StrategicFit - UK Unconventionals regulation

Developments in Unconventional Gas
Regulation in the UK
February 2012

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

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.


The future of shale gas in the United Kingdom is unclear;
public opinion and legislation is evolving.


Content

• Overview



• EU Legislation

• Pipeline access




• Glossary

Many institutions are involved in license decision making.


License allocation is dependent on national and local bodies and
further applications must be made through the project.


Planning Decisions are made by a range of local
government and central bodies.


Content

• Overview



• EU Legislation

• Pipeline access




• Glossary

The Environment Agency will exert control under the
Water Resources Act and ensure a permit is acquired


Water use must be tightly controlled to comply with
legislation 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.


N.Ireland passed a moratorium pending an environmental
assessment; 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.

Content

• Overview



• EU Legislation

• Pipeline access




• Glossary

There is no specific EU-wide legislation for the
exploration of Shale Gas but activity must comply with
other 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 commission
spokesperson on energy. "So the study only says that the existing regulations are
applicable 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


Content

• Overview



• EU Legislation

• Pipeline access




• Glossary

Gas Distributers operate the Local Distribution Systems
that supply Gas to domestic users


There are established procedures to connect to the NTS
in cooperation with National Grid.
Access to the NTS must be arranged with National Grid and the following steps
undertaken:
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 arrangements
3. 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 24-36
months.
Environmental Considerations
• If a pipeline is greater than 40km in length or 800mm in diameter then an
environmental statement must be submitted to DECC.

Content

• Overview



• EU Legislation

• Pipeline access




• Glossary

Taxes must be paid to central government on ring fenced
Oil and gas production profits


The field allowance promotes extraction of technically
difficult and small fields by reducing the tax from 62% to 30%


Content

• Overview



• EU Legislation

• Pipeline access




• Glossary

Current activity in the UK has been focused on the
Northern system and Cuadrilla has been the most active
license owner.


Example Cases- Preese Hall well held by Cuadrilla


Opposition to future drilling in Sussex is much greater
than 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.


There are strong and differing opinions from Government,
Industry and NGOs regarding the UK future of Shale Gas
Charles Hendry, UK Energy Minister (March 2011): “It is a very well-established process
used around the world. If anyone has concerns about the practice they can be reassured
it is safe.”
Dr Peter Turner, Director of Exploration, Cuadrilla (before the report linking the earthquakes to
the fracking): “Minor earthquakes and tremors happen in the UK from time to time, indeed
there were five reported from around the country this week. We are confident this is just a
coincidence. All of our activity is tightly regulated by the Environment Agency and other
Government bodies, with the UK considered as having one of the most stringent
regulatory frameworks in the world.”
Mark Miller, Chief Executive, Cuadrilla, commenting on the report linking earthquakes to
fracking: “We unequivocally accept the findings of this independent report and are pleased
that the report concludes that there is no threat to people or property in the local area
from our operations. We are ready to put in place the early detection system that has
been proposed in the report so that we can provide additional confidence and security to
the local community.”
Charles Hendry (In response to earthquake report)“The potential for unconventional gas is
worth exploring because of the additional security of supply and economic benefits it
could 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 by
the UK government and its environmental agencies when it comes to shale gas.”


Content

• Overview



• EU Legislation

• Pipeline access




• Glossary

We have extensive experience helping clients with
unconventional resource plays.


For further information, please contact:

Adam Mitchell Duncan John
+44 7876 243 480 +44 7771 562 500
amitchell@strategicfit.co.uk djohn@strategicfit.co.uk

www.strategicfit.com
Simply Insightful

Content

• Overview



• EU Legislation

• Pipeline access




• Glossary

Glossary of Abbreviations

BBL: Balgzand Bacton Line
DECC: Department of Energy and Climate Change
EA: Environment Agency
EIA: US Energy Information Administration
EU: European Union
HSE: Health and Safety Executive
LPA: Local Planning Authority
LTS: Local Transmission System
NTS: National Transmission System
PEDL: Petroleum Exploration and Development License
REACH: Registration, Evaluation, Authorisation and Restriction of Chemical
substances
SEPA: Scottish Environmental Protection Agency
SNIP: Scotland and Northern Ireland Pipeline


StrategicFit - UK Unconventionals regulation

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