Shale Gas Profits

Eric Ollerenshaw Excerpts

Wednesday 19th December 2012 Westminster Hall

[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.