Shale Gas Profits

Wednesday 19th December 2012 Westminster Hall

16:09

[Eric Ollerenshaw (Lancaster and Fleetwood) (Con)]

It is a pleasure to serve under your chairmanship again, Mr Bayley. Before I go into the argument for community compensation, I will set the background for the impact of fracking in terms of the present energy demands on the county of Lancashire. At the moment, we face energy projects across the country. My own constituency has a third planning application for onshore wind farms in the Lune valley. We have offshore wind farms, the Walney field off Barrow and proposals for new offshore wind farms run by Centrica off the Isle of Man. Now, the need to transport power from those wind farms will mean extra pylons on land through the middle of my constituency and the middle of Lancashire.

At the south end of my constituency, there is a fourth planning application by a company called Halite for the excavation of salt mines and the storage of liquefied gas, a proposal that I oppose, as do my constituency neighbours and hon. Friends the Members for Blackpool North and Cleveleys (Paul Maynard) and for Wyre and Preston North (Mr Wallace). There are also a number of proposals for smaller hydroelectric schemes in the hills. It is already a massive issue for Lancashire, and there is even the possibility of an extra nuclear power station at Heysham, in the north of the county. All those proposals are the background. Into that mix comes the issue of fracking.

I want to put on the record my position on the wider shale gas issue. I have never been against using shale gas in our energy mix in principle. However, I want my constituents’ genuinely held concerns to be addressed before I support an expansion of fracking. I have raised those concerns with Ministers before, including three times in previous debates in Westminster Hall, but they are worth recapping.

First, my rural constituents have understandable concerns because many of them draw their water directly from boreholes rather than the mains. They are worried about contamination of their water supply, and equally worried about the impact on their water supply of the vast amounts of water that will be drawn from the water table to carry on full industrial fracking. Secondly, the small earth tremors that happened last year were proved subsequently to have been caused by the fracking process. Thirdly, my constituents have serious concerns that the regulatory regime, even if more stringent than in the US, will not be extensive enough to keep track of all the activity that could take place if the fracking moved to an industrial scale. I underline the point that, in a sense, we are in a hypothetical position. All that the Minister has reallowed is one testing at Preesall in the constituency of my hon. Friend the Member for Fylde (Mark Menzies), and we may be some way along in the process.

I welcomed the pause in fracking operations to allow an investigation into the earth tremors. I was pleased that the Royal Academy of Engineering and the Royal Society produced reports into the processes and equipment involved, and that they were studied further by an independent panel. Such investigation and review was much needed.

As a result of those investigations, the Energy Secretary announced last week that fracking and the tests at Preesall by Quadrilla could resume, but, as his recent statement made clear, with new safeguards in place. I welcome some of the measures in the Energy Secretary’s statement, including monitoring of seismic activity and enhanced wellhead integrity, which are fundamental to ensuring safety of the water table and water supply. I also welcome his commitment to continuing to record and analyse data on the effect on the environment of exploratory fracking. It is an important step, along with the appointment of an independent inspector who will be on site at all times. However, I still want greater efforts to boost the safety of the water supply and put in place a proper and effective regulatory system.

Although exploratory fracking has been resumed, we are still some way from industrial-scale operations, although anyone who reads the national press would think that the bonanza was going to happen next week. We in Lancashire are realistic in seeing that it will be a long-term process, but this debate is meant to get in at the beginning and ask what the impact might be if it happens.

[Mark Menzies (Fylde) (Con)]

I thank my hon. Friend for securing this debate on a subject that is hugely important and of great concern to my constituents. I urge the Minister to take on board the point that my constituents, like those of my hon. Friend, are incredibly worried that fracking could be done on an industrial scale. It is important that the company be clear from the outset that until safety measures and regulations are in place, it will be done on an incredibly limited scale, with detailed on-the-ground monitoring at every stage.

[Eric Ollerenshaw]

I thank my hon. Friend and neighbouring MP. To underline the point to the Minister, there has been speculation in the papers that if industrial fracking happens, there could be some 800 wellheads across Lancashire, against the background of onshore and offshore wind farms and the possibility of new nuclear. One can see why it is generating concern.

