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21 December 2015

Myles Kitcher, Managing Director at Peel Gas & Oil, discusses an eventful year for the shale gas industry.

The industry started 2015 full of anticipation with David Cameron stating in January that his Government is "going all out for shale" and that councils will be entitled to keep 100% of business rates raised from shale gas sites.

Harnessing shale gas is vital for the Northern powerhouse. Not only will a thriving shale gas sector provide the fuel for industry across the north but it brings its own economic benefits.

AMION Consulting’s for Peel Gas & Oil earlier this year demonstrated that developing a supply hub in the North West could see Northern economies benefit from a £30 billion boost through capital spending and deliver 13,000 jobs.

Yet with the 14th licensing round expected to deliver a vast amount of new licenses across England during 2015 we have seen a year of hiatus. We are only just moving into this next and crucially important phase for shale gas in the UK with the announcement that 93 licenses have been awarded this week.

However, it hasn’t been a quiet year for the industry with a number of announcements and policy changes setting the scene for a busy 2016.

Peel Gas & Oil launched

Peel Gas & Oil was launched in early 2015 with the business looking to maximise the economic and supply chain benefits to the North of England from the emerging shale gas industry. We are working alongside current and prospective onshore license holders as a development partner, providing integrated property solutions for the industry. Drawing on the Peel Group’sskills and assets in land, infrastructure, utilities, transport and planning we are already working with IGas on a number of sites in the North West and hope to be announcing further partnerships in 2016.

Infrastructure Act

Despite strong vocal support from Cameron for shale gas, it wasn’t long before the Government was facing a crucial vote on the Infrastructure Bill with the cross-party Select Committee calling for a moratorium on fracking. While the Government managed to avoid a moratorium in England (although not in Scotland where it was agreed to uphold the moratorium on shale gas exploration until after the May election, when powers to grant licenses would be devolved to Holyrood) the Bill passed tumultuously through Parliament. The Infrastructure Act received Royal Assent in March, with a wide variety of provisions, including a ban on hydraulic fracturing in national parks, sites of special scientific interest and areas of outstanding natural beauty, introduced. However, the Actmarked an important step forward for the industry, with key issues such as the trespass issue resolved.

Earlier this week, under secondary legislation, MPs voted to allow fracking for shale gas 1,200m below national parks and other protected sites. The new regulations were approved by 298 to 261 votes and despite vocal opposition from campaigners.

Enter INEOS…

In March, it was reported that IGas had signed a Farm Out and Purchase Agreement with INEOS on seven of its existing shale licenses in England and Scotland for £30 million. The introduction of a new player into the market, and the investment they bring, was welcome news for the industry. The chemicals giant were quick to make their mark with Chairman Jim Ratcliffe announcing plans to give 6% of its shale gas revenues to homeowners, landowners & communities close to its wells.

Creating a Supply Hub for the Bowland Shale

Harnessing shale gas is vital for the Northern Powerhouse. In April, Peel Gas & Oil launched a new report by AMION Consulting which looked at the potential supply chain benefits across the Bowland Shale. Based on the development of 100 well pad sites it estimated that developing the sector could generate a spend of £30 billion up to 2048 and support 13,000 jobs.

Peel Gas & Oil believes that the development of a viable and scalable supply chain is fundamentally important to the development of shale gas. We have been working with potential supply chain partners to investigate the benefits of locating a supply chain hub in the North West. This included hosting a supply chain meeting with key operators, suppliers and stakeholders where the challenges and opportunities of creating a thriving supply chain in the UK were discussed. 

A Conservative majority Government

There were few that predicted the Conservative victory in the General Election (not least the pollsters) but what has a majority Government meant for the industry? Given the predicted (if inaccurate) close outcome of the election it is unsurprising that any decisions on the 14th round were delayed until the new Government was in place. However, once in power the Conservative majority government was quick to assert its support for shale gas. Within days new Energy and Climate Change Secretary Amber Rudd (replacing outgoing Liberal Democrat Secretary Ed Davey) announced that fracking rules would be loosened in an effort to speed up shale gas extraction which would “kick-start a shale gas revolution”.

Planning refusals

In the first real test of the planning system Cuadrilla Resources faced refusals of their applications to explore for shale gas in Lancashire in June – despite officers recommending one of the applications for approval. Approval for Cuadrilla’s applications would have marked a significant step forward for the industry. The disappointing delays caused by the local refusals have certainly contributed to the relative hiatus seen during 2015.

However, Amber Rudd and Communities Secretary Greg Clark were swift to respond, with the announcement that shale gas planning applications will be fast-tracked through a new, dedicated planning process. The new measures introduced included identifying councils that repeatedly fail to determine oil and gas applications within the 16 week statutory timeframe, with subsequent applications potentially decided by the Communities Secretary. Cuadrilla has since appealed the decisions with a Public Inquiry starting in February and Greg Clark to take the final decision.

However, Cuadrilla was not the only one to be pressing ahead with planning applications in 2015. Third Energy has submitted an application to North Yorkshire County Council to carry out shale gas exploration at its existing well in Kirby Misperton. A decision on this application is expected in the New Year.

Amber Rudd sets out new direction for energy policy

In November, energy secretary Amber Rudd confirmed plans to shut all coal-fired power stations by 2025. She spoke of the central role of gas in UK energy security and in particular how investment in shale gas could provide home grown energy supplies and economic benefits. This comes at a time when Britain has signed up to the global climate change agreement agreed at the United Nations conference in Paris last week, with Amber Rudd already stating how shale gas production has a part to play in meeting climate change obligations.

14th licensing round awarded

The year has certainly ended on a high with the announcement that 93 new onshore hydrocarbon licences have been created across 159 blocks in the UK under the 14th Onshore Licensing Round. This follows the ‘pre-award’ of 27 blocks in August, where the Oil & Gas Authority (OGA) issued a consultation on the Habitats Regulations Assessment (HRA) of the 132 blocks under consideration. 

What next for 2016?

Peel Gas & Oil is looking forward to the opportunities 2016 will bring. With a larger number of operators and licenses across the UK we believe the time is now to ensure that the region maximises the inevitable investment that will follow by ensuring the supply chain is in place to service the industry.

It’s also the time to start thinking about how various well pads could inter-connect as part of a bigger picture. Shale gas development is currently dependent on a supply chain delivering a number of commodities for successful and cost effective implementation. By viewing the supply chain as part of an overall ‘masterplan’, linking the supply and demand of shale from production to consumption, developers can demonstrate  the overall vision for an interconnected area.

The massive potential for the natural gas to be extracted in these areas could help to drive the Northern Powerhouse by securing the low carbon energy future of the UK as well as creating investment and local jobs across the region.

So what will 2016 bring for shale gas? It certainly looks like momentum is building and with Cuadrilla’s appeal to be determined and a whole host of new licenses to be explored, 2016 could be a defining year for shale gas.

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