Shale Gas

Charles Hendry Excerpts

Thursday 3rd November 2011 Westminster Hall

[The Minister of State, Department of Energy and Climate Change (Charles Hendry)]

It is a pleasure to serve under your chairmanship, Mr Havard, and to respond to what has been an excellent debate. It has been extremely balanced, thoughtful and constructive—words that are also applicable to the Chairman of the Energy and Climate Change Committee, my hon. Friend the Member for South Suffolk (Mr Yeo). The way in which he introduced the debate was helpful. As he said, the issue could not be more topical. It is very much in the news this week, and the way in which it has been debated in this House shows that we are all keen to understand the technology’s potential, but to also ensure that it is developed in a way that takes account of the highest standards in both environmental and safety legislation.

I shall begin by explaining how we as a Government believe that shale gas fits into the potential energy mix in the United Kingdom. Even as we move towards a less carbon-intensive future, oil and gas will undoubtedly remain a vital part of our energy system for many years to come. In that context, the Government are committed to ensuring that we maximise economic recovery of UK hydrocarbon resources, both offshore and onshore. I should say in response to my hon. Friend the Member for Southport (John Pugh) that we see it as in our national interest to maximise returns on our indigenous resources. We are moving to a situation where we are net importers of gas, and there is a multi-billion-pound benefit to the UK economy from optimising our resources. We are keen for that to happen.

We have taken a careful approach to unconventional gas resources. We support industry’s endeavours in pursuing such energy sources, as long as they are technically and economically viable, and have regard to the full protection of the environment. The hon. Member for Rutherglen and Hamilton West (Tom Greatrex) implied that the Government have been verging on the complacent and have not shown urgency, before going on to say that we have one of the best regimes in the world in terms of offshore regulation. It is that exact same regime that will apply to onshore developments and shale gas developments. There will be no difference between the standards that will have to be met by any company wishing to have a licence to explore onshore for shale gas, and those that would have to be met if they were looking for oil and gas resources elsewhere in our territorial waters. That consistency and absoluteness in standards is important.

The hon. Gentleman also asked about our discussions with European Ministers. It is clear that there are different views across the European Union about the role that shale gas can play. Moratoriums have been introduced in France and in other countries, and Poland is actively looking at how shale gas can be explored, but we are in no doubt about the importance of having national regulation rather than EU regulation, because we believe that our standards would only be diminished—this has been shown to be the case in relation to North sea regulation—if we changed to an international approach to regulation.

All onshore oil and gas projects, including shale gas exploration, require planning permission from the appropriate planning authority. The hon. Gentleman listed a number of issues about which he has concerns, but they are all already taken into account by the environmental consents that are necessary. He also asked about our contact with the Health and Safety Executive. The most important thing of all about the relationship with the HSE is that it is not accountable to me. The Department of Energy and Climate Change and I issue the licences, but we do not control the health and safety legislation; that is independent. It is a core part of our safety approach in the United Kingdom, and it comes under a different Department. We have a good working relationship with the HSE and need to understand its concerns, but I am not in a position to put any pressure on it—nor would I seek to—to meet other objectives.

Any applications are subject to environmental regulation by the relevant environmental agency—the Environment Agency in England and Wales, or the equivalent bodies in Scotland and Northern Ireland—and are subject to safety regulation by the HSE or its Northern Ireland equivalent. They also require specific consent from the Department of Energy and Climate Change before drilling activities can commence. My hon. Friend the Member for Southport expressed concern about the use in our response of the words “may” or “might”. The reason for that is that we do not take a cast-iron approach to every single application. Every single application will be judged on its merits, and if there are issues that require us to go further, we will of course do so. For every single licence application, we will be certain that the most stringent environmental applications and measures can be put in place.

The hon. Member for Southampton, Test (Dr Whitehead) and my hon. Friend the Member for Southport have asked about the abandonment of wells. In the granting of a licence, the local authority, which is also involved in the process, can require a provision to be made for restoration if a project is abandoned.