I stress that we are talking about a hypothetical situation involving industrial fracking some time in the future. The point that I am here to make is that if shale gas operations commence on that scale and scores of wells are drilled, Lancashire should share in the rewards. At the moment, that is not likely to happen, at least not beyond any small-scale voluntary schemes that energy companies might decide to pursue themselves. To be fair to Quadrilla, I understand that it has given a number of grants to various local parishes. The only other way is through section 106 agreements, which do not derive a vast amount of money for the local infrastructure.

The clear point is that the United Kingdom, and Lancashire in particular, is not Texas, where local landowners can strike it rich if oil or minerals are discovered on their land. The mineral rights in our area belong to the Crown, but mainly to the Duchy of Lancaster. Any farmer for whom fracking is proposed on their land will gain precious little, except perhaps a small amount of rent, and the local authorities will get a small amount of business rate. The company will get its profits, the Duchy will get its share from the mineral rights, and of course and as ever—unless Starbucks starts drilling operations—the Treasury will get its share of the proceeds from taxation. Local residents, who will have to deal with increased industrial activity, traffic movements, the movement of chemicals and so on, will not see a direct reward.

[Karen Lumley (Redditch) (Con)]

I declare my interest, as on the Register of Members’ Financial Interests. Does my hon. Friend agree that on fracking, Lancashire is once again leading the way? Should operations expand, it should be laid down in regulations that local residents, not absentee landlords, receive the compensation.

[Eric Ollerenshaw]

As ever, my hon. Friend spots where I am going, and I am glad she is here to support that.

There is lots of talk about job creation, but as far as I can see, the thousands of jobs promised will not be created. As I understand the engineering process, once fracking wells are set up and the gas is being used, the jobs involved are support jobs. It is likely that the specialist engineers will be brought in from elsewhere, unless deals can be done with local universities such as the university of central Lancashire or Lancaster university.

I want a fair and substantial share of the profits from shale gas for the people of Lancashire if this is to be a runner. In a way, the Government set a precedent with the introduction of the new homes bonus, whose principle is that communities that allow development in their area should share in the rewards. We could see a similar approach with shale gas or minerals more generally. Although I have a problem with the new homes bonus—it does not reward parish councils directly—any scheme for shale gas should send at least some of the rewards directly to the local areas or residents most affected, as well as to principal or top-tier authorities.

It is perhaps worth mentioning how such things are dealt with abroad. Alaska operates a scheme called the Alaska permanent fund, which is created largely from income from oil operations in the state and designed to ensure that future generations can share in the profits even when the oil is exhausted. Interestingly enough, the fund also pays out an annual cash dividend to all state residents. Apparently, people must reside there for only one year to be classified as a state resident. The payout varies; I think that last year it was $1,000, but in previous years it has reached $2,000. That is an interesting precedent.

In south America, the Brazilian constitution ensures that a share of oil revenue is provided to the states where oil is extracted. They can then use the money to fund infrastructure projects, community schemes or tax cuts as they see fit. That other foreign country, Yorkshire, has the newly established potash community fund, brought to my attention by my constituency neighbour and hon. Friend the Member for Wyre and Preston North. The extraction company York Potash has set up a fund of 0.5% of profits to be used for the local community. It is expected to provide between £3 million and £9 million a year to fund local projects.

Three different models are in use in different places—from the voluntary to the compulsory—varying according to how the payments are made and to whom. I should like a system to be put in place that provides direct compensation to the local residents and parishes most affected, and an income to the principal or top-tier authorities in the area for infrastructure projects, service provision or even council tax cuts. I should like the Government to give an “in principle” commitment to providing something along those lines before any decision is made on whether to expand shale gas operations. This should apply elsewhere in the country, too.

