up. Regulatory capacity will need to be increased. Efficient co-ordination of the numerous government bodies with regulatory responsibilities for shale gas extraction must be maintained.
Our report covered environmental and health and safety risks, but climate risks were not addressed in detail. Fugitive methane emissions during shale gas extraction operations must also be closely monitored and minimised. Green completion technologies, designed to capture any methane and other gases emitted from flowback water, have been made mandatory in the USA by the Environmental Protection Agency since 2015. This may not be applicable to our current small-scale exploratory activities, but such technologies will certainly be needed for any future production activities in the UK.
The potential economic and environmental benefits of shale gas development in the UK can only be properly evaluated by undertaking exploratory drilling and fracking. The type and composition of gas extracted and the proved reserves will vary depending on the detailed geology, so each site has to be investigated on a case-by-case basis. “Proved reserves” means the volume that is economically recoverable. It is this that will really determine the potential economic benefits, which will only become clear when appropriate exploratory drilling has been completed. That is why it is so important for exploratory drilling to proceed without delay.
Scare stories, myths and mistruths about fracking abound: flames coming from water taps and damaging earthquakes, to name two. Effective public engagement is essential to dispel such myths and mistruths, thereby enabling shale gas extraction to gain wider acceptability. We should recall that the UK has been employing fracking and directional drilling for non-shale resources for many years. Fracking itself is not new to the UK but it is being newly applied to shale gas. The quantities of water needed are greater but otherwise the process is very similar. As the noble Lord, Lord Young, pointed out, over the last 30 years more than 2,000 onshore wells have been drilled in the UK, around 200 of which have been fracked to enhance the recovery of oil or gas. In our Royal Society and Royal Academy of Engineering review we were not aware of groundwater contamination issues with any of those wells.
In summary, moratoria on shale gas extraction get us nowhere. The constructive way forward is to proceed cautiously with well-controlled exploratory drilling, with a strong regulatory framework, robust environmental risk assessments and rigorous monitoring regimes. As the noble Lord, Lord MacGregor, put it, we need to get on with it. Only this will provide the evidence needed to properly assess the economic and environmental benefits of shale gas development in the UK.
Before the noble Lord sits down, will he say clearly that his society would strongly recommend the development of shale gas because of the huge economic benefits it could bring to this country, subject only to satisfactory safeguards in its production?
My Lords, I too thank the noble Lord, Lord Truscott, for securing this debate. I am not sure that he expected the consensus around the House when he put it down. UK energy policy should provide secure, affordable and climate-friendly energy with an emphasis on homegrown energy, primary fuels and innovation for the future. UK Onshore Oil and Gas is a representative body for the industry and has suggested that, to achieve the aims of secure, affordable and climate-friendly energy, the UK will need a balance of: natural gas, to provide heat, electricity and essential chemical feedstocks and to improve air quality; renewables and nuclear to generate electricity; and oil to power transportation and to provide essential chemical feedstocks. So gas is a vital source of energy for the UK and we have so much of it in our own country.
The IoD says that shale gas could cut our gas imports by half. The National Grid believes that British shale gas could heat every home in the UK, and shale gas, as we have heard, could create 60,000 jobs. How ironic that in September 2016 the first shipment of shale gas arrived in the United Kingdom from the US, at Grangemouth refinery in Scotland. How ridiculous that shale gas produced in the US arrives in Scotland when the Scottish Parliament has banned fracking. As Francis Egan of Cuadrilla so rightly said at the time:
“They are taking ethane, turning it into a liquid, transporting it across the sea in a container, turning it back into a gas and then pumping it into Grangemouth. Just beneath Grangemouth are deposits of shale gas the Scottish Government is saying you can’t touch”.