[Grahame M. Morris (Easington) (Lab)]

The Minister is always generous in giving way, and I appreciate that. Will he offer a clarification on environmental controls? The hon. Member for Tamworth (Christopher Pincher) raised a point about the depth of the fracking compared with the depth of the water table, and said that there was no prospect of contamination. I understand the point that the hon. Member for South Suffolk (Mr Yeo) made about the integrity of the wells, but in the north-east we have had huge problems with mine water pollution and contamination. Will that be a consideration for the Environment Agency in determining licences?

[Charles Hendry]

The hon. Gentleman raises an important point. One thing that struck both the Select Committee and me when we visited Cuadrilla’s site in Lancashire was the immense separation distance—it is thousands of feet—between the water table and the area where the shale gas was being sought. The company drills below the level of the water table, and then encases it in concrete. Only then, when it has been sealed, do they drill further down to where the shale gas is. The point has been made clearly that, as long as the well retains its integrity, it is very difficult to see how there can be any contamination of the water supplies. The way in which the operation will be carried out and the standards that will be used will be an absolutely integral part of deciding whether a licence should be issued. We do not just look at the application in itself; the company must have the technical and economic expertise to carry out the work to the required standards. There is no question of cutting corners. We are adamant that the highest environmental standards must be applied as the technology progresses.

These are early days for shale gas in the United Kingdom. The pattern of development in a new basin in the US has shown that there are roughly three phases. The first is the initial discovery and the appraisal wells to prove the presence of the gas and the size of the resource. The second is an experimental phase, in which explorers work out the best techniques for obtaining production from the particular shale, which may take some time. The third is the production phase, in which an efficient pattern of production wells can be drilled to extract the gas on a commercial basis. Clearly, we in the United Kingdom are right at the beginning of the process. Only a handful of wells have been drilled, and their production potential has yet to be quantified.

Although it is encouraging that Cuadrilla believes that it has good quantities of shale gas in the rocks underlying its licence area in Lancashire, it is, as I have said, still very early days for shale gas in the UK, and I think that it is too early to know how significant shale gas may prove to be as a contributor to future UK energy supplies.

When he opened the debate, my hon. Friend the Member for South Suffolk talked about the reserves in place. At this stage, we should recognise that these are not reserves but gas in place. The recoverable amount is a small proportion—often about 10%—of the total reserves. Nevertheless, even with a large estimate of gas in place, the reserves could still be significant.

Comparisons have been made with the United States. It is right to recognise that there are significant differences in the United Kingdom that will determine the pace at which things progress here. As the hon. Member for Southampton, Test, has said, there are differences in the ownership of mineral rights, which is a critical issue for development. There are some 30,000 operational shale gas wells in the United States, so the scale is of an entirely different magnitude from anything that we can foresee happening in the United Kingdom.

That leads us to the issue of price separation, to which my hon. Friend the Member for Warrington South (David Mowat) referred. We have seen the separation of gas and oil prices in the United States. My assessment is that that will happen gradually over time in Europe, probably in the middle of this decade. Shale gas in the UK will not be a driver of that. We will look at developments with great interest, but at the moment we should be cautious. We are in no doubt that gas and shale gas can be part of the mix as we progress.

We are aware of reports from the United States of issues linked to some shale gas projects. There have been reports of contamination of water supplies with either methane or fracking fluids, and of explosions, and there is dramatic footage of householders setting light to their kitchen taps, as has been mentioned. I had not heard about the blackbirds tumbling from the sky, but we will, of course, set up a taskforce immediately to assess whether that needs further consideration—actually, we will not. If there is clear evidence that that is a problem—

[Mr Dai Havard (in the Chair)]

Joy and disappointment for the Royal Society for the Protection of Birds, all in one sentence.

[Charles Hendry]

All in one sentence. There is certainly joy for the Treasury at the end of that sentence, when I did not commit to setting up a massive taskforce to investigate something that is as yet unproven.

Where those reports have been investigated by the relevant US regulators, the evidence so far is that no incident of water contamination by methane has been attributed to fracking operations, and that the few incidents of contamination of water resources with fracking fluids were caused by accidents on the surface, rather than underground leaks of any kind. Also, some incidents of methane contamination of water were not attributable to oil or gas operations at all; they were caused by methane of recent biological origin.

