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What the frackers told the Lords

On Tuesday November 5th, the heads of two fracking companies gave evidence to the House of Lords Economic Affairs Committee. They were asked about safety, public opinion, regulation, delays and the potential value of the fracking industry. Find out the key points of what they said and read a transcript of their answers.

The companies were Cuadrilla, represented by chief executive, Francis Egan, and IGas Energy, represented by CEO Andrew Austin. They were joined by two bosses from the petrochemical company INEOS: its Director, Tom Crotty, and the Gas Procurement Manager, Andrew Mackenzie.

Cuadrilla has licences in north west England and the Weald Basin in south east England. IGas has licences at Irlam and Ellesmere Port, near Liverpool and Manchester. INEOS is  one of the world’s biggest petrochemical companies and operates the Grangemouth refinery near Falkirk.

KEY POINTS

  • Companies need a “social licence” to drill and cannot go ahead without the “acquiescence” of local communities
  • The production phase for shale gas could involve 4,000 fracking wells
  • Winning public acceptance is an uphill challenge but can be done
  • Companies were surprised at the level of scrutiny they have faced so far
  • People have been “misinformed” about the dangers of fracking
  • The Environment Agency and the government should address public concerns on fracking because people don’t believe the fracking companies
  • Fracking is “completely safe”
  • Exploratory drilling needs to start tomorrow
  • The planning application and permitting process is delaying drilling
  • A streamlined system for planning applications and environmental permits is needed
  • Urban areas would not be the companies’ first choice for drilling but would not be ruled out
  • The only way to make money in oil and gas is to control company costs
  • North west England could become the “onshore equivalent of Aberdeen”
  • The UK will be using natural gas for decades because it provides 80% of the country’s energy needs
  • The petrochemical industry needs competitively-priced gas

TRANSCRIPTS OF ANSWERS

Where do you want to drill?
Frances Egan, of Cuadrilla, and Andrew Austin, of IGas: Central Scotland, north west England and the Weald basin in south east England

Would you choose to drill in heavily populated urban areas?
Andrew Austin (AA): “It wouldn’t be your first choice to go because of complications of engagement. If you can deal with smaller amounts of people, in terms of getting the buy-in from that group of people, then clearly it is easier to do. But I don’t think we should rule any areas out because ultimately energy security is something for the whole population.”

Would you discount drilling anywhere?
AA: “It is getting local acceptance in the areas where we are trying to drill. We think we need to work with those communities. The inability to manage that would rule out any particular area.”

What would stop you drilling?
AA: “Anywhere we would choose to drill would have to be with the acquiescence of the local community. If you don’t have the social licence to operate and the acquiescence of the people you are working with and be able to deal with your neighbours then that’s going to be [difficult].”

Why aren’t you drilling now?
Francis Egan (FE): Physically we could drill tomorrow. We have the rig and we have the sites. We could drill. There have been well-documented delays as a result of the seismic tremors near Blackpool which shut down the industry for 18 months to two years. And currently the thing that takes the longest time is the planning and permitting process. We need to work our way through that and we will for exploration. And I think it is very thorough. But if we move from exploration into exploitation I think we, and by that I mean the country, will need to streamline that, without reducing its effectiveness.”

Will you get public support for fracking?
AA: “All of us are aware that we have an uphill public relations challenge as well as an information challenge…. “

Baroness Noakes: “Do you believe that we can get past that, both local and national, opposition so that you can get to a state where you will have sufficient support in both the local community and national community to allow you to do both exploration and then production? Or do you think the level of opposition you experienced [at Balcombe] is going to have a fundamental impact on the way that you operate?”

FE: “We believe we can or we would not be continuing doing what we are doing, clearly. … But we do not under-estimate the scale of challenge.”

Baroness Noakes: “Do you think that you can get this opinion to turn so that you can … you clearly cannot operate on the basis that you have that level of opposition every time you try to explore, let alone production.”

FE: “Yes because there is a lot of support that we need to engage. It cannot just be Cuadrilla or IGas saying this because people say you have got a vested interest. Of course we do. We are explorers and we want to make a success. We need regulators and we need independent academics, we need customers and we need communities to say yes this can be done.”

