Government unclear on fracking costs, benefits and liabilities – spending watchdog

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pnr 181031 Eddie Thorton

Cuadrilla’s Preston New Road fracking site, 31 October 2018. Photo: Eddie Thornton

The government has no clear idea on how much it has spent supporting fracking, what the benefits would be and how much investment would be needed in future, the UK’s spending watchdog has revealed.

In a report published this morning, the National Audit Office said ministers could also not explain who would pay for clean-ups if fracking companies went out of business. National Audit Office report on Fracking for shale gas in England

The National Audit Office (NAO) report highlighted:

  • risks of the self-reporting system of shale gas regulation
  • unprecedented public opposition to fracking planning applications and falling national support
  • slower than predicted development of the industry
  • lack of progress on carbon capture usage and storage (CCUS) needed for shale gas to meet climate objectives

Environmental groups and anti-fracking campaigners have welcomed the report, describing fracking as a “failed industry”.

The industry representative said onshore oil and gas had a role in the future and that delays were not uncommon. The Department of Business, Energy and Industrial Strategy (BEIS) did not respond to our request for a comment.

Who pays for clean-ups?

The cost of decommissioning an onshore well has been estimated at £195,000-£1m, depending on the design and depth. But according to the NAO report, there were no clear answers on who would pay this cost if operators went out of business.

Under the 1998 Petroleum Act, the government has a statutory liability for decommissioning costs of offshore wells if the operator could not pay. But there is no equivalent legislation for onshore wells, the report said.

It said:

“[BEIS] does not recognise any responsibility for decommissioning onshore wells, including shale gas wells, and does not include a contingent liability in its financial statements.”

BEIS had said landowners could take out insurance but it recognised that they may not fully understand the liability they were taking on. Landowners told the NAO that the legal advice they had received about liability was unclear.

In May 2019, BEIS said former operators and landowners could be pursued for decommissioning costs under environmental liability and damage directives. But it accepted that the powers were “relatively untested”. Earlier this month, the Environment Agency, which regulates decommissioning, contradicted this. The report said:

“[the Environment Agency] has since considered the extent of these powers and determined that it is unable to use them to pursue either insolvent operators or landowners.”

The report added:

“The Department [BEIS] was unable to explain who would meet decommissioning costs if the landowners were unable to do so.”

BEIS had also resisted creating a contingent liability for government by counter signing insurance polices or introducing a new statutory onshore decommissioning regime, the report said.

Costs and benefits

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Preparation for fracking at Cuadrilla’s Preston New Road site near Blackpool, 25 July 2018. Photo: Ros Wills

The NAO said BEIS believed shale gas would provide the UK with greater energy security and support economic benefits.

But according to the report, BEIS had not conducted an independent assessment of the potential costs or benefits of supporting the shale gas industry. BEIS said this would “not be meaningful while the industry is in the exploration stage” and “in the absence of more evidence about how much shale gas can be extracted.”

The report also said:

“The Department does not know the full costs of supporting shale gas development to date or the future public investment that may be required.”

It added:

“On the basis that its spending to support the shale gas industry has been relatively low, the Department has not undertaken an analysis of the opportunity costs of supporting the shale gas industry versus other energy sources, including renewables.”

The NAO said it had identified known costs of government support for fracking since 2011 of at least £32.7m.

This included £13.4m spent by three police forces on managing anti-fracking protests. But it did not include the costs of appeals, judicial reviews or the time and expenses of public officials.

BEIS will have spent £8.4m supporting fracking between April 2012 and March 2020, the report said.

This figure excluded staff costs and expenses. But it did include £88,000 for a shale gas commissioner, who was in post for just six months and has not been replaced, and £75,000 for a National College for Onshore Oil and Gas, which has not yet been established.

The report said:

“The Department has not estimated the extent of the infrastructure required or what public investment may be required because it is still unclear what the size of any future industry would be.”

Unprecedented interest and opposition

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Campaigners at rally outside Cuadrilla’s Preston New Road fracking site, 31 August 2019. Photo: Refracktion

The cost of deciding an application for fracking, excluding judicial challenges and appeals, was around £300,000, the Ministry for Housing, Communities and Local Government has estimated.