However, there were cases in which gas leaks had occurred. That was attributed to unsatisfactory well construction or cementing. That confirms, if any confirmation were needed, that drilling for shale gas—like drilling for any other kind of oil or gas—is a hazardous operation that requires careful and consistent regulation. However, that also supports the Committee’s conclusions that there is no evidence that the fracking process itself poses a direct risk to underground water resources, and that the risks are related to the integrity of the well and are not different from those encountered in conventional oil and gas extraction.

The Government and their regulatory agencies will continue to study the experience already gained in north America and its relevance to shale gas activities in the UK. It is, of course, necessary to make the point that UK conditions, including its geology and its regulatory framework, are different, and there will not necessarily be any straightforward read-across. However, it is clearly important that we learn from the US experience, as the Committee recommended.

The UK has a long history of onshore gas exploration, and the range of techniques employed in shale gas drilling and testing operations are broadly similar to those used for orthodox gas production. We have a strong regulatory safety and environmental regime in place, administered by the HSE, the relevant environmental agencies and my Department, to ensure that potential risks to safety or the environment are properly managed. There is scrutiny by the regulators, and that is why we believe that shale operations, as permitted in the UK, are safe, and that there is currently no justification for a moratorium. Again, we welcome the support of the Committee on that point.

I can confirm that, as the Committee recommended, current shale gas operations in the UK are being carefully monitored by the HSE, the Environment Agency and my Department. The three regulators are regularly in touch to exchange information and to ensure effective co-ordination. According to present information, the Environment Agency does not consider that current operations pose a risk to the environment, including water resources. Of course, that has been an important theme of the debate. Some 99.7% of the fluid used in fracking operations is water. If anyone wished to use additives in that process, they would need to be absolutely clear about what those additives were. They would also have to satisfy us on how those water resources will be handled when they are brought back up to the surface. Stringent measures are in place to ensure that they cannot be disposed of without being taken through a proper process. If there is any spillage, a plastic membrane is on the ground to ensure that the fluid cannot leak back into the ground.

The debate has also focused on the seismic tremors experienced near Blackpool in April and May. Following those tremors, DECC had discussions with Cuadrilla and agreed that a pause in hydraulic fracture operations would be appropriate, so that a better understanding can be gained of the cause of the seismic events.

The hon. Member for Wansbeck (Ian Lavery) is an absolute expert when it comes to understanding the nature of the issues. He has spent his entire career in an industry that is involved in underground development. There is much expertise that we can transfer from the coal industry in order to understand the impact of different underground activities. However, I assure the hon. Gentleman that there is often a strong connection between coal mining and seismic activity—much greater than there is in relation to fracking. Of course, those processes take place at different levels. Shale gas development normally takes place thousands of feet further below the surface than coal mining, so there are additional reasons for believing that such operations can be done in a safe and proper way.

A geo-mechanical study undertaken by the company was delivered to my Department yesterday. The implications of that report will be reviewed very carefully in consultation with the British Geological Survey, independent experts and the other key regulators before any decision on the resumption of hydraulic fracture operations is made. I reassure the Committee and others that the highest environmental standards and measures, which we believe will carry public support, will be part of that process. I pay tribute to my Parliamentary Private Secretary, my hon. Friend the Member for Fylde (Mark Menzies), who has been assiduous in understanding the issues. The approach that he has called for—the close monitoring of operations and a gradual progression of shale development—is the right way forward.

In conclusion, this has been a very useful discussion of the issues raised by the Committee’s report. I stress that we have a robust system in place in the United Kingdom to ensure that shale gas activities—and other oil and gas activities—are conducted safely and with proper protection of the environment. When significant new issues such as seismic tremors arise, we must ensure that we have the capacity to deal with them effectively. I assure hon. Members that we will continue to maintain that rigorous approach.

[Mr Dai Havard (in the Chair)]

Before I call Mr Yeo, I should explain that Mr Gale and I have taken an innovative approach today. The reports under consideration come from the same Select Committee, and there is clearly an interrelationship between them, so Mr Yeo will now be asked to do a very interesting thing: make his summary remarks on the last debate and coincidentally introduce the next subject. I call Mr Yeo.