New IoD report: "Getting shale gas working"
22 May 2013
Shale gas development could create tens of thousands of jobs, reduce imports, generate significant tax revenue and support British manufacturing. The Institute of Directors’ comprehensive new report, Getting shale gas working, studies the lessons of previous energy developments, investigates the economic impacts of potential shale gas production at scale, and sets out the practical steps for both government and industry to overcome the key barriers.
Corin Taylor, Senior Economic Adviser at the IoD and author of the report, said:
“Shale gas could be a new North Sea for Britain, creating tens of thousands of jobs, supporting our manufacturers and reducing gas imports. Further exploration will be needed to assess the size of technically and commercially recoverable resources. At the same time, partnerships need to be established between industry, government and communities to ensure that development of this vital national resource benefits local people.”
Read the full document or an eight-page summary of the report here, and watch a video of Corin Taylor explaining the findings.
The key findings of the report, which will be launched in Lancashire on Wednesday, include:
- The IoD’s previous report, published last year, looked at the number of jobs that shale gas production could potentially create. We now believe that it could be higher still. According to the detailed scenarios presented in this report of a potential production phase, investment could peak at £3.7 billion a year, supporting 74,000 jobs – not just for geologists and drilling specialists, but for construction workers, truck drivers, cement manufacturers, water treatment experts, and people working in local retail and service industries.
- Jobs could be created in parts of the country that need them most – over the last decade, the proportion of working-age people receiving at least one out-of-work benefit has averaged more than 15% in the North West, compared to less than 9% in the South East.
- Just as importantly, shale gas could support jobs in the chemical industry and wider manufacturing, helping Britain to make more. In the US, shale gas could lead to 1 million new manufacturing jobs being created over the next decade.
- Shale gas production, with tax rates of up to 62%, could generate significant tax revenue, helping to offset a predicted future tax gap of 1.25% of GDP from lower Fuel Duty and North Sea receipts.
- Far from a “dash for gas”, the Department for Energy and Climate Change expects overall gas demand, for heating and industry as well as electricity, to remain roughly flat over the next two decades. This is consistent with carbon reduction of 45% by 2025. But 76% of the UK’s gas is likely to be imported by 2030, costing £15.6 billion. In our central scenario, shale gas production could reduce gas imports to 37% in 2030, and the cost of imports could fall to £7.5 billion.
- According to the Committee on Climate Change, if production is well regulated, shale gas can have lower emissions than imported gas. If shale gas supports the production of chemicals and other goods in the UK, global emissions will also be lower, as UK industry is very energy-efficient.
- Natural gas has great potential as a transport fuel, particularly for lorries and buses. In the US, 19% of municipal buses run on natural gas.
- Only a small amount of land is needed for shale gas development. One 2-hectare site could potentially support 40 horizontal wells and supply enough gas to power 747,000 homes at peak production. 100 such sites would take up just two square kilometres of land, and could supply around one third of our gas needs at peak.
- Water use could peak at just 0.05% of the UK’s total consumption of 11,000 million cubic metres a year.
Barriers and recommendations
Shale gas development will have two stages. Exploration must continue to assess the size of technically and commercially recoverable resources. If this is successful, then government and industry must collaborate to enable production to go ahead.
Barrier: The planning and permitting regime involves four agencies, and two public consultations are needed to drill and fracture one exploration well.
Recommendation: Clear guidance should be provided for planning and permitting. The national agencies – DECC, the Environment Agency and the Health and Safety Executive – should sign off on the sub-surface drilling and fracturing processes, and the local Minerals Planning Authority should concentrate on the surface impacts, including truck movements. For a production phase, planning permission should be given for all potential activities on a site, rather than covering each well – otherwise it would be like needing a separate planning application for each turbine in a wind farm. A National Policy Statement should be drawn up, making clear that shale gas developments are part of the UK’s nationally significant energy infrastructure.
Barrier: Local authorities and communities need to benefit financially from hosting nationally important shale gas production sites.
Recommendation: Local authorities should receive a share of the gains from shale gas development in their area. Allowing them to keep 100% of the business rates for shale gas sites is a good option. Community benefit schemes must be flexible and spent on locally-determined priorities.
Barrier: The industry itself needs to develop a “social licence to operate”. Although 50% of residents of Blackpool, Fylde and West Lancashire support exploration in their region, more needs to be done to gain the confidence of local communities.
Recommendation: Each site needs to be accompanied by full disclosure of the chemicals used in the fracturing fluid, as set out in the guidelines issued by the UK Onshore Operators Group. Residents should also be told how many trucks will be visiting the site, how much water will be used and what will be done with it afterwards.
Barrier: Skills shortages are a problem for offshore oil and gas production, and skilled people will be needed for onshore shale gas production.
Recommendation: Partnerships to improve skills and support the supply chain should be developed. A skills action plan should be drawn up and “Project Pathfinder”, which provides real-time data on upcoming projects for the offshore supply chain, should be replicated.
Barrier: It currently takes 3 ½ years to obtain a grid connection, which is far too long.
Recommendation: Government leadership needs to be strengthened. The Office for Unconventional Gas and Oil should propose measures to reduce the time it takes to obtain a grid connection.
Dan Byles MP, Chair of the All Party Parliamentary Group for Unconventional Oil & Gas, member of the Energy and Climate Change Select Committee, and author of the report’s foreword, said:
“Shale gas is about more than simply gas. It is about wider British industry, providing secure energy and raw materials for manufacturers. The North Sea is rightly regarded as a model for effective offshore oil and gas regulation. If we get this right, in future I believe the world could look to the UK as the gold standard for a well regulated and safe shale gas industry that benefits local communities and the nation.”
Dan Lewis, Chief Executive of Future Energy Strategies, Energy Policy Adviser to the IoD and author of Chapter 2 of the report, said:
“Within living memory, Aberdeen became the energy capital of Europe and the second richest part of the UK. With excellent infrastructure, a long history of innovation and key strengths in advanced engineering and manufacturing, Lancashire is well placed to take advantage of the benefits that shale gas could bring.”
Contacts for further comments or to arrange interviews:
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Notes to editors
- This report represents the independent assessment of the IoD. The IoD is exclusively responsible for this report and its content, analysis and conclusions.
- This report has been sponsored by Cuadrilla Resources Ltd. Its purpose is to:
- Study and apply the lessons of previous energy developments;
- Investigate the economic impacts of potential UK shale gas production at scale;
- Work out the practical steps, for both government and the private sector, to overcome the barriers to the establishment and growth of a UK shale gas industry.
- In order to remain focused, this report does not examine the safety of hydraulic fracturing, either in the UK or overseas. Other expert bodies have looked into the process in detail, including the Royal Society, the International Energy Agency, the Energy and Climate Change Select Committee and the report commissioned by the Department of Energy and Climate Change (DECC) on seismic issues. We support their calls for strong regulation of all aspects of the drilling and hydraulic fracturing process, and also note the exploration and appraisal guidelines issued recently by the UK Onshore Operators Group (UKOOG).
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