Today in the United States around 50% of oil production and two-thirds of gas production is from so-called non-conventional wells. Well over 300,000 such wells have been drilled. The fact that the oil and gas industry pumps chemicals into the ground in this process causes opposition from environmental groups. However, despite Hollywood dramatizing the dangers, there is no significant evidence of any environmental damage from fracking. I agree with the noble Lord, Lord Young, that it has been suggested that test fracking in the north of England caused a minor earthquake, but I understand that the magnitude of the so-called tremor was no more likely to cause damage to property than the vibrations of a heavy truck passing a building. In reality, the opposition to fracking in the UK has more to do with the perceived blight on the surface environment and the volume of heavy industrial traffic than with the theoretical poisoning of aquifers, which some say is impossible as shale operations take place at a much deeper level than the water table which is cased from the well bore, as was explained by the noble Lord, Lord Mair. We have sensible regulations in this country which will help us to maintain the environment while being able to produce the gas that we need.
In the energy industry, three key issues are often cited: energy security now that our traditional fossil fuels are running out, the long-term affordability and financial security of energy, and climate change, environmental concerns and decarbonisation targets. Our North Sea oil and gas reserves are running low. Production, as we know, has fallen two-thirds in the last 15 years. But gas represents 35% of fuel consumption in the UK and we currently import more than half our gas from Norway, the rest of Europe—and, maybe, Russia—and Qatar. By 2035 we may well have to import 90% of our gas. From a security point of view that is alarming.
The British Geological Survey estimates that there is 1,300 trillion cubic feet of shale gas in the north of England. Even recovering just one-10th of those reserves will be enough to supply us for at least 40 years as we currently use just under 3 trillion cubic feet per annum. If it is accepted that we need gas and that it is more secure, better for domestic employment and for the development of a manufacturing industry—which is part of our industrial strategy—and that it would produce a potential bonanza in tax receipts, then the clear answer is to exploit these shale beds. Let us not turn our backs on a lower-carbon energy source, on maintaining our own energy security, and on growing a manufacturing industry with jobs and careers for a whole new generation. As the North Sea reserves run out let us be positive and create a shale revolution.
The task force looked very carefully at the economic and environmental implications of the development of a shale gas industry in the UK, and five especially important points arose from its work. First, we will need gas as part of our energy mix in this country for several decades to come. Yes, of course we must develop renewables and yes, we must build a new generation of nuclear power stations—though not necessarily on the model that the Government appear determined to take forward. But these cannot be deployed in a hurry. They will take time and we will need gas as an interim fuel to take us towards a lower-carbon future. Let us also not forget that this is not just about electricity generation: 80% of our households depend on gas for cooking and heating. That is not going to change overnight.
Secondly, gas is better than coal. The industrial emissions and greenhouse gas effects of burning it are something like half of those of burning unabated coal. In this country we are rightly running down our coal-burning capacity to generate electricity at the moment—and I trust that this will be one of the developments that does not fall foul of Brexit. Gas has to be part of the solution—along, I add, with carbon capture and storage, which will become increasingly important, especially for gas. I am dismayed at the Government’s decision to abandon the fund that had been specifically earmarked for the development of large-scale pilot projects of CCS. It was very short-sighted of them to do so and it denies us both an early environmental benefit and a first-mover economic advantage with carbon capture.
Thirdly, local environmental protection at a shale gas site is imperative. There are four things that are crucial for this. Rigorous regulation, monitoring and inspection are largely in place at the moment—but the noble Lord, Lord Mair, is absolutely right to point to the issue of ensuring that necessary resources are available if a shale gas industry develops at scale. There should be local community participation in this monitoring and inspecting process, as that will ultimately be the way to secure their agreement and acceptance. As the noble Lord said, the absolute integrity of wells, independently overseen, is crucial—it was failures of well integrity that caused problems in the early buccaneering days in the United States, which are long since over. Mandatory green completion to ensure that all gases, especially methane, are captured when they rise to the surface must be put in place. With these clear conditions in place, shale gas extraction can be done safely. Regulatory corners, however, cannot and must not be cut in the process.
Fourthly, it makes economic and environmental sense to produce gas domestically rather than ship it half way across the world. Taking gas out of the ground in Qatar, liquefying it, shipping it to the UK, de-liquefying it and then delivering it to power stations and households has a far higher carbon and climate change footprint than sourcing it here in the UK. The climate change impact of not having a domestic gas resource will be worse than that of having one.
