Infrastructure Bill [HL]

Lord Truscott Excerpts

Monday 9th February 2015 Lords Chamber

I have some misgivings about the heavy apparatus of steps that have to be gone through and the safeguards which the Minister has set out for us, but provided that we operate within a four-pillar and not a one-pillar framework, I think we should support them.

[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.

[Lord Turnbull]

The noble Lord may be confusing two different things: a well, which may have a short life, and a field. I can see that wells might run out quite quickly, but then other wells will be drilled, so that does not mean that the field runs out in the period as he is explaining.

[Lord Truscott]

What tends to happen is that in the United States, for example, a shale oil rig—a well—may cost $1 million to develop. You then drill in that well for a couple of years, and then you have to invest further in the next well in the same field. A number of shale oil companies in the United States at the moment face not getting the funding to invest in the next well, because it is very cash-flow intense. Therefore if you want energy security, shale oil and gas is not the way to achieve it. It is a very expensive short-term hit, and it adds to the volatility of the price of oil and gas. In a way, the success we are seeing in the United States is already unravelling. I therefore wonder whether it is worth the cost as regards the overall benefit.

We are also seeing the impact on businesses, both large and small, in the hydrocarbon sector. Ask any of the majors at the moment whether they are happy about where they are as regards medium to long-term planning, or go to Saudi Arabia and ask people what they think about the impact of shale oil and gas development in the United States and on the global market. You can say that they are game-playing, but nevertheless, it is destabilising. Is that the way we want to go? Is that a great success story? I am not so sure that when we look back on the development of shale in the United States it will look as successful as we all initially thought it would be. Therefore from that point of view, is what happened in the United States the right way for the United Kingdom to go? I am not so sure.

[Lord Skelmersdale (Con)]

My Lords, before the noble Lord sits down, can he tell me whether he knows of any company of any size, in any part of the world, which invests to not make a profit?

[Lord Truscott]

That is exactly the reason. The noble Lord may know that that is why some companies are going bust—today Max Petroleum, which develops oil and gas in Kazakhstan, said that it was facing insolvency because it can no longer raise the funds to develop new fields. When the price of oil is under $50 a barrel—and we are already seeing the effect on companies such as BP, which is laying off people in Aberdeen because the price of a barrel of oil makes it uneconomic to continue to develop mature fields in the North Sea—we are facing a problem, are we not?

[Lord Borwick (Con)]

My Lords, I welcome this government amendment and thank my noble friend for clarifying some extremely important points. I am particularly pleased that it is now clearer that the clauses apply to hydraulic fracturing, with any ambiguity removed. However, there are some further points that I hope will be addressed in secondary legislation.

We have delayed shale exploration for too long. We have to get going so that we can show the public that there is nothing to fear. Once we start, the public will surely say, “What was all the fuss about?”. It is therefore extremely important that drilling boreholes for groundwater quality monitoring is delinked from the planning process. Permitted development rights under the general permitted development order can be used to install boreholes for monitoring water quality; that is common in the water industry. However, it is different for any development that is subject to environmental impact assessment regulations. Then, any part of the development, including the drilling of boreholes for monitoring water quality, cannot take place until full planning consent is granted. That would apply in the case of any development which includes hydraulic fracturing. It would mean, in practice, that no baseline data could be collected until full planning permission was granted, leading to a minimum of 12 months after planning before hydraulic fracturing would be permitted to take place. That would be a significant and unnecessary delay.

We should therefore allow baseline monitoring during the planning process for shale exploration. That would drastically cut the delay: doing the monitoring, then putting in the planning application, and monitoring while the planning process continues. Even if it is not a positive planning decision for industry, at least some useful data will have been obtained in the mean time during the monitoring process. More baseline data would be very welcome, so delinking from planning is a win-win whether the planning decision is positive or not. Can my noble friend therefore assure me that these concerns are noted in the amendments and will be strongly considered as the secondary legislation is formulated?

The treatment of groundwater protection zones was one of the worst outcomes of the amendments made in the other place. The Environment Agency already effectively prohibits operations in what is known as source protection zone 1, and in the lesser zones 2 and 3 the industry already has to make a convincing case to the Environment Agency. That strikes me as the right balance of regulatory oversight. That could impact on other industries, too. Shale operations take place well over 1,000 metres below any aquifer, whereas a lot more industrial activity from other sectors takes place on the surface, directly on top of the same source protection zones.

