Progress in establishing a shale gas industry in England has been slower than government planned, according to today’s report by the National Audit Office (NAO).
Government has committed to developing a shale gas industry in England amid public concern over the environmental and public health risks from fracking. In response, the NAO has reviewed the current landscape of hydraulic fracturing (fracking) of shale gas in England.
The Department for Business, Energy and Industrial Strategy (the Department) does not know how much shale gas can be commercially extracted in the UK. In 2016, Cabinet Office expected up to 20 fracked wells by mid-2020. Three wells have been fracked to date.
The Department has encouraged operators to determine the viability of the industry and introduced measures to support the planning process. Operators have said the system to protect against the risk of earthquakes is stricter than that used internationally and has hindered their ability to develop the industry.
The Department does not expect shale gas production to lead to lower energy prices, but believes it could provide greater energy security and have economic benefits. However, it has not analysed the benefits or costs of supporting the shale gas industry because it thinks this would not be meaningful due to the current uncertainty about how much shale gas can be extracted.
Public support for shale gas development is low and has reduced over time. Concern has centred on the risks to the environment and public health from greenhouse gas emissions, groundwater pollution and fracking-induced earthquakes, as well as the adequacy of existing regulations. Government has told the NAO that it is confident the regulatory regime can manage these risks. Regulators have so far focused on the current exploratory stage and mainly rely on a system of statutory self-reporting by the operator, which presents risks. Should the industry ramp up to full production quickly, the Environment Agency (EA) is confident it can respond at pace.
The Department believes it can meet its climate change objectives while developing shale gas, but it has not yet developed the necessary technology. The Committee on Climate Change states that the development of carbon capture, usage and storage technology (CCUS) is critical to reducing greenhouse gas emissions, because it would provide a way to use fossil fuels, including shale gas, in a low-carbon way. The Department held two unsuccessful competitions in 2007 and 2012 to develop and implement CCUS. In 2018, it set out its aim to develop the first CCUS facility in the mid-2020s.
Fracking has already placed financial pressures on local bodies, including local authorities and police forces, and other costs have been borne by a range of government departments and regulators. The full costs of supporting fracking to date are not known by the Department, but the NAO estimates that at least £32.7 million has been spent by public bodies since 2011. This includes £13.4 million spent by three local police forces on maintaining the security around shale gas sites to date.
The Department recognises its responsibility for decommissioning offshore oil and gas infrastructure, but not for onshore wells, including shale gas wells. In January 2019, the NAO reported that government is ultimately liable for the total costs of decommissioning offshore infrastructure that operators cannot decommission. In March 2019, the Committee of Public Accounts set out concerns about the Department’s arrangements for ensuring the cost of decommissioning shale gas wells do not fall to taxpayers.
The Department says landowners may be liable for decommissioning costs of shale gas wells should an operator be unable to fund them, but arrangements are unclear and untested. In May 2019, the Department informed the Committee of Public Accounts that the EA could pursue operators and landowners under the Environment Liability Directive and Environmental Damage Regulations. However, in October 2019 the EA determined that it is unable to use these powers to pursue insolvent operators and landowners. The EA may be able to pursue landowners under other statutory powers, but these are untested in the oil and gas sector. The Department could not explain what would happen should a landowner be unable to meet decommissioning costs.