What I am proposing will be seen by some as trying to bribe residents into supporting shale gas, but that is not so. I know for a fact that many of my local residents would never be convinced of the merits of shale gas, whether it is extracted locally or not, even if they were offered a cheque for £1 million. Their objections are based on genuinely held fears about safety and concerns about the environment, particularly their own water supply. I am suggesting merely that there should be a fair reward for the communities that might have to host all that infrastructure, worry about safety and deal with increased traffic, and, as I have stressed before, that will not secure thousands or even hundreds of extra jobs.

I stress again that I am not proposing that we agree to a move to immediate shale gas operations. I still share my residents’ concerns about water safety and the adequacy of regulatory regimes, and want to see those dealt with in more detail. I support the Energy Secretary’s introducing increased regulation for the test site. It will be interesting to see over the next few months and years what those measurements say and what the safety record is, particularly regarding seismic activity and so on.

We are generous folk in Lancashire. We are loyal to our Duke and are patriotic members of the United Kingdom. But if others are to make millions, then it is only fair that Lancashire should have a share of those millions.

16:22

[Mark Hendrick (Preston) (Lab/Co-op)]

I congratulate the hon. Member for Lancaster and Fleetwood (Eric Ollerenshaw) on securing this debate.

I am concerned that there are no plans for new extraction regulations. We met with the Secretary of State before the statement last week and he made it plain that he believes that existing European directives and environmental agency regulations are sufficient at this stage for the experimental and exploratory phase to take place. For me, that is a shock and a surprise. The industry is new to this country—except for the small amounts of fracking in Lancashire—but given the extensive fracking that has taken place in the United States, there should be plenty of lessons for the industry regarding new regulations. Adequate new regulations should be put in place.

Some US states have no regulation, but that is because the locations in question are often remote and unpopulated. The UK, and Lancashire in particular, is not like that. There are many villages and towns in the areas that are going to be releasing shale gas.

The Secretary of State has made it clear that the exploratory and experimental phase that has been given the go-ahead for the next two years may yield results that highlight the need for new regulation. However, that amounts to using Lancashire as a guinea pig for the rest of the country. That is a cavalier approach to serious industrial activity, and above all to the people of my constituency and Lancashire as a whole, who could be subjected to the earth tremors that Blackpool experienced. We do not want earth tremors or serious earth movements; we want a safe industry. Lancashire should not be an experiment for the rest of the country. It should have all the necessary safeguards to ensure public safety before further work is undertaken. Yes, we should have the rewards—if it is safe for residents, safe for the water supply and safe for the environment.

16:25

[The Minister of State, Department of Energy and Climate Change (Gregory Barker)]

I congratulate my hon. Friend the Member for Lancaster and Fleetwood (Eric Ollerenshaw), who yet again demonstrated why he is known as such a formidable, and probably unequalled, champion of the interests of his constituents. He also demonstrated his strong commitment not just to his own constituency, but to the wider area of Lancashire. Indeed, he successfully secured a wider debate a few months ago on energy and infrastructure in Lancashire, in which shale gas was also covered. That builds on his tireless work on this issue, which he continues to go at, terrier like, on behalf of his constituents.

I apologise for my croaky voice, Mr Bayley, I hope that it lasts. The focus of this debate—the community share of shale gas profit—comes from a slightly different perspective than the previous debate secured by my hon. Friend. I note that he is joined by those equally formidable constituency Members of Parliament, my hon. Friends the Members for Fylde (Mark Menzies) and for Redditch (Karen Lumley), who have been here throughout the debate.

The question in this debate is how development of new energy sources, such as shale gas, can provide benefits not just to the country as a whole, but as my hon. Friend the Member for Lancaster and Fleetwood rightly says, to the communities where they are developed. As the Secretary of State said only last week, shale gas may have an important part to play in our national energy mix and our economy, but we must ensure that communities benefit and that there is proper environmental regulation.

I understand the issues that were rightly raised by Government colleagues and by the hon. Member for Preston (Mark Hendrick), not just about sharing the benefits, but about the need to ensure that the highest levels of environmental integrity are achieved, and about what that means.

