The Swiss-based chemicals company, INEOS, looks unlikely to commit to shale gas surveying in Scotland until it knows whether the country’s moratorium on fracking will be lifted.
A senior executive told DrillOrDrop he expects the company’s shale business will concentrate next on Cheshire and other areas of England, where it has been awarded new exploration licences.
During an extended interview, Tom Pickering, operations director of INEOS Upstream, also told us:
- The shale gas industry needs to work harder than ever before to make its case to the public
- He expects “quite a level of opposition” to INEOS’s first planning applications
- A social licence to operate requires trust in the industry to work safely and professionally
- The cost of community meetings in Scotland was “significant”, running to six figures
“We’d like certainty” on fracking ban
Mr Pickering told DrillOrDrop that INEOS needed to do 3d seismic surveying and drilling for core samples in its central Scotland licence areas (PEDLs 133 and 162). The operations would help the company to understand whether commercial volumes of shale gas could be produced and whether fracking could be undertaken safely.
But he said investment in 3d seismic and core sampling would be “unattractive” while the ban on fracking was in place. He said:
“You could be deploying £10s of millions of investment with actually no line of sight to beyond that point”.
The Scottish Government is not expected to consider lifting the ban on fracking planning applications until at least mid-2017. And Mr Pickering said no promises had been made to INEOS.
“The cost of the 3d seismic and core drilling is significant and not being able to see a route to undertaking a frac, assuming the data from this work points to it being safe to do so, makes it unattractive to deploy that work until there is certainty from the consultation process. Whereas down south you do have line of sight to that.”
“As a company you have an investment choice. You’ve got multiple shale plays. We’ve got a position in most of them. Then it’s about whether you deploy capital.”
Asked about the company’s future work, Mr Pickering said there were no plans for seismic surveying or core sampling in Scotland (both allowed under the moratorium) and it had no live planning applications in its Scottish PEDLs.
“We haven’t advanced plans to do that”.
“We’d like that certainty. If we’re working chance, let’s work it to the end point.”
If the Scottish moratorium were lifted in 2017, Mr Pickering said he could envisage 10 wells drilled across the company’s two Scottish licence areas in the following five years.
English licence winner
Last month, INEOS emerged as the big winner in the 14th licensing round in England. It was awarded 21 licences covering 38 blocks, in parts of Cheshire, Yorkshire and the east midlands. Along with its existing licences, the company now has exploration rights in one million acres.
Mr Pickering said:
“What you will see us doing over the next six months to a year is exactly the same thing we’ve done in Scotland which is to go out from the sites, meet people in the licences…. Just try and soak up that particular area and also try and communicate our particular business as well.”
“The reason we’ve wanted to just wait until we do that is the determination of what we get in the 14th licensing round. At which point we then go with certainty of what we have and who we are dealing with. And then we can go out and talk.”
“We’re a small team so we’ve got to decide about where we’re going to go next and at least make our identity known and make ourselves accessible.”
“I think for us we’ll be going to the areas round Cheshire, where we already have a small presence and just working through the same types of activities really.”
The shale gas industry needs to work harder than ever to make its case to the public, Mr Pickering told DrillOrDrop during the interview.
We asked him why the most recent public opinion surveys showed record levels of opposition to shale gas. He said:
“I think the word frack continues to be emotive. Everything is bundled into that word. I’m not sure yet we are doing enough as an industry to really unpack it properly. Whether that changes people’s perception I don’t know. But I do think there is an absence of very methodical expressing of the different aspects of it, rather than hanging it off fracking.”
Asked what the industry needed to do, he replied:
“Work harder than it ever has done to explain what it does professionally and well every day.”
“It is also going to have to learn a skill of engagement in the onshore that it has not had to. As a group of professionals, it is just about working extremely hard to just set that out and take the time.”
“It sounds simple but I think working hard and being willing to be open and just explain yourselves is going to be absolutely central to this. If you don’t, it will not change. You will not feel like you’ve entered properly into the debates the facts that people should be making these choices. So yes, we’ve got a long conversation.”
Mr Pickering said polls should look beyond fracking.
