09/06/15 – Fracking in the UK

Speaker: Francis Egan, CEO Cuadrilla

Tuesday 9 June, 2015

Chair: Lord Palmer
Lord Palmer opened the meeting, welcoming the attendees and speaker.

Francis Egan

The past three years have been an exciting and challenging time as the CEO of Cuadrilla. Cuadrilla is a small independent UK company originally set up by professors at Birmingham University; now funded by two private equity groups in New York and Hong Kong. The focus of the company is on shale, there is a large quantity of gas in the ground.

In the last 3 years 30,000 wells have been drilled in the US, thousands of jobs have been created, the US has moved to being self sufficient now in gas. There is no better proof of the US energy revolution than the growth of shale and shale oil in the US than the lasting effects at OPEC.

In the same period in the UK no wells have been drilled, there have been lots of words published, conferences and debates had.

There is a need to drill holes to see if UK shale is worthwhile, this will give a clear idea of how to begin the process of exploration. In Lancashire there could be up to 8 exploration wells. In the area there have been a lot of community events, 48, 87,000 brochures and 120 individual cases have been opened, there have also been 20 liaison meetings at the 2 sites.

Cuadrilla now has all the permits from the Environment Agency, a process which took 12 months. In a few weeks Lancashire Council will decide.

We are hopeful for a “yes”.

The UK is increasingly dependent on energy from abroad, natural gas is important. Can we plan for it? Can we develop our own resources? If shale exploration in the UK is not allowed to go ahead this could be a huge resource that is unused and untapped, whilst the UK remains reliant on overseas sources.

Comments and Questions

Lord Palmer: Recently the ex CEO of Greenpeace came out in favour of GM crops; so maybe many opponents of fracking now, are simply ignorant to the facts.

At the moment (with activity from OPEC) we see that shale survived at $50 or below, is there great potential for shale in the UK, what price is viable?

Francis Egan: There is no definitive answer; it is linked to the rate the wells flow at. It is different in the US; the shale is thicker in the UK; which means there is the potential to produce more gas per unit of area. We won’t know until the test wells are drilled. There is no fixed price: as price comes down, people react. Gas and oil prices are correlated, but are now beginning to move apart. The debate is in a vacuum, we need to drill.

What is the earliest time for drilling?

Francis Egan: The end of the year; if all the decisions go our way.

How much of the problem face by shale is the general lack of understanding about the scope of the importance of gas in future for the UK?

Francis Egan: The public knows very little about energy, there is lots of scope for increased knowledge. 2/3rd of people think that gas has nothing to do with electricity, it is generally not known in the media, which helps the misconceptions. There is not a chance of decarbonisation by 2030 (it would require a replacement of 85% of electricity generation capacity in 15 years) that target was in an election manifesto and is either ignorance or wilfully misleading. Natural gas will always be used, unless central heating is turned off across the country.

Do you have a fallback in case Lancashire County Council says no? What are the prospects for shale if that happens?

Francis Egan: The only recourse is to consider whether to appeal (to the Planning Inspectorate), which might then get called-in by the Secretary of State who would make the final decision.

The shale in the Lancashire area is very dry gas, methane. It would be a surprise if UK shale was just gas.

Has the general Tory government stance of “pro-shale” been helpful or a hindrance? What is the position of Local MPs?

Francis Egan: in Lancashire the opposition to the application has been active: there have been tens of thousands of contributions, the vast number from outside Lancashire; some are from abroad. There has also been lots of support and vociferous opposition in the area. The majority seem undecided. Politically, there were a number of anti-shale candidates who finished no-where in the general election.

Central government support has been important. Locally, the planning committee is 6 Tory, 7 Labour, 1 Lib Dem and 1 Independent. Ben Wallace and Graham Jones are supportive as was Jack Straw when he was a local MP. More are in favour than against.

What CV will the gas come out at?

Francis Egan: Potentially below the National Grid entry requirement, at which point we would have to inject propane perhaps. There are 2 sites locally; one is 20 metres from the national pipeline, the other 50 metres from the local pipeline.