I make it clear at the outset that we recognise that there is an important issue of fairness here. We do not yet know whether shale gas in this country is a commercial proposition at all. We hope that it is, but we are even more unsure what scale of development may be proposed and if it can be established that there is a geological potential for an economic development. It is still early days. But it is clear, from looking at what has happened in the US, that if shale gas production proves economic, the scale of development that might be proposed could be substantial, or “industrial”, as my hon. Friends have said.

I stress that the important word is “might”. It is already clear that the Bowland shale in Lancashire is not an exact analogue for any US shale, and it is not to be assumed that the pattern, or patterns, of development which have been followed in the US will necessarily work here. But there is at least the possibility that proposals for one or more large-scale gas production projects in the UK would involve large numbers of wells drilled over a substantial period of time. I have no doubt that if such proposals are made, the planning authority will do what they can to make the impacts of such a development, in terms of noise and general disturbance, traffic movements and night-time working—all the many ways in which an industrial development can impact on the lives of those who live nearby, particularly in a quiet, tranquil rural area—as small and acceptable as possible. I have no doubt that the planning authority will do what it can to minimise and mitigate such impacts. Even so, there is no question but that a large project of such a kind would have impacts on the lives of the people living in the areas around.

In such circumstances, it is only right and reasonable that the communities that suffer the inconvenience of the development should have a share in the economic benefits. However, while I and my colleagues at the Department of Energy and Climate Change wholeheartedly agree with the principle articulated at length by my hon. Friend—perhaps we can call it the Lancaster and Fleetwood principle—at such an early stage I am afraid that we simply cannot propose exactly how that would be done or what mechanisms might be appropriate.

[Mark Hendrick]

Will the Minister give way?

[Gregory Barker]

I shall make some progress, if I may, because I want to reply to the many important questions raised.

I hope that my hon. Friends the Members for Lancaster and Fleetwood and for Fylde, who have engaged in the debate sensibly and robustly, take comfort from my reassurances but appreciate our position given our state of knowledge and understanding of the sector. As such understanding grows, there can be genuine dialogue and discussion between the company proposing the project and the communities that might be affected. The Government will take a clear interest in such developments.

Shale gas has been of increasing importance in the US for some years, but exploration has only just begun in the UK. The potential to produce shale gas from a suitable formation can only be established by fracturing the rock. The fracturing of the first shale gas well in the UK, however, at Preese Hall near Blackpool last year, resulted in noticeable seismic tremors. Seismic activity at such a level could not cause any damage, but was not an expected consequence of the fracking activity, so DECC rightly suspended all fracking operations for shale gas pending a thorough investigation of the causes of the tremors and of the scope for mitigation of seismic risks in any future operations of that type.

The coalition Government carefully reviewed the evidence, with the aid of independent experts and of an authoritative review of the scientific and engineering evidence on shale gas extraction conducted by the Royal Academy of Engineering and the Royal Society, and concluded that appropriate controls are available to mitigate the risks of undesirable seismic activity. The new controls will be required by DECC for all future shale gas wells. In principle, on that basis, we are prepared to consent to new fracking proposals for shale gas if all other necessary permissions and consents are in place. In practice, it will be well into next year before any new exploration work has all the necessary consents to proceed. Whether any production operations are proposed will depend on the success of exploration work but, in any event, that is likely to be some years away yet. The new controls on seismic risks do not remove any of the existing regulatory controls and requirements. Consistent with previous practice, my Department will not give consent to specific fracking operations until all other consents are in place, including planning permission, the obtaining of environmental permits from the relevant environment agency and scrutiny by the Health and Safety Executive.

We are conscious that many people, including residents of Lancashire and other areas where shale gas exploration might be contemplated, have other concerns besides the seismic risks. Indeed, for most people, they are not of most concern, as my hon. Friend the Member for Lancaster and Fleetwood eloquently pointed out. In the US, the development of shale gas has been accompanied by increasing debate on its environmental impacts. Many of the incidents reported have, on investigation, not been shown to be connected with oil and gas activity, although they have given rise to concerns that in themselves are entirely reasonable. Residents in such areas want, therefore, to be assured that their water will not be contaminated with gas or toxic chemicals, that the air will not be contaminated with noxious gases, that there will be no damage from earthquakes and that other kinds of disturbance such as traffic, lights and noise will be kept under control. We understand that. In considering the concerns, we have had the benefit of the earlier report on shale gas by the Select Committee on Energy and Climate Change and of many authoritative reports from the US, including two from the Secretary of Energy’s advisory board.

