Developments in Unconventional GasRegulation in the UKFebruary 2012
Content•   Overview•   Process for License Award•   Environmental concerns and monitoring•   EU Legislation•   Pipeline ac...
Despite local opposition and some regional variation,fracking is supported by the central UK government.• The award of lic...
The future of shale gas in the United Kingdom is unclear;public opinion and legislation is evolving.                  Copy...
Content•   Overview•   Process for License Award•   Environmental concerns and monitoring•   EU Legislation•   Pipeline ac...
Many institutions are involved in license decision making.                   Copyright © 2012 by StrategicFit. All rights ...
License allocation is dependent on national and local bodies andfurther applications must be made through the project.    ...
Planning Decisions are made by a range of localgovernment and central bodies.                  Copyright © 2012 by Strateg...
Content•   Overview•   Process for License Award•   Environmental concerns and monitoring•   EU Legislation•   Pipeline ac...
The Environment Agency will exert control under theWater Resources Act and ensure a permit is acquired                  Co...
Water use must be tightly controlled to comply withlegislation and a permit acquired for disposal of waste.• Water injecte...
N.Ireland passed a moratorium pending an environmentalassessment; subsequent EU reports deemed fracking safe.• In December...
Content•   Overview•   Process for License Award•   Environmental concerns and monitoring•   EU Legislation•   Pipeline ac...
There is no specific EU-wide legislation for theexploration of Shale Gas but activity must comply withother existing legis...
Content•   Overview•   Process for License Award•   Environmental concerns and monitoring•   EU Legislation•   Pipeline ac...
Copyright © 2012 by StrategicFit. All rights reserved.   16
Gas Distributers operate the Local Distribution Systemsthat supply Gas to domestic users                  Copyright © 2012...
There are established procedures to connect to the NTSin cooperation with National Grid.Access to the NTS must be arranged...
Content•   Overview•   Process for License Award•   Environmental concerns and monitoring•   EU Legislation•   Pipeline ac...
Taxes must be paid to central government on ring fencedOil and gas production profits                  Copyright © 2012 by...
The field allowance promotes extraction of technicallydifficult and small fields by reducing the tax from 62% to 30%      ...
Content•   Overview•   Process for License Award•   Environmental concerns and monitoring•   EU Legislation•   Pipeline ac...
Current activity in the UK has been focused on theNorthern system and Cuadrilla has been the most activelicense owner.    ...
Example Cases- Preese Hall well held by Cuadrilla                  Copyright © 2012 by StrategicFit. All rights reserved. ...
Opposition to future drilling in Sussex is much greaterthan before the negative publicity from Preese Hall.• When awarded ...
There are strong and differing opinions from Government,Industry and NGOs regarding the UK future of Shale GasCharles Hend...
Content•   Overview•   Process for License Award•   Environmental concerns and monitoring•   EU Legislation•   Pipeline ac...
We have extensive experience helping clients withunconventional resource plays.                  Copyright © 2012 by Strat...
For further information, please contact:Adam Mitchell                       Duncan John+44 7876 243 480                   ...
Content•   Overview•   Process for License Award•   Environmental concerns and monitoring•   EU Legislation•   Pipeline ac...
Glossary of AbbreviationsBBL: Balgzand Bacton LineDECC: Department of Energy and Climate ChangeEA: Environment AgencyEIA: ...
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StrategicFit - UK Unconventionals regulation

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European unconventional gas regulations have rapidly developed as public and political reaction has evolved. Local populations, confronted with negative media coverage and with limited previous exposure to onshore oil and gas activities, have protested shale gas development. Over the last year this has led to moratoriums on fracking in France and Bulgaria. Whereas in Poland and Ukraine, strong government support has led to major exploration investment.

Following on from our previous study on the developments in in France we have written the following presentation on the response in the UK. It provides insight into the fallout from seismic activity caused by fracking, the structure of relevant environmental and financial regulations and the state of current public opposition.

