Regulations and public opposition have stifled the U.K. oil and gas industry's progress in developing the country's shale natural gas resources, and an Oct. 23 report by the country's National Audit Office said yet more legislative and regulatory guidance around a shale gas well's lifecycle is required.
"Operators say the time to gain regulatory permits and planning permissions, coupled with the current 'traffic light system' for managing fracking-induced earthquakes (which is more stringent than other countries), is hindering the industry's development," said the report, which notes public opposition to fracking has increased from 21% in 2013 to 40% in 2019.
According to the report, the U.K. consumes approximately 3 Tcf of natural gas annually, and the British Geological Survey estimates there is roughly 1,329 Tcf of natural gas trapped in onshore formations within the U.K., mostly in Northern England and the Midlands. Although government officials have cited reports that point to the shale gas industry leading to investments of up to £33 billion and the creation of 64,500 jobs, "an analysis of the costs and benefits of supporting the industry would not be meaningful in the absence of more evidence of how much shale gas can be extracted," the report said.
The National Audit Office estimates — excluding the cost of appeals, judicial reviews, and the time and expense of public servants — national and local authorities have spent at least £32.7 million in support of fracking since 2011, including £13.4 million spent by three local police forces on managing protests around shale gas sites.
"Five operators are in the early stages of shale gas exploration to determine whether they can produce shale gas commercially," the report said. "Because of the uncertainty over how much shale gas can be extracted, the Department has not estimated how much public investment will be required to support the production of shale gas at scale."
According to the report, Cuadrilla Bowland Ltd. is the only operator to have fracked any wells in the U.K. Activity at the company's three wells — far below the 20 wells government officials have expected to date from the industry — has been suspended due to regulations designed to prevent fracking-related earthquakes. Regulators denied Third Energy permission to frack a well in North Yorkshire, and three other operators have not yet applied for fracking permits.
Government ministers said in May there are no plans to revisit regulations that require operators to pause all fracking activity if earthquakes are greater than or equal to 0.5 magnitude on the Richter scale.
Shale gas operators in the U.K. must comply with existing regulations governing conventional oil and gas development, and the earthquake "traffic light system" is one of three additional regulatory burdens shale operators face. The U.K. Oil and Gas Authority and the Environment Agency, or EA, must approve an operator's hydraulic fracturing plan, and operators must satisfy 13 conditions set out in the Infrastructure Act 2015, a wide-ranging piece of planning and infrastructure legislation passed in 2015 during David Cameron's administration, in addition to a financial resilience test.
A 2016 Committee on Climate Change report found that the U.K.'s regulatory regime "has the potential to be world-leading," but "a strong regulatory framework is needed for shale gas production at scale."
"Regulators will need to respond and build capacity quickly if operators begin producing shale gas at scale," the report said. "EA, the regulator with the largest regulatory burden, has focused its work to date on the exploration phase of shale gas development and has recently started work to develop additional regulatory guidance required for the production phase. Operators told us it could take as little as six months to produce shale gas after they determine the viability of a well. EA is confident that it could respond at pace should the industry move quickly into production."
The report also notes a lack of clarity around responsibility for decommissioning onshore wells.
"The government is ultimately liable for the total costs of decommissioning offshore infrastructure that operators cannot decommission," the report said. "There is no equivalent legislation that establishes government liability for decommissioning onshore wells. … Landowners may be liable for decommissioning costs if an operator is unable to fund them, but these arrangements are unclear and untested."