Fifthly, the development of a shale gas industry in the UK, however, must not be allowed to have a chilling effect on the development of renewables and our preparation for a low-carbon future. Shale gas can and should be only an interim energy response. It is not a long-term answer. To ensure this, I propose that all government revenues coming specifically from a developed shale gas industry should be earmarked for investment in research and development and innovation in renewables, carbon capture and storage, and low-carbon energy generation, storage and distribution. In that way we will have an energy policy fit for the longer-term future.
My Lords, I add my thanks to the noble Lord, Lord Truscott, for giving us the chance to debate this important matter. I will focus on one small aspect of the shale gas revolution; that is, the proposal to create a shale wealth fund. I had a very modest role in its creation and I would like my noble friend to update us on progress as far as this is concerned. Progress has been disappointingly slow, like so many aspects of the shale gas revolution, but it is important because its successful creation would be a useful way of bringing uncommitted public opinion on side to support the wider development of shale gas. It would be an example of effective public engagement, to quote the noble Lord, Lord Mair.
The reasons for my interest in this are as follows. I see our natural energy resources coming from two main blocks—infinite and finite. Infinite, obviously, is the energy that flows from the sun, the wind, the waves, the flow of the rivers and so on. The finite resources are coal, referred to by my noble friend Lord Ridley, which for a time made this country the workshop of the world, and in 1970 of course we received the gift from nature of North Sea oil. It was assumed that the oil would have run out by now, and at some point it will run out. We have been able to extract more than we thought we would because of technology, but it will eventually run out.
Successive Governments and the country as a whole have benefited from the oil. Estimates of the revenue flows are around £400 billion. But every penny of that revenue has been spent—every penny. The debate on whether it has been spent well or foolishly would occupy your Lordships’ House for many a long day—but that is not a point for this evening. However, spent it has been. Across the North Sea, Norway took a different approach. After a strenuous debate, it decided that it would be worth while creating a sovereign wealth fund. Norway has a much smaller population and commensurately much more gas, so I am not pushing the metrics too far, but in 25 short years Norway has created a sovereign wealth fund which last June was valued at $850 billion—about £680 billion. As I say, in this country we took a different approach and made a different decision and every penny that we receive now and in the future will be spent until the oil finally runs out.
Now we have another potential gift from nature, with natural gas extracted by this fracking process. I believe that we should be doing something to follow the Norwegian example, avoid the mistakes we have made in the past and put aside some portion of this for the future. I accept that one problem at this stage is that we do not know what funds will flow—or whether, indeed, any funds will flow—from shale gas. Equally, I am sure that if we fail to establish some structure before the funds start to flow, the chances of our doing so afterwards are vanishingly small.
As a result of this, in November 2014 I tabled amendments in Committee on the Infrastructure Bill suggesting that it would be advantageous to follow this approach. I expected that my amendments would be roundly rejected and I was not disappointed; they were. But a couple of days later I had a call from the Chancellor of the Exchequer’s office to say that he actually thought it was quite a good idea and that if I chose to retable my amendments on Report he would be prepared to give a commitment to undertake some form of shale wealth fund. As your Lordships may imagine, I did not need to be asked twice to do that, so I retabled them and on
I am glad to say that the Chancellor did fulfil that commitment.
I should have known that pride cometh before a fall because, since October 2015, progress has been—well, “glacial” is probably the right word, bearing in mind what we are discussing this evening. A consultation document was published in August of last year and any strategic vision had been carefully excised. Now one reads that the fund is to have a maximum life of 25 years and a maximum size of £1 billion—this is hardly a sovereign wealth fund, Norway-style. Indeed, as I pointed out in my response to the consultation, the emphasis on local distribution of any money received leads one to fear that it is no more than a bribe to draw the sting of local opposition to fracking.