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StrategicFit - UK Unconventionals regulation

  1. 1. Developments in Unconventional GasRegulation in the UKFebruary 2012
  2. 2. Content• Overview• Process for License Award• Environmental concerns and monitoring• EU Legislation• Pipeline access• Taxes and Charges• Current Activity• StrategicFit: Our experience and how we can help• Glossary Copyright © 2012 by StrategicFit. All rights reserved. 2
  3. 3. Despite local opposition and some regional variation,fracking is supported by the central UK government.• The award of licenses and the approval of exploration and development is carried out by the Department for Energy and Climate Change (DECC) with advice from other public and local bodies.• In addition a permit is required from the Environment Agency (EA) to control waste water disposal.• 2011 has seen test fracking being carried out on the Bowland Shale near Blackpool and large volumes of gas detected (5.6TCM at Preese Hall)• However, the fracking activity resulted in minor earthquakes in the region and this led to enhanced local opposition.• Independent reports issued by the British Geological Survey indicate only a minor risk of pollution from fracking.• Northern Ireland voted in a moratorium on fracking in December 2011 pending an environmental assessment. Copyright © 2012 by StrategicFit. All rights reserved. 3
  4. 4. The future of shale gas in the United Kingdom is unclear;public opinion and legislation is evolving. Copyright © 2012 by StrategicFit. All rights reserved. 4
  5. 5. Content• Overview• Process for License Award• Environmental concerns and monitoring• EU Legislation• Pipeline access• Taxes and Charges• Current Activity• StrategicFit: Our experience and how we can help• Glossary Copyright © 2012 by StrategicFit. All rights reserved. 5
  6. 6. Many institutions are involved in license decision making. Copyright © 2012 by StrategicFit. All rights reserved. 6
  7. 7. License allocation is dependent on national and local bodies andfurther applications must be made through the project. Copyright © 2012 by StrategicFit. All rights reserved. 7
  8. 8. Planning Decisions are made by a range of localgovernment and central bodies. Copyright © 2012 by StrategicFit. All rights reserved. 8
  9. 9. Content• Overview• Process for License Award• Environmental concerns and monitoring• EU Legislation• Pipeline access• Taxes and Charges• Current Activity• StrategicFit: Our experience and how we can help• Glossary Copyright © 2012 by StrategicFit. All rights reserved. 9
  10. 10. The Environment Agency will exert control under theWater Resources Act and ensure a permit is acquired Copyright © 2012 by StrategicFit. All rights reserved. 10
  11. 11. Water use must be tightly controlled to comply withlegislation and a permit acquired for disposal of waste.• Water injected into the ground containing additive chemicals is “fracking solution” & water that returns to surface via the well is “flowback water”.• Flowback water contains high mineral content and must be continually monitored and disposed of in a controlled way.• The Environment Agency will take regular samples and run elemental analysis to ensure that no unexpected materials are found.• Flowback water is normally temporarily stored on site in double skinned tanks and then transported to waste water treatment plants.• A permit must be obtained from Environment Agency for this process due to slight radioactive content the flowback water gains from underground rocks.• This activity is necessary to comply with the “Water Resources Act 1991” and the 2009 amendment. Copyright © 2012 by StrategicFit. All rights reserved. 11
  12. 12. N.Ireland passed a moratorium pending an environmentalassessment; subsequent EU reports deemed fracking safe.• In December 2011 the Northern Ireland Assembly passed a moratorium (49 votes to 30) on hydraulic fracturing pending an environmental assessment.• The motion stated “the process of fracking can cause serious well blowouts, which put both workers and local communities at risk; considers that the production of hard-to-reach fossil fuels is not compatible with efforts to achieve carbon reduction targets; and urges the Minister of Enterprise to give greater support to the generation of energy from renewable sources.”• The Democratic Unionist party voted against, with the Minister for Enterprise, Arriene Foster saying the motion was “fundamentally flawed”.• Previously awarded licenses were not revoked and exploratory work (which was never intended to include fracking) has continued.• Tamboran Resources has reported (Jan.2012) large potential volumes (5.6TCF) in Fermanagh.• Subsequent environmental assessments carried out for the EU and by the British Geological Survey indicate limited risk and sufficient current regulations.• The nature and date of the environmental assessment to be carried out for the Assembly are not available. Copyright © 2012 by StrategicFit. All rights reserved. 12