Councils can apply for up to £250,000 for each shale gas planning application but they cannot claim for appeals.

The report said local authorities had reported unprecedented public interest in planning applications for fracking.

Lancashire County Council dealt with 36,000 representations for Cuadrilla’s plans at Preston New Road and Roseacre Wood.

The council incurred extra costs of £330,000 for a planning inquiry on the two planning decisions, one of which was upheld.

Public support for shale gas is low and has fallen over time, the report added.

“Local authorities we interviewed said the strength of public opposition for shale gas planning applications was unprecedented.”

Risks of self-reporting system

The NAO said the regulators had:

“so far focused on the exploratory stage and mainly rely on a system of statutory self-reporting by the operator, which presents risks.”

This system was a source of concern, the NAO said, among environmental groups it spoke to. It also said it had found that a self-reporting approach in the packaging recycling obligation “presented risks”.

The report confirmed that after regulators had signed off decommissioning at an onshore site there was “no requirement on any public body or the operator to monitor the well for any leakages or emissions”.

It added:

“Regulators will need to respond and build capacity quickly if operators begin producing shale gas at scale.”

Climate change

The Committee on Climate Change has said that gas would be needed to produce hydrogen to decarbonise industrial heating and heavy-duty vehicles. But it also said the development of carbon capture, usage and storage (CCUS) was essential to ensure shale gas consumption was compatible with UK climate change objectives.

The NAO said:

“The Department [BEIS] considers it can meet its climate change objectives while developing shale gas, but it has not yet developed the necessary technology.”

BEIS held two unsuccessful competitions to develop CCUS in 2007 and 2012, the report said, and in 2018 said it aimed to develop the first facility in the mid-2020s.

Slow progress on shale

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Preston New Road shale gas site, 23 August 2019. Photo: Maxine Gill

The report said only three wells – two at Preston New Road and one at Preese Hall – have been hydraulically fracked so far.

In July 2013, ministers had said they expected operators to have drilled between 20 and 40 exploration wells in two years. In 2016, a Cabinet Office report expected that between five and 20 wells could be fracked by the mid-2020s.

The government has blamed low public acceptance, while operators said it was because of the time taken to obtain consents and permits and the threshold for managing fracking-induced earth tremors.

Reaction

Environmental groups

“A mark-your-own-homework industry”

Jamie Peters, fracking campaigner at Friends of the Earth, said:

“This is a quietly critical report that doesn’t give the fracking industry any revived sense of hope. The NAO have several concerns including the ‘mark-your-own-homework’ approach to regulation and the lack of clarity over who should be responsible for clean-up costs if fracking ever got going.

“Nothing has changed: fracking isn’t wanted, it’s a failed industry, and the future is renewables and energy saving.”

“No demonstrable benefit to local people, communities and country at large”

Daniel Carey-Dawes, head of rural economy and communities, at CPRE said:

“The NAO report casts a critical eye over the government’s commitment to developing a shale gas industry in England. For several years now, local communities have been bamboozled by shale salespersons, promising economic boom, lower energy bills, all at no cost to the environment. The NAO report highlights the lack of evidence to support any of these claims, and the lack of clarity on who will meet the costs of decommissioning wells when the fracking circus leaves town.

“The report also highlights the lack of progress on carbon capture and storage, which is essential for fracking to be compliant with reaching net-zero. In this state of climate emergency, we should be doing everything we can to cut our emissions as quickly as possible, and not, relying on a future non-existent technology.

“Findings in this report chime with CPRE’s warnings that fracking could lead to the industrialisation of the countryside and contribute to the climate crisis. If even this impartial summary of the facts as presented in this NAO report can be so damning then it’s hard to see how the government can justify ploughing ahead with this pro-fracking agenda. It is time to bring an end to this nonsense and halt fracking.”