My reactions are that this proposal should not be limited to a 25-year life; that some proportion of the fund should be invested on an endowment basis—that is, disbursement should be limited to a level at which you preserve the capital for future generations; and that the fund should not be used exclusively to benefit what might be quite small communities which happen to be sitting on top of a gas access point. By my calculations, with a suitable split between immediate spending and endowment, by the end of the 25 years the fund would—assuming that you had reached the £1 billion figure—be distributing £8 million a year to local and regional projects, and would have an endowment fund valued at £600 million capable of throwing off about £20 million per annum, inflation-proofed in perpetuity. This would be an extremely modest project by comparison with Norway’s but it might provide a working example for a more visionary follow-on.
Sadly, vision still seems to be in short supply, and since that consultation closed at the end of October there has been silence. In reply to a Parliamentary Question that I put down in February, my noble friend Lady Neville-Rolfe said:
“A government response to the consultation will be published shortly”.
This sounds to me as if the long grass is beckoning.
In summary, I feel that the dead hand of Her Majesty’s Treasury, with its dislike of anything financial outside its control and terror of anything approaching hypothecation—although this is a very unusual form of hypothecation—is gradually squeezing the life out of this idea. Perhaps when he comes to wind up, my noble friend the Minister could confirm or deny my worst fears.
My Lords, I find myself in opposition to the vast majority of your Lordships who have spoken. I congratulate the noble Lord, Lord Truscott, on securing this debate, which I regard as very important. I do not agree, or believe, that fracking will deliver energy security in the long term. I do not believe that fracking is sustainable or will help us meet our legally binding targets. I believe that it will introduce a new form of greenhouse gas. It is not sensible or logical, when we have just signed up to the Paris agreement on climate change, to encourage forward a source of energy that emits greenhouse gases.
There is a litany of reasons why fracking is a bad idea. I can see that the Government look across the sea—the Atlantic—with green eyes. Could shale gas do for the UK what it has done for the US? Many noble Lords believe that it could, but I do not—so no would be my answer. We have different geology and geography. To some degree, the Government are keen because private money will come in and produce the gas. As many of your Lordships have said, this gas will be an interim supply of energy—a bridging loan to the future. It will get the Government out of a hole that exposes a lack of a planned energy policy, and take us from where we are now to a sustainable future. We have had no sight of the emissions reduction plan and no word on government plans to decarbonise heating. As for the experts, I am not sure that this Government believe in experts.
I hear what your Lordships have said about the scare stories but I believe some of the doctors and health charities that have raised concerns about water contamination and threats to health. The contribution of the noble Lord, Lord Mair, was very impressive and substantial but Scotland and Wales have banned it. I do not think that they banned it for no reason. Moreover, this is not America. In America, landowners’ rights mean that they get the profits from selling their land for fracking. We do not have wide-open unpopulated areas and the ravages caused by fracking, with literally thousands of wells, will lay the land to waste—and this is inhabited land, not like in America.
As my noble friend Lord Stoneham reminds me, their environmental standards are somewhat lower than ours. I am not saying that everywhere in America is unpopulated, but it is a very different territory from most of the United Kingdom.
There will be people—such as people in Ryedale, for example—who object strongly to what is projected for their local environment. They will use the planning process to object in the way that they are entitled to do. Promises were made that national areas of exceptional beauty would be protected and that local people would hold sway, but that has gone and the promises have been broken.
Putting all that to one side, the most damaging effect of developing the shale industry is one that to an extent was referred to by the noble Lord, Lord Smith. It will set back our ability to reach our legally binding targets by 40 years and undermine the development to scale of renewable heat technology. Renewable heat is vital. Industry will develop the technologies we need for renewable heat if we have the right policy framework and incentives. There would have to be incentives that carry a cast-iron guarantee from the Government that they will not be taken away in a precipitate manner, as happened with the Government undermining investor confidence by the precipitate removal of agreed subsidies on wind and solar. The noble Lord, Lord Smith, raised the breaking of the manifesto pledge on carbon capture and storage.