  13. 13. Content• Overview• Process for License Award• Environmental concerns and monitoring• EU Legislation• Pipeline access• Taxes and Charges• Current Activity• StrategicFit: Our experience and how we can help• Glossary Copyright © 2012 by StrategicFit. All rights reserved. 13
  14. 14. There is no specific EU-wide legislation for theexploration of Shale Gas but activity must comply withother existing legislation.• A report into Unconventional Gas commissioned by the European Commission was completed in November 20111• It concluded that due to the relative infancy of the process specific legislation was not required however current legislation was adaptable to Shale Gas exploration: o Water protection is covered by the Water Framework Directive, the Groundwater Directive and (regulating a potential source of water contamination) the Mining Waste Directive o The use of chemicals is covered by REACH and administered by the European Chemicals Agency (ECHA)• The study found that these directives had been implemented into the national laws of the countries studied2. In circumstances where this had not occurred there were other relevant national regulations or imminent implementation."It is a new technology and we do not have a specific legislation on shale gas,because it is so new," said Marlene Holzner, European commissionspokesperson on energy. "So the study only says that the existing regulations areapplicable for shale gas, that the tool is there and has only to be applied"1“Unconventional Gas in Europe”, Philippe & Partners law firm, 2France, Germany, Sweden and Poland Copyright © 2012 by StrategicFit. All rights reserved. 14
  15. 15. Content• Overview• Process for License Award• Environmental concerns and monitoring• EU Legislation• Pipeline access• Taxes and Charges• Current Activity• StrategicFit: Our experience and how we can help• Glossary Copyright © 2012 by StrategicFit. All rights reserved. 15
  16. 16. Copyright © 2012 by StrategicFit. All rights reserved. 16
  17. 17. Gas Distributers operate the Local Distribution Systemsthat supply Gas to domestic users Copyright © 2012 by StrategicFit. All rights reserved. 17
  18. 18. There are established procedures to connect to the NTSin cooperation with National Grid.Access to the NTS must be arranged with National Grid and the following stepsundertaken:1. Physical Connection: A connection to the NTS must be made and measurement equipment validated.2. A Network Entry Agreement detailing the conditions for gas flow must be agreed between the gas shipper and the National Grid. Factors involved: o The specification for the quality of the gas. o Responsibilities for maintenance and operational control of equipment. o Measuring arrangements3. Entry Capacity: The shipper must ensure they have purchased sufficient daily capacity rights to accommodate the gas entry flows. (Note a license is required to be able to be a “shipper” and add gas to the NTS).From initial discussion to completion, a project is estimated to take 24-36months.Environmental Considerations• If a pipeline is greater than 40km in length or 800mm in diameter then an environmental statement must be submitted to DECC. Copyright © 2012 by StrategicFit. All rights reserved. 18
  19. 19. Content• Overview• Process for License Award• Environmental concerns and monitoring• EU Legislation• Pipeline access• Taxes and Charges• Current Activity• StrategicFit: Our experience and how we can help• Glossary Copyright © 2012 by StrategicFit. All rights reserved. 19
  20. 20. Taxes must be paid to central government on ring fencedOil and gas production profits Copyright © 2012 by StrategicFit. All rights reserved. 20
  21. 21. The field allowance promotes extraction of technicallydifficult and small fields by reducing the tax from 62% to 30% Copyright © 2012 by StrategicFit. All rights reserved. 21
  22. 22. Content• Overview• Process for License Award• Environmental concerns and monitoring• EU Legislation• Pipeline access• Taxes and Charges• Current Activity• StrategicFit: Our experience and how we can help• Glossary Copyright © 2012 by StrategicFit. All rights reserved. 22
  23. 23. Current activity in the UK has been focused on theNorthern system and Cuadrilla has been the most activelicense owner. Copyright © 2012 by StrategicFit. All rights reserved. 23