“Do you want gas in your house? Well actually most people will say yes to that.”
“Before you start addressing fracking as being the particular technical means of achieving gas production, you have start at the walk through of energy provision, the choices we make, that society makes. And then, ultimately, if we are making those choices, do we not then have an obligation if we are willing to ship it in should we then not be willing to lead on safe and proper management within our own land?”
How much opposition would deter INEOS?
INEOS’s chairman, Jim Ratcliffe, has said fracking wouldn’t be carried out if the local community didn’t want it. Mr Pickering said that remained the company’s policy.
But during consultation meetings, he said the company had been clear it would come back with a planning application.
“Just because somebody comes to a meeting and tells us that they don’t want it, we will follow the system, the planning application, we will work properly to submit the information that covers issues or describes how we will manage it, how we will screen an issue”.
We asked Mr Pickering what level of community opposition would be needed to dissuade INEOS from development an area. He said:
“If you are genuinely consulting you are listening to people and you are listening to the concerns they are laying out. Those are the practical day-to-day pieces of water, traffic, noise. Then the first thing you are doing is addressing those.”
“In the early applications I would expect that we would see quite a level of objection. But if we had the opportunity to demonstrate one or two sites and through transparent and trusted baseline monitoring where people can see that actually the operation is being conducted safely without the impact of the concerns that they may be had, then I think we would have the opportunity to address those through demonstrable behaviours and practice.”
“I think you would take stock, having done a couple of wells, if you got permission to, and then say to people judge us on our performance and what’s been done.”
We asked what would happen if the community’s answer to that was ‘We don’t like, we don’t want you here’. Mr Pickering replied:
“I would take that to Jim and see what he had to say about it.”
The onshore industry regularly talks about having a “social licence to operate”. From the interview, INEOS seems to interpret social licence as engaging with the local community where its businesses are based: from applying for planning consent, to building a site, through operation to abandonment.
We asked Mr Pickering ‘How do you know whether you have a social licence?’ He replied: “That’s a good question.”
He went on to say:
“I would look at your existing businesses, for example. We handle and have handled in those areas the different aspects of hydrocarbons onshore in Scotland safely for many years. We’re accepted as part of the landscape. The benefit of being the major supplier of the fuels – the benefits are clear and understood from your business. I think you know.”
“I think if people really stop talking to you and stop appreciating the benefit that the business is bringing or communicate that they are losing trust – it’s in that conversation, I think.”
“The social licence to do something is achieved through the proof being in the pudding. But I think that social licence is a kind of acceptance, not about fracking necessarily, but about the use that we have for natural gas, both individually and collectively. If we are accepting that we will progress, whether or not we’re happy that can be done safely and properly, then you can move forward on that journey.”
“We understand the currency of trust with the community about what we’re doing.”
In the potential shale gas areas of central Scotland, the company held 18 drop-in community meetings over the autumn last year. Staff were on duty to answer questions and there were exhibition panels about the company’s need for methane (for power) and ethane (a raw material for making plastic).
Mr Pickering said he couldn’t put an exact number on the cost of the meetings. But he said:
“It is an investment and I know it will be significant. It will be hundreds of thousands of pounds to deal with but I haven’t an exact number. It will be significant over time.”
“We decided to do them simply because we do value the prize. We do want to test that prize and see if it’s real.”
“Those community exhibitions have really been about sitting down with people in community halls in the licence areas and just talking about what they have got from Google, what does that mean, what are the risks we are dealing with as a business when we are looking to explore, how do we build up a picture that gives us more certainty.”
The meetings have been described by some as “love bombing”, a description which disappoints Mr Pickering.
“If a company chooses to get out there and behave properly in response to being asked, if you do your love-bombing, you’re trying to put across your case. And if you don’t, you’re hiding and you’re not being transparent.”
“To my mind, I think we have won respect. People do have strong views. There are very strong reactions to it. I think we have won respect because we’ve just gone and listened.”
Would you buy a house next to a fracking site?
The public meetings raised concerns about water contamination, pollution, chemicals and noise.
On noise, he said the typical equipment used in the UK allowed operators to work on sites 400m from homes and still meet current World Health Organisation guidelines.
