Infrastructure Bill [HL]

Viscount Ridley Excerpts

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.

--- Later in debate ---

[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?

[Viscount Ridley]

My Lords, I declare my interests in energy as listed in the register; they include coal, which is of course threatened by shale.

Unlike the noble Lord, Lord Truscott, I think that the people whom we should be concerned about are not those looking for oil in Kazakhstan or the Saudi oil companies but the people who are struggling to pay their heating bills this winter. That is what this is all about: trying to get the cost of gas down. We need gas and, whatever happens, we will continue to need gas, as the Minister said on a previous amendment. We need gas for heating and will continue to need it—84% of British homes are heated by gas. Where there is fuel poverty, it is nearly always associated with electric, rather than gas, heating. We need gas as a chemical feedstock for the chemical industry; we need it to make fertiliser to feed the world.