Energy set for shale of a time

Tax incentives and the holding off of new exploration regulations mean fracking will soon get off the ground

Kirsti Massie

The British Geological Survey estimates that 1,300 trillion cubic feet of natural gas is stored within the shale rock beneath northern England. The potential significance for the UK’s energy market is vast – it could reduce the UK’s increasing dependency on imported gas and, together with renewable and nuclear generation, assist with plugging the energy gap after the closure of old coal-fired generators.

The current Energy Bill seeks to introduce “clean, secure and affordable” energy supplies. For the UK, future energy security relies heavily on diversity of generation and supply. Both the Energy Bill provisions and other government announcements indicate a strong continuing role for gas – including shale gas – in the energy mix.

Although shale gas drilling is in the exploratory phase in the UK, consideration needs to be given to the regulatory framework. In order to undertake shale gas exploration and development activities, a party requires a Petroleum Exploration and Development Licence (PEDL), granted by the Department for Energy and Climate Change pursuant to the Petroleum Act 1998.

Other governmental agencies, such as the local Minerals Planning Authority and the Environmental Agency, may also need to issue additional consents and planning permissions under inter alia the Environmental Permitting (England & Wales) Regulations 2010 and Water Resources Act 1991.

The Health and Safety Executive will be involved in well design and construction activities and if any activity intersects, disturbs or enters any Coal Authority interest, a licence from the Coal Authority will also be required.

The temporary moratorium on fracking, introduced in 2011 following seismic tremors associated with Cuadrilla’s test drilling in Lancashire, has now been lifted. The Government has also established the Office for Unconventional Gas and Oil (OUGO) to monitor and develop shale gas responsibly, including engaging with industry and communities.

In an attempt to stimulate activity, the Government has announced it will slash gas production income tax from 62 per cent to 30 per cent for shale gas. It has also issued proposals for operators to pay a fixed amount to local communities for each well site as well as at least 1 per cent of overall revenues to ensure communities affected by shale gas mining derive some benefit from the activities.

While there is no denying that the current legislative framework applicable to shale gas exploration and development is a somewhat patchwork affair which could benefit from rationalisation and streamlining, it seems unlikely that policymakers will be prepared to look at new regulation and delay shale gas activity, given its perceived importance to the UK economy and its energy policy objectives.

There are prospects of regulation at an EU level to ensure a consistent approach to safety and scrutiny in the exploration and production of shale gas across Europe, but until then, the UK will resist pressure for change.

White & Case associate Dina Elshurafa assisted with this article