“Government needs to accept fracking failure and move on”

Doug Parr, chief scientist at Greenpeace UK, said:

 “It’s not easy to admit when you’re wrong, but fracking has been a failure and government needs to accept it and move on. They say they want lower bills for people, but they’ve already wasted well over £1 per UK household propping up a pointless and divisive pursuit of a fossil fuel that our commitments to decarbonisation mean we can hardly use. We’re in a climate emergency, public opposition is sky high and fracking won’t bring us lower energy bills. It’s time to call an end to this farce.”

Anti-fracking campaigns

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Demonstration outside Cuadrilla’s Preston New Road shale gas site, 20 October 2018. Photo: RodHarbinson.com

 “Report exposes fragilities of government policy on fracking”

Steve Mason, Frack Free United

“What we have here is a truly independent verification of the facts and questions posed by the anti-fracking campaign. This report has exposed the fragilities of the government’s policy on fracking, leaving so many unanswered questions. The government has no idea how much gas they can extract, what the economic benefits are and they do not have the technologies available to limit emissions if we frack.

“It is highly likely that taxpayers will have to pay for the clean-up costs. Anyone reading this report must surely be thinking: ‘What on earth is going on? How can the government support this industry that is fast becoming more fantasy than facts?’ We advocate an urgent ban on this dirty fossil fuel industry.”

“Government support for fracking is ill-considered, reckless and based on ideology”

Nick Danby, Frack Free Lancashire

“This report from the National Audit Office reveals what we have always suspected: this government’s support for fracking is ill-considered, reckless and based upon ideology rather than cold, hard facts. The Department for Business, Energy and Industrial Strategy (BEIS) appears to have little idea as to how much gas there is, how much is recoverable and what is the potential contribution to the UK energy mix.

“It is very worrying that our government should have such little regard for facts and figures and it is especially concerning that it should continue to champion a new fossil fuel industry in the face of the threat of climate breakdown. We urge the government to stop subsidising fossil fuels and to ban fracking with immediate effect.”

“Confirms local fears”

Maureen Mills, Halsall Against Fracking

“This analysis is totally bewildering in that it reveals in one place the extent of the gross negligence by a government department.  It confirms all the fears, and more, of local communities who have educated themselves about fracking and have witnessed Cuadrilla’s ineptitude on the Fylde with incredulity.

“It confirms the impotence of the so-called regulators that we were assured would ensure “Gold Standard” regulation.  Unforgivably, the very clear climate change impacts of leakages and emissions have completely bypassed the BEIS [Department of Business, Energy and Industrial Strategy] despite the scientific evidence. Surely in the face of this concise and damning report, the unprecedented and mounting public opposition to fracking will now be given due weight against industry favours from government?”

“No sound business case”

Spokeswoman, Preston New Road Action Group, the residents’ campaign group closest to Cuadrilla’s site:

“This report demonstrates that the cost-benefit case for shale gas has not been made satisfactorily. It is not clear how much shale gas can be extracted and without this knowledge, the benefits cannot be fully calculated. The technologies to manage risk from emissions are still not available. There could also be a huge cost burden on taxpayers in the future if they have to fund the decommissioning of sites. However, from the fracking that has taken place to date, some of the dis-benefits such as earthquakes and greenhouse gas emissions have been proven. Shale gas extraction just does not appear to have a sound business case.”

“Government keeping fracking on life support”

Joe Corré, head of Talk Fracking:

“This is more doublethink to come from the government. A report which condemns fracking is at the same time still offering a faint flame of government support for the rapidly dying shale gas industry. Shale investors are finding it very difficult to give up the ghost. Unfortunately, their friends in government are still keeping it on life support despite all the science and public opinion giving a fatal prognosis for England. Fracking is over.”

“Offshore regulations could be applied to onshore decommissioning”

Researcher and campaigner Ben Dean:

“I’m disappointed that the NAO report fails to reference section 38a of the Petroleum Act 2009 when it refers to the taxpayer ultimately being liable for offshore decommissioning. If the OGA and its predecessors do their job thoroughly then 38a requires the offshore licensee to ‘ring fence’ the agreed cost of decommissioning all infrastructure prior to any development works commencing.