He said the flat rate of a mile from houses, proposed by the Thirsk and Malton MP, Kevin Hollinrake, wasn’t helpful. The decision on which site to choose should take account of issues such as traffic, landscape, the engineering capability of the equipment.
“You might make a judgement that actually it is right and proper to be further from a property than a mile. Or you might make a judgement that in some instances that it is right and proper to be closer.”
We asked Mr Pickering if he would buy a house 400m from a fracking site. He said:
“Actually the answer is yes. I don’t say that because I represent the industry. I qualify it by all the things that people are asking me, which is: Is it a responsible operator? Can I see the right behaviours in the engineering, the discharge of their responsibility, their conduct, the management of that operation, and the traffic?”
“Absolutely I would look for the same things to be present. But I would have no problem with fracking underneath my house, no problem. But the things that I really want to see are the conduct of operation.”
Turning to chemicals, he said:
“Everyone says you use 300 chemicals – this a kind of Google fact. The reality is that there are probably 300 chemicals that you might choose to deploy on any particular reservoir type. But ultimately you’re probably only going to use six or twelve chemicals roughly in any fracture.”
That depended on the mechanics and chemistry of the rock type you wanted to frack, he said. The company would not know which chemicals would be used until it had done 3d seismic surveying and core sampling. It had no plans to try fracking without chemicals.
“Chemicals has become such a heightened issue. All the chemicals used are approved by the Environment Agency and Scottish Environmental Protection Agency to be non-hazardous in their application.”
In the UK, he said, “there is no ability to say this is commercially secret. We are absolutely required in any planning application to set out exactly what will be used, the concentration, the volumes, and to demonstrate how you clean, capture and store”.
Mr Pickering blamed American secrecy in the type and concentration of chemicals used in fracking. Commercial confidentiality had bred “an enormous amount of suspicion”, he said.
So can UK shale companies be trusted to operate safely and is UK regulation up to requiring them to do so?
Mr Pickering pointed to the safety regime established in the North Sea after the Piper Alpha disaster.
“Within a decade you had this enormous shift to being a world-class safety conscious workforce, engineering safety”.
“If you look at the coal mining over time, that has driven regulation and change and we became world class at coal mining and engineering because we learned, we applied. We have always driven at safety as a nation.”
But how confident was he that the new onshore industry would behave well?
“Everybody is working to the same regulations, the same scrutiny, the same legal backdrop of recourse for poor behaviour. So both on the one side of the playing field of behaviours and two the refereeing and disciplining of those behaviours. As a nation, we have a very solid landscape in which businesses is conducted and recourse is there.”
But he acknowledged that there were wider questions over trust in industry generally. At public meetings, for example, people raised the issue of the VW emissions scandal. There was always scope for a rogue operator:
“We can seek to talk to our colleagues in the industry forums about how best the industry might get out there and talk about what we do. You will never prevent rogue behaviour in any setting, in any industry. There is always the potential that somebody will behave outside the rules and regulations.”
INEOS has promised to give away 6% of gross revenues to people living close to shale gas wells in all the licence areas where it is the operator. 4% of revenues would go to landowners living directly above the area from which the gas is fracked. 2% would go to the local community.
We asked Mr Pickering how the 2% community benefit would work. He replied:
“Don’t know. It is a more complicated piece of work. We want it to go into the local community because on the other side of it there is obviously the national taxation and there is the business rate that goes to the local council additionally. So this is about communities, not councillors. That’s the really important point.”
The company has also committed to the industry scheme to pay £100,000 for exploratory wells. We asked why INEOS had chosen to be more generous than other companies. Mr Pickering said:
“I think it goes some way to addressing some of the things you hear at the community exhibition about what is the residual wealth or value that is left with our community. I think it speaks to that.”
“I think it is an acknowledgement of the activity that is going on. Once you satisfy people that it is safe, it’s then a decision that they are making that ‘I can see that it’s safe and I’m convinced that there’s good conduct there, actually there is a good local reason to deliver this within the economic landscape’. It makes it directly relevant locally.”