  24. 24. Example Cases- Preese Hall well held by Cuadrilla Copyright © 2012 by StrategicFit. All rights reserved. 24
  25. 25. Opposition to future drilling in Sussex is much greaterthan before the negative publicity from Preese Hall.• When awarded the licenses near Blackpool, Cuadrilla was also awarded a license in Balcombe in West Sussex.• Limited activity has ensued on this license while the Preese Hall drilling occurred.• In Apr.2010, West Sussex Council awarded planning permission to upgrade a previously used drill platform and for a single exploratory borehole by 2014.• In Jan.2012 Cuadrilla CEO, Mark Miller, attended an open meeting in Balcombe. This was reported as a significant P.R disaster: o Residents and Fracking opponents began by showing an anti-fracking film. o The question and answer session was then described as “a witch hunt” by the director of Cuadrilla’s public relations company. With vigorous opposition and unsubstantiated facts being quoted by local residents and anti-fracking activists.• The activity in Balcombe implies that shale gas drilling in the UK is likely to meet enhanced public opposition in future locations.• Companies may have to put large efforts into gaining support from and reassuring local communities. Copyright © 2012 by StrategicFit. All rights reserved. 25
  26. 26. There are strong and differing opinions from Government,Industry and NGOs regarding the UK future of Shale GasCharles Hendry, UK Energy Minister (March 2011): “It is a very well-established processused around the world. If anyone has concerns about the practice they can be reassuredit is safe.”Dr Peter Turner, Director of Exploration, Cuadrilla (before the report linking the earthquakes tothe fracking): “Minor earthquakes and tremors happen in the UK from time to time, indeedthere were five reported from around the country this week. We are confident this is just acoincidence. All of our activity is tightly regulated by the Environment Agency and otherGovernment bodies, with the UK considered as having one of the most stringentregulatory frameworks in the world.”Mark Miller, Chief Executive, Cuadrilla, commenting on the report linking earthquakes tofracking: “We unequivocally accept the findings of this independent report and are pleasedthat the report concludes that there is no threat to people or property in the local areafrom our operations. We are ready to put in place the early detection system that hasbeen proposed in the report so that we can provide additional confidence and security tothe local community.”Charles Hendry (In response to earthquake report)“The potential for unconventional gas isworth exploring because of the additional security of supply and economic benefits itcould provide. But it is important to stress it is very early days for shale gas in the UK.”Paul Monaghan, The Co-operative, who commissioned an independent report into UK shale gas:“It is shocking how little scrutiny and thoughtful consideration has been demonstrated bythe UK government and its environmental agencies when it comes to shale gas.” Copyright © 2012 by StrategicFit. All rights reserved. 26
  27. 27. Content• Overview• Process for License Award• Environmental concerns and monitoring• EU Legislation• Pipeline access• Taxes and Charges• Current Activity• StrategicFit: Our experience and how we can help• Glossary Copyright © 2012 by StrategicFit. All rights reserved. 27
  28. 28. We have extensive experience helping clients withunconventional resource plays. Copyright © 2012 by StrategicFit. All rights reserved. 28
  29. 29. For further information, please contact:Adam Mitchell Duncan John+44 7876 243 480 +44 7771 562 500amitchell@strategicfit.co.uk djohn@strategicfit.co.uk www.strategicfit.com Simply Insightful
  30. 30. Content• Overview• Process for License Award• Environmental concerns and monitoring• EU Legislation• Pipeline access• Taxes and Charges• Current Activity• StrategicFit: Our experience and how we can help• Glossary Copyright © 2012 by StrategicFit. All rights reserved. 30
  31. 31. Glossary of AbbreviationsBBL: Balgzand Bacton LineDECC: Department of Energy and Climate ChangeEA: Environment AgencyEIA: US Energy Information AdministrationEU: European UnionHSE: Health and Safety ExecutiveLPA: Local Planning AuthorityLTS: Local Transmission SystemNTS: National Transmission SystemPEDL: Petroleum Exploration and Development LicenseREACH: Registration, Evaluation, Authorisation and Restriction of ChemicalsubstancesSEPA: Scottish Environmental Protection AgencySNIP: Scotland and Northern Ireland Pipeline Copyright © 2012 by StrategicFit. All rights reserved. 31

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