“The NOA could have recommended 38a to be applied to onshore hydrocarbon development. That would be a positive recommendation which would negate Model Clause 20.13 of The Petroleum Licensing (Exploration and Production) (Landward Areas) Regulations 2014, Schedule 2. This states that all casings and fixings left at the expiry of the licensee’s rights become the property of the Secretary of State.

“So, in the case of an onshore licensee becoming insolvent, it is the taxpayer that pays, not the landowner, as the NAO and EA seem to be fudging.”

“Public will be left to foot the bill for decommissioning when operators go bust”

Eddie Thornton, campaigner and Ryedale resident who is bringing a legal challenge against the Oil & Gas Authority over Third Energy’s change of ownership

“This damning report shows just how weak UK regulations are when it comes to fracking.

“There appears to be no provision in law for decommissioning wells when operators go bust and it’s clear that it will be the public left to foot the bill. That’s why we’re taking urgent legal action against the Oil and Gas Authority. I hope our case will force them to uphold their duty of care and carry out proper financial assessments of oil and fracking companies before they are given a licence to drill.”

Industry

“Report details compelling environmental and economic benefits”

Ken Cronin, Chief Executive of UK Onshore Oil and Gas

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UKOOG’s chief executive, Ken Cronin

“We welcome the wide-ranging report put out today by the National Audit Office, which summarises the industry position reached over the last 6 years.

“The report highlights what is already known: there is a very significant regulatory structure in place, the Environment Agency have assessed our operations as low risk and they have put in place a significant compliance visit schedule. Further to this, the Health and Safety Executive have confirmed there have been no breaches of their regulations – including for well integrity.

“The report also highlighted the delays in the planning system which have contributed to slower than expected progress. The shale industry, as the report highlights, is in the early exploration stages. It is not uncommon to see delays in the energy sector, as experienced in the development of the North Sea oilfields, onshore wind industry and new nuclear.

“Early results from our wells in Lancashire and Nottingham, plus data from the British Geological Survey, confirm that we have a very significant natural gas resource that can be brought to the surface. On top of this, the report comments on the need for hydrogen and carbon capture and storage, recommended by the Committee on Climate Change as essential in meeting the net zero target. There will be a significant need for natural gas in 2050 and beyond to meet these objectives. The Committee also recommended not to further offshore our emissions by relying on imported fuels. There is therefore a significant role for both onshore oil and gas in the future, which if allowed to reach potential will bring the compelling environmental and economic benefits as detailed in the National Audit Office report.”

Landowners

Call for government to protect landowners – CLA

Tim Breitmeyer, president of the Country Land and Business Association, said:

“The report reinforces our long-held concerns around landowner liabilities and fracking. It clearly states that ‘arrangements are unclear and untested’ around decommissioning costs, echoing points we raised to the Energy Minister in August 2017 where we highlighted the overall lack of protection for private landowners with regard to fracking development. Above all else, landowners take a long-term view of land management and the fact that they will be liable, long after an operator has left, remains a barrier to further adoption.

“We urge the Government to put the right protections for landowners in place not only to ensure the long-term integrity of well-sites is maintained, thus removing any risk to future use of land, but also to guarantee that the residual liability of a site should never fall to the landlord. We are pleased that the National Audit Office’s conclusions agree with our position.”

Politics

Report calls out the cheap gas prices myth

Gina Dowding, MEP for north west England, including Cuadrilla’s fracking site

“I think the first thing that the public would be interested in this report from the National Audit Office is what is actually going to happen to energy prices. What is clear is that the NAO has finally called out the cheap gas prices myth and that energy prices are not expected to fall: that’s because the shale gas industry cannot be easily compared to the North American model both because of difficult geology here and how our communities are much more densely populated.

“Aside from the myriad issues surrounding fracking, to even think of progressing with a new fossil fuel industry during a climate emergency, is nothing short of stupidity.”

“Conservative support for fracking is delaying climate action”

Wera Hobhouse, Liberal Democrat Spokesperson for Climate Change

 “We can make all or nearly all our electricity from renewables by 2030. There is no place for fossil fuels in the power sector after then. By continuing to support fracking, the Conservatives demonstrate they are the party that delays climate action.”

This content was originally published here.

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