How do you deal with public skepticism?
FE: “I was in Balcombe and I had people come up to me sure that they would get cancer because of the building of our well. Now I am pretty sure that [when] the incidence of cancer in Balcombe are recorded in years to come [there] will be zero correlation between any incidence of cancer and drilling our well. But I can’t say that. I am seen as having a vested interest. And I understand that. But if someone from the Environment Agency can put the facts in front of them… “

What help do you want from government on public relations?
FE was questioned on his written evidence to the committee in which he said: “Scare stories are not immediately and concisely addressed by the relevant regulatory bodies…who should be able to deal with information immediately and with credibility”

FE (to the committee): “I would like to see the regulatory bodies, particularly the Environment Agency play more active role in the early stages of consultation in communication and reassuring members of the community when they are exposed to scare stories.”

What are you doing to engage with local communities?
AA: “Our company … is communicating significantly in advance, a number of public meetings we have had, a number of meetings of our community liaison groups, site visits, a lot of liaison with the local police and local council to ensure that everyone is fully informed upfront of what we are doing and absolutely open about what is happening and any communication gaps that you rightly identified are as covered as they can be upfront.”

How safe is fracking?
Baroness Blackstone: “Can you put your hand on your hearts and say that fracking is completely safe?”

FE: “Yes. We would not do it if we didn’t think it was safe to do it. We live in this country. Our children drink the water of this country. We are not living on some different planet. The risks have been well-documented.”

AA: “Yes. Hand-on-heart we can do this safely.”

FE: “We will use non-hazardous-to-groundwater fracturing fluid. We will construct our wells meeting all the requirements of the UK regulatory system. We will put in an exhaustive seismic monitoring array around each individual well site and we are and currently … have a top class engineering firm, Arap, complete an environmental impact assessment. And they will tell us if there is something unacceptable there. If there is then Arap won’t put its name to it.”

What do you think of the level of scrutiny?

Egan: “I think that the level of scrutiny that shale gas and onshore drilling has come under in the UK is unprecedented. And the Environment Agency have not had to respond in that way before.”

Baroness “Blackstone: “Have you been surprised by the high level of scrutiny?”

FE: “Yes. It [Balcombe] became a touchstone for shale gas fracturing but it wasn’t shale gas or fracturing. The protests were not against what was actually happening. It was what people were af.. It was what people were concerned might happen.”

Baroness Blackstone: “Were people misinformed about what might happen? And if so how?”

FE: “In some ways yes. I will give you an example. I have frequently read that we use hundreds of toxic chemicals in our fracturing. We use one chemical which is non-toxic in our fracturing fluid and the Environment Agency will review it and approve it. If it is declared hazardous we won’t use it.”

Baroness Blackstone: “Have you publicised that?”

FE: “Yes it is on our website. People frequently say to me ‘You don’t say what’s in your fracturing fluid.’ I say ‘It’s been on our website for the last three years. If you go the EA website it is on their website.’”

Can you make money from fracking?
FE: “All you can do in oil and gas is to control your costs. You do not control the price of the commodity. What controls the price is supply and demand. … Over time you get more efficient and it drives down costs and that is what our job is – to do it safely, to do it effectively and to drive down cost. And that is how we make money…. We will want to make money if the price goes down… We will control our costs so that we can make money when the price goes down.”

Are sufficient regulations in place?
AA: “There is a long history of successful oil and gas production in this country… The industry as a whole is looking for best practice so when the best practice represented by IGas or Cuadrilla … or whoever it might may be …. best practice will be fed back to the industry operators.”

Are the regulations effective and efficient?
FE: “I think it is effective. I think we have a way to go to make it efficient. We need to understand that if it [gas] is to be produced the pace of activity will have to become very significantly increased and that includes effective regulation that happens more quickly.”

What impact will fracking have on decarbonisation?
FE: “Electricity is 20% of our demand [for gas]. The other 80% is never talked about. What heats our homes? What fuels our business? We will be using natural gas in this country for decades to come and so it is really a question of ‘Are you going to export your CO2 emissions to Russia and Qatar or are you going to monitor them here?’”

What do you think about cash for communities? (£100,000 offer to communities affected by fracking)
AA: “I think they should be seen as part of a portfolio of local benefits [and] not the sole panacea. Just having them as the sole panacea has dangers of people feeling that it is bribing people in local communities that ‘Well if we pay them enough money they will allow it to happen in this area’. I don’t think that’s the way we should be going.”