The Government’s reputation will no longer be adequate to reassure investors; they will need an agreement that is literally written in blood. Additionally, as several noble Lords have said, all we have in the UK so far is licences for exploratory drilling. We are years if not decades away from producing shale gas at any scale, if it happens at all. The Environmental Audit Committee concluded that shale will not contribute to replacing coal because, by the time it comes on stream, coal will no longer be used. I do not believe that fracking is the answer. I do not put my trust in this Government. Everything we have seen since the end of the coalition—when the Liberal Democrats held sway in the Department of Energy and Climate Change, which is also no longer—is pretty indicative of the importance that the Conservative Government attach to climate change. Everything indicates that this Government do not favour a green approach, green understanding or the imperative, for both the planet and the economy, of taking our future energy supply seriously and not introducing something that is a stop-gap and not sustainable. If we had a Government who encouraged cutting-edge technology—renewables, energy efficiency, home energy improvements—
I hesitate to interrupt the noble Baroness, but twice she has referred to fracking being not sustainable. Can she therefore explain why she is in favour of gas being imported for at least the next 30, 40 or 50 years? That is the bit in her argument that I do not understand. I could dispute many things that she says on the environmental impact, for which she has produced no evidence whatever to back it up, but why is she in favour of us importing gas for the next 30 or 40 years rather than using our natural resources?
Other resources are coming on stream, such as green gas, hydrogen and so on. I object to creating a whole new industry, which will be a stop-gap, rather than encouraging our homegrown industries to develop the new technologies that we need to produce renewable heat. I do not see developing the shale industry as the answer to our question. I am not that keen on importing gas, but for the time being, that would be my preference rather than starting a whole new industry with the destruction it brings in its wake.
There is a list of what the Government should be doing in terms of regulation, intervention, sequestration and demand reduction—and then we would actually get somewhere. There seems to be a general prayer that somehow shale will save us. My faith in that not happening is based on the fact that the companies that are taking up the exploratory drilling licences are not huge companies but middle-sized companies, and because of the difference in geology and geography, they will find that it is not profitable. That is the main reason why I am hoping that shale will go away with its drills between its legs.
I thank the noble Lord, Lord Truscott, for initiating this debate on fracking. It concerns the important question of the nature of the UK’s future energy mix and whether fracking has an acceptable role to play. The continuing debate and your Lordships’ contributions tonight are serious matters. I commiserate with the noble Lord, Lord Truscott, should he consider that being positioned between stages of the European Union (Notification of Withdrawal) Bill does not do justice to the importance of this subject, but tonight’s debate has been excellent. I thank all noble Lords who have contributed at this important juncture in our deliberations on the UK’s future role in Europe. I am disappointed that the contribution of the noble Lord, Lord Howell of Guildford, has been noticeably absent tonight, but I am pleased to see his conversion to a more critical stance in his contribution to the Journal of Energy Security, in which he calls for a change of direction in fracking policy and says that the view coming from Ministers is much too optimistic. I agree, despite some of the contributions tonight.
Labour recognises the dominance of gas in the UK’s energy supply and the concerns for the nation’s security of supply while the UK transforms into a low-carbon economy. While the Government are coming forward with every assistance to further the role of fracking as a game-changer, we have some critical questions from a different, more realistic perspective. Is it likely to be the game-changer? Is it safe, and are there special places like national parks that need special protection? Is it wanted and recognised as really needed? Is it really a low-carbon bridge to a sustainable future?
I am grateful to the noble Baroness, Lady Featherstone, for her recognition tonight that maybe this debate does not reflect widely held, less assertive views. The debate has recognised some issues between the competing views on this question. It has been mostly positive towards fracking and, as the noble Lord, Lord MacGregor, has said, has largely regretted that progress, even towards the exploratory drilling stage, has been slow, suggesting that speed is certainly to be welcomed. However, Labour has always been sceptical about fracking’s supposed benefits. The geology and geography of the UK are different from those of the United States. Theoretical reserves are not the same as recoverable reserves. At present the evidence points to the likelihood of rather disappointingly low recovery rates of shale gas from wells, with rapid depletion and the need to establish large numbers of wells and pads in concentrated areas of the country that are not largely unpopulated, all to extract even a modest amount of gas for the UK’s energy system. Shale gas is unlikely to be able to replace the returns from conventional natural gas as they diminish. The exploratory evidence has yet to be produced to support the estimates from the British Geological Survey.