The UK could kick-start this in Europe; look at the benefits of the North Sea to Aberdeen in terms of experience and expertise.

How many wells will there be?

Francis Egan: It is difficult to say at present, it depends on how thick the shale is, how many levels there are. A small surface site could extract a huge amount of shale.

Why drill now, why not wait 10-15 years and bank it?

Francis Egan: The demand is there now, there would be a beneficial impact on the UK on such things as the balance of payments. It makes sense do to it now from an economic point of view. Money does not hang around forever; China has lots of shale, as does Saudi Arabia and North Africa.

Government has tried to help, if you were starting today, would it take three years?

Francis Egan: Probably, yes.  Culture and history of developments in Europe and UK suggests so. In the US the culture is different, they are prepared to try and keep trying. In Europe and the UK they talk about it first, for a while. The EU is talking itself into decline.

With the experience of the last 3 years, what could Cuadrilla have done differently?

Francis Egan: The industry is guilty of speaking in “engineering” speak, is male dominated (unlike many of those opposing the project) and we have had an arrogance from knowing that it is safe, so have not communicated properly with opponents.

Will the investors have patience for a “no” in Lancashire this time round?

Francis Egan: Yes, the appeal process is not open-ended; we have financing to take us through the appeal.

Are the differences between the UK and US, that in the US much of the development was in the desert and land owners owned what was below the surface, whereas in the UK it’s beautiful countryside and land owners do not necessarily own what is dug up from their land.

Francis Egan: Not quite, in the US drilling was in rural areas, but also in areas of beauty, like rural Pennsylvania. In the US land-owners were incentivised by their rights to what comes out of the ground. Horizontal means wells can be drilled miles away from the land.  However, it is worth considering that the number of trucks used in setting up drill sites is less than those needed in setting up wind turbines. In the UK the geology is different, as well as the landownership rules.

What are the changes and advantages of fracking technology now?

Francis Egan: In its basic form fracking creates minute cracks in rock to let out the oil and gas. The use of chemicals is dramatically reducing and carrier fuels other than water being used. The pace of drilling in the US is extraordinary; well ahead of Europe. The project in Lancashire is using water and sand (both of which have been passed by the Environment Agency). In Europe there are regulations against hazardous chemicals being used, making fracking non-hazardous to ground-water.

Lord Palmer: The SNP government seem to be anti-fracking. What are the possibilities in Scotland?

Francis Egan: Cuadrilla is not active in that part of the country. The government might change its mind if it offers a source of revenue for independence.

Have you lobbied or are you expecting anything from the Queen’s Speech? What has been the most effective argument of the antis?

Francis Egan: There has been no lobbying on the Energy Bill; we have been focusing on Lancashire.

It is difficult to think which arguments have been hard to deal with; there has been opposition based on climate change. There is little evidence that energy efficiency decreases energy demand (which people have argued would remove the need for energy from shale). That would require a leap of faith that we don’t need gas. This is not physically possible, it would not be possible to sustain the UK economy on renewables. This problem should be tackled head on.

Are the complaints about water contamination a red herring?

Francis Egan: According to the US Environment Agency there were isolated incidents in the US, but no systematic contamination of water. 10 million people live within a mile of shale wells in the US.

In light of the tremors in Blackpool, is the main complaint about the effect on the value of property?

Francis Egan: The house price issue is huge; we are required to have seismometers on site. Readings higher than 0.5 and we have to stop operations. It is a perception problem. At a producing site, you don’t know that it is happening. The publicity and attention from developing an exploration site causes the decrease in house prices.

What are the trends in terms of flow back of water utilisation and water management?

Francis Egan: In the US they are allowed to inject a lot of water; that is not the case in UK and Europe.

We would use portable equipment on site to treat and then discharge the water into the local water source. The solid matter is taken off site; resulting in little truck movement.

Lord Palmer thanked the speaker, the attendees and brought the meeting to a close.