Is the supply chain sufficiently developed to support production?
AA: “Into the development phase, the service companies are ready to provide that kit and those people. They need to know that they have a market. … The supply chain will want to be based locally. And they will want to be based as close to where the operations are and that then does raise the opportunity of creating a new onshore version of Aberdeen somewhere in the UK, probably in the north west, which is a centre of excellence and also being at the forefront of that for Europe given that the UK is probably the most attractive place to shale gas exploitation.”

FE: “That is the bigger prize. Because they [the suppliers and service companies] won’t want to have multiple service centres, if this takes off in Europe.”

Why is fracking important to the chemical industry?
Tom Crotty, INEOS: “The cost of energy in the UK is three times that in the US and three times that in the Middle East. They are our two major competitors for the manufacture of petrochemicals…The reason this is so important for us is that the large petrochemical units that make basic petrochemicals, of which there are about 40 in Europe, there are only four of them which are actually gas-based. The rest are oil-based. And two of the four are in the UK. So our opportunity to explore with this is infinitely better than any other part of Europe.” (The other two are in Sweden and in Norway.)

What do the fracking companies want from government?
Lord Lawson: “Is there anything in public policy that you would like to see done that isn’t being done or not done that is being done. And where I talk about public policy I mean in particular both the environment agency and the government.”

AA: “We would like to try to ensure that we can get a streamlined fit-for-purpose regulation regime with the Environment Agency, in particular, where at the moment a number of different pieces of policy which were constructed for other uses are being applied, in some cases slightly outside of their original remit. Now I am not asking for a short cut environmental consultation situation at all. It is absolutely imperative that there is a high level of consultation where every stakeholder involved is engaged because if we do not do that sufficiently we will lose that social licence to operate. But what we do need to do is to have clarity in the policies and the rules.”

FE: “Having effective but efficient regulation. I think if we are going to move into production it will require a step change in the pace of operation and the scale of operation. And so that needs to be prepared for. In terms of policy, my perception is that we spend a lot of time talking about electricity, which is vitally important, but it is 20 per cent of our energy supply and we need to think about the rest of the 80% as well.”

Lord Lawson: “Is there anything that – I now you are walking on egg shells and you don’t to upset the ministers and the apparatchiks of one kind or another – but is there anything that you think the government could be doing or the Environment Agency could be doing better than it is at the present time?”

AA: “Giving absolute clarity in, about the nature of the rules that we are expected to work with and the way in which they will be applied.”

Lord Lawson: “Is it not clear at the moment?”

AA: “There are points that when you are dealing with things, when you feel you have overcome certain barriers, and then other obstacles are put in your way in terms of further levels of disclosure and further requirements along the way, further pieces of legislation. So that legislation fit for this purpose would really help.”

AA: “Also, for instance, local councils clarity when they are looking at the planning process in terms of the things that they do need to be involved in and the things to which there are other competent authorities assuming those responsibilities on their behalf. So for instance, does a local council need to understand the entire fracking process and all the implications for local groundwater? No. The resolute answer is … that the competent authority to deal with the integrity of aquifers and well integrity is the Environment Agency. That kind of clarity makes our job easier in taking things forward. That is not appealing for a short cut in consultation, absolutely not. It is about making sure that we are clear about what regulations we are and are not working with.”

FE: “I think the other thing is to make absolutely clear is this distinction between exploration and production. Because most of what we are asked about is and respond to is about production. … There needs to be a refocusing. Let’s drill the half a dozen to ten wells. Let’s assess the risks associated with that. We need to start drilling tomorrow, get the planning approvals and the environmental permits and do that. Some of the questions that come out of the process are not strictly related to drilling 10 wells but about drilling 4,000 wells.”

Lord Lawson: “So where would you want to see better performance in greater clarity and more common sense, in the Environment Agency or is it in the government or both?”

FE: “I think the sense of focus on 10,12 wells versus questions on 4,000 is across the piece.”

Lord Lawson: “You suggested that people were objecting on the basis of claims which are manifestly false. But you said too that if you said this nobody would believe you. Were you suggesting therefore that some impartial authority, such as the Environmental Agency, or it might even be some direct arm of government, should be, as it were, informing the public of the facts and the truth? Is that what you would like to see?”

FE: “Yes I think that would be beneficial.”

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