In the UK, the industry has a good record, and robust regulatory controls on all oil and gas activities are already in place. On water contamination, which my hon. Friend discussed, all such operations are subject to scrutiny by the appropriate environment agency, the Environment Agency in England and for the time being Wales and the Scottish Environment Protection Agency north of the border. It is an offence to cause or knowingly permit poisonous, noxious or polluting matter to enter controlled waters, which include groundwater. The environment agencies are statutory consultees in the planning process and must be consulted on all proposed borehole operations. A permit from the agency is required if fluids containing pollutants are to be injected into rock formations that contain groundwater. A permit may also be needed if the activity poses an unacceptable risk of mobilising natural substances that in themselves could cause pollution. The permit will specify any necessary limits on the activity, any requirements for monitoring the chemicals that may be used and any appropriate limits on permissible concentrations. Regulators will take a risk-based approach; if the activity poses an unacceptable risk to the environment, it will not be allowed.

The reports I mentioned also emphasise the importance in such a context of the integrity of the well. That issue is central to the regulation of the safety of well operations by the HSE, which must be notified of all drilling operations for oil or gas and will scrutinise the well design and the operational plan. Additionally, the regulations require a full review of the proposed and actual well operations by an independent competent person, the well examiner.

The use of chemicals in frack fluids is another matter that occasions much concern. Again, the environment agencies take a risk-based approach to the regulation of the use of chemicals in shale gas fracking activities. The hazard potential of all substances proposed—

[Mark Hendrick]

Will the Minister give way?

[Gregory Barker]

I will not, I am afraid. I am close to coming to the end of my—

[Mark Hendrick]

I thought the Minister wanted to make some progress.

[Gregory Barker]

I do, to get to the end of the points made by my hon. Friend the Member for Lancaster and Fleetwood.

The hazard potential of all substances proposed to be injected into the ground will be assessed, and the use of substances hazardous to groundwater will not be permitted.

[Mark Hendrick]

On a point of order, Mr Bayley, the subject of the debate involves the benefit to the people of Lancashire. The Minister is going into a great deal of technical detail about the safety issues, when he should be discussing the benefit to the people of Lancashire.

[Hugh Bayley (in the Chair)]

It is for the Minister to present his arguments as he sees fit. He has made it clear that he does not want to take an intervention at this stage.

[Gregory Barker]

I am also mindful that the debate was secured by my hon. Friend the Member for Lancaster and Fleetwood and that it is unusual for other Members to speak as well. The hon. Member for Preston has done well already, so in the remaining time I should answer my hon. Friend.

The national planning policy framework requires planning authorities to assess applications for all minerals developments so as to ensure that permitted operations do not have unacceptable adverse effects on the natural or historical environment or on human health, including from noise, dust, visual intrusion or migration of contamination from the site. In doing so, they should take into account the cumulative effects of multiple impacts from individual sites or a number of sites in a locality. Conditions can be placed on working hours at a site or on numbers of traffic movements to ensure that any effect on local residents remains within acceptable bounds.

I hope that I have assured my hon. Friend that we will continue to maintain our responsible, thorough and rigorous approach. Within that framework, Government consider shale gas to be an interesting new prospective source of UK energy supplies. I again welcome the debate and the further opportunity to explain the Government’s positive approach to a potentially valuable addition to our energy resources, but my hon. Friend is right that we must ensure that local communities suffering the inconvenience that comes with development should have a share in the economic benefits. I assure him and my other hon. Friends from Lancashire that that will be one of the many considerations examined should shale gas in the UK prove to be a successful proposition and we move to the development phase.