Labour has never believed that the returns on fracking are likely to be so compelling as to allow the overriding of legitimate concerns about the process on safety, environmental and community grounds. This debate has underlined that fracking should only proceed on the basis of clear and rigorous environmental safeguards. Furthermore, there should be an outright ban on fracking in and under areas of environmental sensitivity such as national parks, areas of outstanding natural beauty, sites of special scientific interest and water protection zones. These areas need better protection even than the added requirement that fracking be limited to depths below 1,200 metres.
The Government’s environmental conditions do not measure up to Labour’s standards, achieved during the passage of the Infrastructure Act, which were subsequently reduced by the coalition Government in 2015. Environmental tests should include an understanding of the number of well-heads being set up and the cumulative effects to which the numbers might give rise, over and above those of fracking taking place at all.
I certainly enjoyed the contribution from the noble Lord, Lord Mair, who gave us the perspective of his society’s 2012 report. He emphasised the importance of the integrity of regulatory enforcement. However, having a world-class regulatory regime is not enough. Regulatory bodies need to engage with local communities that are concerned about the potential impact in their area, as they have heard has happened elsewhere. Their legitimate concerns should not be overridden. Local communities need to be convinced that community benefits and the sharing of future revenues are not to be interpreted as a way to buy off objections for particular ulterior motives.
The position now is that most of the conditions that Labour laid down, and particularly those concerning the cumulative impact of multiple fracking pads on an area, have either been disregarded or weakened to such an extent that they no longer constitute credible environmental safeguards. The development of fracking exploration and production cannot be endorsed under these circumstances. It is not safe or reasonable to proceed without these key safeguards. Labour is now calling for the introduction of a moratorium on fracking in the UK until such time as we can be sure that full environmental safeguards can be observed.
Finally, there are concerns that shale gas is also a fossil fuel and that fracking is incompatible with our climate targets. The chief scientist at the then Department of Energy and Climate Change, Professor David MacKay, and Dr Timothy Stone concluded in a report that shale gas production would give rise to greenhouse gas emissions. They argued, however, that with the “right safeguards”, these would be “relatively small”—“comparable” to liquefied natural gas and well below the emissions of coal.
The noble Lord, Lord Smith, gave a thorough assessment of the relativities of the various fuel sources in the UK, but this interpretation is not supported by the Committee on Climate Change, the independent statutory body set up to provide advice and analysis to government and to report to Parliament. It concluded that the implications of shale gas for greenhouse gas emissions are indeed uncertain. By the time any shale gas exploitation would have developed on a significant scale, the UK carbon budget would have reached more advanced and critical levels. Shale gas is only likely to become permissible once tests relating to emissions, gas consumption and carbon reductions elsewhere in the economy have been satisfied. The UK should not be developing shale gas any further at this time.
My Lords, I too thank the noble Lord, Lord Truscott, for tabling the debate this evening. It has been a really well-informed debate, even if the noble Lord did not necessarily receive the support he was hoping for. It was so well informed that I find that everything that I was going to say in my speech has already been said by noble Lords, so I will just run through the main issues that have been raised.
First, I do not think I agreed with a single thing that the noble Lord, Lord Truscott, said in his speech, with one exception, when he said that Poland was an example of where fracking has not worked—the shale was too tight and the gas would not flow—and that therefore you should not count your chickens. Of course he is right about that: we should not count our chickens about the prospects for shale gas, because we have not done the exploration work to know whether or not we can count the chickens. Until we do the work, we are never going to know what we have, so I could agree with him in that respect.
My noble friend Lord MacGregor, who chaired the Select Committee looking at fracking, said that the committee was unanimous that the benefits of fracking exceeded the risk, and his criticism of the Government was not that progress was too fast but that it was too slow. He drew attention to the fact that in the US, the cost of production now has come down, from probably over $50 per barrel of oil equivalent when they started, to $25. It is now taking 20 days to drill a well. The success in the US has been phenomenal, which is something to be celebrated—it has been transformational. It has transformed the American economy and geopolitics. It has of course been hugely resented by many producers in the Middle East and in Russia, as my noble friend Lord Ridley pointed out, because the price has come down. Economies such as the Russian one have suffered hugely as a result.
