The UK’s shale struggling gas industry faces a challenge of defining who is liable for decommissioning costs, with the government unable to provide answers at present, according to a report.
The report, "Fracking for shale gas in England", by the UK’s Comptroller & Auditor General and published by the National Audit Office (NAO) on Wednesday, also highlights the rise in opposition to shale gas hydraulic fracturing in England in recent years.
The report, which is not intended to examine the merits of government’s support for fracking, acknowledged that “progress in establishing a shale gas industry in England has been slower than government planned”.
A core thrust of the report is laying out the costs associated with the government’s backing for shale gas extraction to date, while looking at potential future costs.
“Fracking has already placed financial pressures on local bodies, including local authorities and police forces, and other costs have been borne by a range of government departments and regulators,” a statement accompanying the report read.
“The full costs of supporting fracking to date are not known by the Department [for Business, Energy and Industrial Strategy], but the NAO estimates that at least £32.7 million [$42.3 million] has been spent by public bodies since 2011.”
Although the costs are relatively miniscule, the report raises the issue of decommissioning costs, pointing out that the UK’s onshore shale sector does not have the same level of regulation in place for such costs as its mature offshore sector.
“The Department recognises its responsibility for decommissioning offshore oil and gas infrastructure, but not for onshore wells, including shale gas wells,” the statement continued.
The report points out that some landowners may take out insurance as part of their lease negotiations with operators, although there is an acknowledgement from the Department that landowners may not fully understand the liability they are taking on.
“The Department was unable to explain who would meet decommissioning costs if the landowners were unable to do so,” the report said.
“This contrasts with the offshore oil and gas sector where former operators have a statutory liability to decommission assets and government is the decommissioner of last resort.”
It added that the Department “is considering options to mitigate the risks of landowners becoming liable for decommissioning costs should an operator become insolvent” – including possibly working with trade body UK Onshore Oil & Gas (UKOOG).
“Other options would create a contingent liability for government, which the Department has so far resisted. These include government signing insurance policies as a counter-party or introducing a new statutory onshore decommissioning regime to mirror the offshore regime,” it said.
On the issue of slow progress for the industry in the England, the report pointed out that the Cabinet Office in 2016 expected up to 20 wells to have been fracked by mid-2020. However, only three have been drilled to date.
“Government attributes this slow progress in part to low public acceptance,” the report statement said.
“The Department’s public attitudes survey shows the opposition to shale gas has increased from 21% to 40% between 2013 and 2019.” Public support for shale gas has waned from 27% in 2013 to 12% by March this year, the report showed.
“Public concern has centred on the risks to the environment and public health; from fracking-induced earthquakes; and the adequacy of the environmental regulations in place.”
The report highlighted concerns from operators in the UK shale industry that seismic thresholds are too low in the UK – the threshold at which operators must suspend fracking activity is currently 0.5 magnitude on the Richter scale.
The report compares this with Ohio (1.0), California (2.7), Illinois (4.0) and Colorado (4.5) in the US and British Columbia (4.0) and Alberta (4.0) in Canada.
“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. In May 2019, ministers stated there were no plans to review this system,” the report said.