A report from the Institute of Directors blames Britain's complicated permit regime for the slow development of shale gas

Permit regime holding back shale gas development

Britain's complicated planning and permit regime is the biggest barrier to developing shale gas, according to a new report.

Ten different licences from four different public agencies, involving two separate public consultations, must be obtained before a single exploratory well can be drilled and hydraulically fractured, or “fracked” according to the report "Getting shale gas working" published today.

"We do not question the need for the industry to obtain the necessary environmental permits, conduct the necessary environmental impact assessments and install the necessary seismic monitoring equipment," the IOD concedes, but warns the current process "can seem a little cumbersome".

"In our view, the planning and permitting regime for shale exploration, as currently constituted, presents a major barrier to the development of shale gas in the UK."

Overall the business lobbying organisation presents an upbeat assessment about the industry's ability to surmount the obstacles to developing a substantial onshore shale industry and the potential benefits of development.

The report claims investment in the industry could peak at £3.7bn a year, supporting 74,000 jobs and shale gas production could reduce gas imports to from 76 per cent to 37 per cent in 2030, with the cost of imports falling to £7.5bn from £15.6bn.

Corin Taylor, senior economic adviser at the IoD and author of the report, says: “Shale gas could be a new North Sea for Britain, creating tens of thousands of jobs, supporting our manufacturers and reducing gas imports.

“Further exploration will be needed to assess the size of technically and commercially recoverable resources. At the same time, partnerships need to be established between industry, government and communities to ensure that development of this vital national resource benefits local people.”

But environmental campaigners have questioned the validity of the report has been sponsored by Cuadrilla, the only shale gas company with wells in the UK currently.

Greenpeace energy campaigner Leila Deen says: “Paid for by fracking company Cuadrilla, this report’s wildly optimistic forecast for job creation depends on a level of shale development that no respected analyst believes to be economically or geologically feasible.

“The IOD's forecasts are based on mind-boggling and hopelessly misleading estimates of gas extraction using technology so far not deployed at this scale anywhere on the planet. It also assumes a level of gas use that's incompatible with the recommendations of government climate advisors.

"In their best-case scenario, 17 trucks a day would pass through the UK's most picturesque villages carrying more than 5.4 million cubic metres of water and fracking fluid per year.

"Despite cheerleading for the industry, the report still avoids the issue of whether fracking will bring down bills. With experts from Deutche Bank to BP to the Energy Secretary Ed Davey agreeing UK shale gas will not reduce gas prices for consumers, fracking across England seems like a lot of pain for very little gain."

The report assesses barriers to shale gas development in five major areas: infrastructure and equipment; skills and the supply chain; finance and tax; regulation; and reputation.

It concludes that gas transportation and gathering pipelines, water supply and the availability of drilling and pressure pumping equipment are unlikely to pose serious obstacles to large-scale exploitation of Britain's shale formations.

And the tax regime for onshore shale gas will not be a major barrier after the government made a series of concessions in the 2013 budget, which aim to balance the need to raise substantial tax revenue with the need to encourage development of the resource.

But it found skill shortages will be more challenging as there are already intense shortages of geoscientists, petroleum engineers and skilled labour for North Sea fields, which have pushed up wage rates.

Onshore shale fields will offer more normal working conditions but will take time to redeploy workers from elsewhere and train new ones.

"Initially, outside expertise may be needed," the IOD acknowledges. "The early development of the North Sea depended on skilled workers from the United States, and more recent shale gas development in states such as Pennsylvania has relied on considerable expertise from earlier shale gas development."

But despite these problems the report found that the main obstacles to shale development are social and regulatory.

The report recommends that the industry needs to provide tangible benefits for local authorities and communities, must build public confidence in the safety of fracking and obtain a "social licence to operate" by promising to be a good neighbour.

It also needs a much simpler process for obtaining exploration and production permits.

Neither local landowners nor local planning authorities stand to gain much from the development of shale resources in their areas as in Britain oil and gas are state property and royalties are paid to the national treasury.

Shale drilling will generate business tax revenues, but they will be paid to the national government rather than retained locally.

"This state of affairs is not conducive to development since the planning authorities that will permit the development are at the local authority level, and the authorities that will benefit financially from the development are at national level. Fundamentally, incentives are not aligned," the IOD notes.

Recent changes will allow local authorities to keep more of any increase in local business tax revenues above a given baseline, which should encourage them to promote local industrial development.

But payments only start flowing when wells enter production, which could be years after the initial permits are sought, and doubts about the future stability of these arrangements may make some local authorities cautious.

Shale gas operations currently face a "confidence hurdle", which can be overcome only by successfully drilling and fracturing some wells and demonstrating that the technique is clean and safe, says the report.

Concerns about safety, earthquakes, water contamination and the impact of fracking remain high, though they have eased somewhat in recent months, but the IOD nonetheless sees some reasons for optimism. "Public attitudes ... are quite open minded and are improving," the report concludes, citing opinion polls.

But the report found that permits remain the biggest obstacle – to drill a single exploratory well the operator needs ten different licences from four different public agencies and once all these other permits are in place the driller needs to obtain final consent from the Department of Energy and Climate Change.

An energy summit taking place at the European council in Brussels today, aimed at framing the debate for the EU's energy policy beyond 2020 when climate change targets are due to expire, was due to discuss the topic of shale gas.

Mónica Cristina, spokesperson of Shale Gas Europe, speaking ahead of the summit said: “Shale gas development in Europe may not be a silver bullet.

“But to address the economic and environmental challenges we face we need to diversify our energy sources as much as we need energy efficiency, the modernisation of Europe’s energy infrastructure and completing the internal energy market.

“Natural gas, the cleanest fossil fuel available today, can help to address those challenges by adding to energy supplies, bringing employment, investment and improving Europe’s competitiveness at a time of great economic uncertainty.

“Europe has the opportunity to take the best practices from North America; doing it right from day one. In the meantime, shale gas exploration must continue in order to enable an accurate assessment of existing resources.”

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