The noble Lord, Lord Young, referred to the fact that we have some of the toughest safety regulations in the world—probably the toughest. He referred to the fact that we have 50 years of experience in onshore and offshore oil and gas exploration and to the irresponsible scare stories, which are not just limited to us in the UK but are also there in the US. Much of the US production would have come more quickly without those scare stories. It is worth pointing out that in 2000, there were 26,000 fracked wells in the US, accounting for 7% of US total natural gas production. By 2015, the number of wells had grown to 300,000, equating to 67% of total natural gas output in the US. It shows what can be done. What they have done in the US is an extraordinary achievement.
The noble Lord, Lord Young, also mentioned the huge economic benefits to employment and wealth that have been created by fracking gas. It is not just the direct employment consequences—it is the impact on the economy as a whole. My noble friend Lord Ridley—in a point picked up later on by the noble Lord, Lord Mair—said that there was no evidence of any groundwater contamination in the US, and that it had cut greenhouse gases. He went on to say that fracked gas and the LNG that comes from it are vital feedstocks for the chemical industry. This point was also raised by the noble Lord, Lord Polak. It is an absurd situation where we are now bringing LNG from the US into Grangemouth to be used as a feedstock there, or, indeed, piped over to Teesside to be used as a feedstock in Teesside. Not only is the carbon footprint much larger, but, of course, it is much less economic for the chemical industry in this country. There is a risk, of course, that the USA now, instead of shipping LNG, will convert that gas in the US into other products, therefore undercutting our chemical industry in the UK.
The noble Lord, Lord Mair, referred to the work done by the Royal Society and the Royal Academy, which sounded pretty conclusive. They found that fracking was unlikely to contaminate groundwater, and that the earth tremors were minimal, so long as there was proper regulation and monitoring and the well operations were properly managed. He said that scare stories and mistruths abound, and he is absolutely right in that regard. The noble Lord, Lord Smith, not only chaired the task force on shale gas but was, at the same time, chairman of the Environment Agency. Again, his conclusion was a very clear one—that, on balance, shale gas was a good thing for the UK.
On the point made by the noble Lord, Lord Hodgson, about the shale wealth fund, he was slightly putting the cart before the horse when he referred to the Norwegian sovereign wealth fund being £850 billion. We have not yet got any gas out of the ground over here. It would be a lovely problem to have. As he knows, the Government are consulting about forming a sovereign wealth fund equivalent, which would be funded by 10% of tax revenues; that is still being consulted upon.
Of course, I do not want to minimise the points made by the noble Baroness, Lady Featherstone, and the noble Lord, Lord Grantchester. There are, of course, environmental issues. It would be foolish to pretend that they should not be taken into consideration. However, gas is the cleanest fossil fuel when combusted, producing half the carbon emissions of coal and it is expected to have a carbon footprint comparable to that of LNG. Shale gas could, therefore, act as an effective lower carbon bridge technology while we develop renewables, improve energy efficiency and move towards a lower carbon economy.
The Infrastructure Act 2015 inserted safeguards for licensing onshore hydraulic fracturing into the Petroleum Act 1998. These include the assessment of environmental impacts, groundwater monitoring, community benefits and the guarantee that the associated hydraulic fracturing will not take place within “protected groundwater source areas” and “other protected areas”.
We have banned fracking within 1,200 metres of the surface, in national parks, the Broads, areas of outstanding natural beauty, World Heritage Sites, and areas that are most vulnerable to groundwater pollution. We are confident that these measures will protect our most valuable areas for the future.
In conclusion, the potential benefits of fracking in the UK are enormous. We have seen how transformational they have been in the US. If we have the right regulatory system around it, and take the right measures of protection for our environment, then this is something that this Government are wholly in favour of.