What has happened?
Cuadrilla Resources has been granted planning consent to drill and frack four horizontal wells at its Preston New Road site in Lancashire.
Sajid Javid, the Secretary of State for Communities and Local Government, has (using his ‘recovered appeal’ discretion granted under the Town and Country Planning Act 1990) overruled the decision of the local council and provided Cuadrilla with planning consent to drill and horizontally frack at this site.
Pending the satisfactory resolution of concerns over traffic on local roads, he has also stated that he is “minded to allow” fracking at Cuadrilla’s nearby Roseacre site.
Why is this significant?
Recent developments have already seen Third Energy receive approval to test frack a well in North Yorkshire, so why is Cuadrilla’s successful appeal particularly significant?
Unlike with the Third Energy well, which is a vertical test fracking in a pre-existing well (and would require a further application to frack at scale), Cuadrilla’s permission is:
- for multiple new wells to be drilled – four in total;
- for the fracking to occur horizontally – with wells likely to pass (albeit at depth) underneath residential premises; and
- (crucially) a sign that the Secretary of State is willing to exercise his statutory discretion to override local objections and support the onshore gas industry (provided the energy companies comply with their health, safety and environmental obligations).
Why has the government done this?
Comments at the recent Conservative Party conference have highlighted the government is keen to support fracking because it promotes a number of the government’s key policies, including:
- promoting economic activity and growth outside of London and the South East (for example the “Northern Powerhouse” and “Midlands Engine”);
- addressing the ‘energy trilemma’ of providing affordable, secure energy whilst meeting its climate change commitments (though some have suggested that this last commitment is less of a priority for the new government since the Brexit vote); and
- investing in infrastructure.
Infrastructure investment is expected to promote job creation and economic growth (with some forecasts stating that the shale gas industry could create 64,000 jobs), whilst an onshore domestic source of energy may help redress the reduction in investment in (and revenues from) North Sea oil and gas, and promote cheaper energy.
Without support for domestic gas production, National Grid predicts that 93% of gas will be imported by 2040, a serious threat to the United Kingdom’s energy security.
So, can shale gas be a solution to the United Kingdom’s energy trilemma?
Shale gas has the potential to provide cheaper and more secure energy, but questions remain over its scalability and its impact on climate change commitments. US fracked gas (which has recently begun to be imported into Scotland by Ineos) has had a substantial economic impact in the United States because of the United States’ permissive regulatory jurisdiction and significant political and landowner support. By contrast, the United Kingdom is perhaps not as permissive a regulatory jurisdiction, landholders are not incentivised by direct financial benefits from production and there appears to be more political opposition to fracking in the UK than in the United States.
It is also uncertain whether there are sufficient economically viable shale gas reserves to have a substantial impact. Whilst the United Kingdom is arguably among the most promising European jurisdictions for onshore shale gas exploration, it is a relatively immature industry that is likely to be exposed to significant competition from other gas sources, including Norway, Qatar and U.S. shale.
Finally, whilst some have suggested that climate change is less of a priority for this government, domestic gas extraction would count towards the United Kingdom’s legally binding carbon emissions restrictions (unlike international gas imports). Accordingly, shale gas production would require evermore ambitious carbon reduction targets to be met in other industry sectors.
It is certainly possible for shale gas to be part of the solution to the UK’s energy trilemma, but it remains to be seen whether it will be an economically and politically practical solution.
The decision of the Secretary of State evidences the Government’s willingness to override local objections to allow fracking and support the onshore oil and gas industry. Nonetheless, it remains to be seen whether UK shale will ultimately prove to be scalable and competitive.