Infrastructure Bill [HL]

Debate between Lord Truscott and Viscount Ridley

Monday 9th February 2015 Lords Chamber

[Lord Truscott (Non-Afl)]

My Lords, I speak in support of the spirit of Amendment 21. As a former Energy Minister, an investor in the hydrocarbon sector and a former non-executive director in hydrocarbon companies, I have given a great deal of thought to whether I support the development of fracking in the UK.

Quite apart from the environmental risks in such drilling—and, although the degree of risk can be debated, there is always a risk when drilling for hydrocarbons, particularly given that we live on such a densely populated island—I think we should look at the broader picture. What has been ignored so far is the picture of global demand and supply that we are witnessing. The Chancellor has said that we should try to emulate the success of the United States with shale oil and gas. However, what we are witnessing globally today is a supply glut. The success of shale in the United States has partly contributed to that. Perversely, we are seeing that this glut is pushing down the price of oil and gas across the world—particularly oil—and the impact of that on a number of smaller companies is that they are going to the wall. We are already seeing a decline in shale oil production in the United States and we should not forget that with shale oil we have seen quite a dramatic decline over a couple of years. So there is a dramatic fall-off in investment in the United States in shale, a fall in employment, a number of smaller companies going to the wall and all the majors have now announced that they are cutting back investment in major oil and gas projects. Therefore my fear is that we are entering a period of greater volatility as regards energy prices.

To a certain extent the success of shale in the United States has been quite limited, both as regards scale and duration, and we are now entering a period of quite dangerous volatility with regard to investment. Therefore, although consumers currently benefit from lower energy prices for oil and gas, that may well be short-lived. In addition, with the majors pulling back on major investment and with a number of smaller shale companies going to the wall, once the existing number of companies have cut back on production in the United States, in two to three years’ time we may well see the price of a barrel of oil go back up to $200.

Therefore, if we look at the United States as a model for a number of the companies that are involved in shale—and a lot of the communities that will depend on that local investment—it appears that it is not seen as a wonderful model, so maybe it is not a model we should adopt for the UK. Shale takes a huge amount of investment to develop, and it has its environmental risks. In the UK it will take many years to go through the planning process, yet the success of shale can be relatively short-lived. In the mean time, we will have these huge peaks and troughs in the price of hydrocarbons.

[Viscount Ridley (Con)]

Will the noble Lord agree that if the oil or gas price shoots up, as he says, we should be all the more encouraging towards the shale industry in this country?

[Lord Truscott]

No, because that would be a short-term benefit. We should look at the long-term planning. That is the difficult thing with shale at the moment: it is destabilising the market for oil and gas, with the majors cutting back quite dramatically. You can have shale production, but it is short term. If, for example, you invest in a major field, it can take 10 or 20 years to develop—Kashagan in Kazakhstan, for example—it needs billions of dollars of investment, and takes many years to develop, sometimes decades. Companies have to be able to plan ahead, as that gives medium to long-term relative stability to the oil price. If you are talking about shale, you are talking about a two to three-year timescale for the development of a field, which does not provide the sort of stability we are talking about.

Of course, we should also look at increasing investment in renewables as well. Shale is one thing you can look at, but you can also look at investing more in renewables.