Conventional oil and gas resources (such as those in the North Sea) are contained in permeable rocks, such as sandstone. Shale gas is essentially the same as North Sea gas but is trapped in impermeable shale rock. Until relatively recently it was too difficult or uneconomical to extract oil or gas from unconventional sources. However, advances in technology have made shale gas exploitation viable.
Fracking is a technique that uses water, pumped at high pressure into rock, to create narrow fractures which allow the gas to flow into the well bore to be captured.
Natural gas is considered a cheaper alternative to coal and contains as much as 45% less carbon.
Using shale gas is therefore seen as part of the answer to meeting the UK’s targets for the reduction of greenhouse gases.
It is estimated that the UK could meet around 10% of its current gas needs from shale if it can be extracted at a commercial rate.
The UK Government is supportive of the shale gas industry and maintains it could be used as a transitional fuel while reliance on traditional fossil fuels declines and the renewables sector develops. As a result of this the Government has introduced a suite of incentives to support fracking which include allowing councils to retain 100% of business rates from fracking operations, planning reforms to make the system quicker and easier for operators to use and tax advantages.
Fracking has led to a new boom in oil and gas production in the US and as a result the US has now overtaken Saudi Arabia as the biggest oil producer in the world.
So why therefore has the fracking industry not taken off in the UK?
Although natural gas is generally considered cleaner and the government has regularly maintained that shale gas will reduce the UK’s carbon emissions, many feel that investing in this technology takes funding away from renewable energy resources.
There have been concerns around the impact that fracking has on the geology below the surface of the ground. The biggest example of this in the UK is the earthquake which occurred in Blackpool following fracking tests in the area in 2011. A report into the earthquake stated that it was ‘highly probable’ that the test triggered the earth tremors, however the report also stated that there was an ‘unusual combination of geology around the well site’. Whether it was a one off or not, the story does not help ease concerns about the impact of fracking on the environment.
Fracking operations could have a detrimental effect on property value. In May last year, the Telegraph reported that in Lancashire, Manchester and Sussex – areas in which energy firms have applied to start extracting shale gas –two thirds of housing agents thought house prices would suffer as a result of fracking. The Government however has said there is no evidence that fracking will affect house prices.
There are a number of horror stories relating to fracking. In 2013 a man from North Dakota was reported to have been able to set his tap water on fire due to the high levels of methane that had entered the water system.
By its very nature, fracking is highly intrusive. The horizontal drilling and high pressure pumping of water and other chemicals has the potential to affect not just the drilling site itself, but any neighbouring land and surrounding properties too.
It has been a longstanding principle of English law that a freehold landowner owns “everything reaching to the very heavens and down to the depths of the Earth”. Although the landowner never owned petroleum because the Crown owns all rights to win coal, oil, gas and precious metals. The ability to extract it has always required private negotiation. However, as a result of changes brought about by Infrastructure Act 2015, landowners now do not have a claim for trespass against energy companies who drill into deep-level land for fracking.
The Government launched a consultation on 4 November 2015 entitled ‘Surface Development Restrictions for Hydraulic Fracturing’. There is a proposal to include a condition in all licences granted to operators which specifically deals with where fracking operations can legally take place. The aim is to prevent fracking taking place from new or existing wells that are drilled at the surface in specified protected areas.
There are already regulations which deal with underground activities, therefore the focus of this new consultation is mainly on surface developments that are required to carry out fracking.
Fracking remains a highly controversial topic which much opposition, mainly because so little is known about the impact that it will have on the environment. Will fracking ever take off in the UK? With the recent reduction in oil prices, notwithstanding the Government’s support, the appetite for investing in fracking may just not be strong enough.
If you would like to discuss any of the information detailed above, please contact Partner Sarah Easton from our Commercial Property Team.