Moving away from the current regulatory framework of the Environment Agency regulatory position could have dire consequences for other industries. Furthermore, if a licence has already been purchased, it may be of no use whatever. There is no chance of that company receiving its investment back. Every investment is risky—rightly so—but this will make future investment in shale exploration all the more risky than it ought to be. Changing the rules after the licences have been awarded will not increase future licence revenue.

The government amendments mean that a decision on what is groundwater area is referred to secondary legislation. Can my noble friend assure me that those concerns will be taken into consideration as the secondary legislation is formulated?

--- Later in debate ---

[Lord Young of Norwood Green]

With due respect, I do not think that is good enough. If we are going to enter into a debate in your Lordships’ House in which assertions are made that in essence the exploration of shale gas and fracking is unsafe, it ought to be backed up now with the evidence. The noble Baroness has had the opportunity to do so.

I try to enter this debate sharing the same concerns as the noble Baroness—concern for the environment and for the benefit to the public as a whole—and I do not take any assertions from the companies that might be involved in it: I go to sources such as Durham University, which is conducting an independent assessment, I look at the House of Lords report. We keep hearing assertions about earth tremors and earthquakes, but I thought we had nailed that in the last debate. There will be continuous seismic monitoring. Operations will stop if there is a tremor of 0.5, and at 0.5, believe me, the earth would not move for anybody in this Chamber, whatever they were doing, so to allege that the Government and this House are somehow colluding with an unsafe practice is totally irresponsible.

Let us remind ourselves that we are still going to be dependent on gas. By 2025, something like 70% of it is likely to be imported. Let us remind ourselves what happens with imported gas. First, it could be fracked elsewhere, where the conditions are not likely to be quite as well protected and monitored as ours are. Then it has to be liquefied, transported and then de-liquified to be put back into its gaseous state. Are we saying that is preferable to using our own resources? I do not understand that analysis and I do not think it is borne out.

[Lord Truscott]

Of course, not all imported gas has to come as LNG. Some can come directly through the interconnectors with the continent or through pipelines from Norway, for example.

[Lord Young of Norwood Green]

I thank my noble friend, but a significant amount will still be LNG and I do not think that undermines my point. I know that my noble friend Lord Truscott has lots of experience, but I must admit that I was surprised by his analysis. Even if we are sceptical, it was a British geological survey, after all, which identified 1,300 trillion cubic feet of natural gas. If we take only 10% of that as capable of being extracted, which is a reasonably modest assessment, that is something like 40 years’ supply of the gas that we use—and we are being invited to say that we should not even consider using it.

My noble friend suggested that it was all about the current price of oil and gas. Of course we should take that into account, but as he was invited to say, is he seriously thinking that companies will invest in shale exploration without any prospect of return? I talked to companies recently about this and said, “Aren’t you deterred by the current price?”. They said no, because they do not invest at today’s prices. They are talking about a plan that is likely to take five years. I do hope that the House will support the government amendment.

On protecting groundwater, of course we should be doing that. Again, I have looked at this carefully. Apart from the fact that there has been very little evidence of methane contamination from fracking, we are talking about a six-inch pipe being drilled down. When it goes through the aquifer, which is at approximately 300 to 400 feet, multiple layers of steel and concrete contain the gas on its way to the surface and prevent it escaping into surrounding rock and groundwater.

What about the myth about the chemicals? We should remind ourselves that 99.95% is just sand and water and that the 0.05% consists only of approved non-hazardous chemicals, one of which is polyacrylamide, which is used for contact lens solution. We would be unlikely to use that chemical for a solution like that if we thought that it was seriously hazardous.

I am just as concerned about the environment and the water supply as the noble Baroness, Lady Jones of Moulsecoomb, but I am also concerned about those who, frankly in my opinion, misapply science and deliberately distort data rather than convey to the public the facts and the independent assessment, which is what this House should be doing. On those grounds, I hope that this House will overwhelmingly support the government amendments.