Significant economic benefit for Scotland can flow from lifting unconventional oil and gas exploration moratorium

10 May 2017

UKOOG, the industry body representing the onshore oil and gas sector in the UK, has called for Scotland to realise a significant economic opportunity by lifting the moratorium on unconventional oil and gas exploration. This call comes within the industry’s response to the Scottish Government’s consultation on unconventional gas and oil, published today.

Alongside the response, a website gas4Scotland (www.gas4scotland.scot) has been created to explain how we use gas in Scotland, where we get it from now and what the future could look like for both the economy and the environment if shale gas were to be extracted onshore in Scotland.

Ken Cronin, chief executive of UKOOG, commented “Many of the wilder claims about health and environmental impacts have been thoroughly debunked by the Scottish Government’s own research and we do not believe that the outcomes of this extensive research give any reason to justify continuing the moratorium on onshore oil and gas extraction.

“We strongly believe that there is a significant economic opportunity for Scotland but we recognise that as a result of a deeply polarised debate and an extremely unfair depiction by some of the onshore oil and gas industry there is still much to do to ensure local communities within the central shale belt have proper information.

“Our conviction that a moratorium is no longer justified is underlined by the fact 30 wells have been drilled in the last 20 years and gas has been produced in the central belt of Scotland. This has happened without incident – to the environment or to public health.”

We believe in coming to a decision the Scottish Government needs to consider the following:

•    Within 20 years, the UK will be importing over 75% of our gas costing the equivalent of over £300 per household1 – money simply going out of the country.

•    Over a 20-year period, the amount of annual tax revenue and community benefit generated by Scottish Shale could be equivalent to all the council tax paid in Stirling, Falkirk and Fife2 or equivalent to approximately 2% of Scottish income tax revenue3.  

•    Because of the perverse way global climate change accounting is practiced, increasing imports actually helps Scotland meets its individual targets.  This is because emissions from the production of gas are counted for UK-produced gas, but not for gas produced overseas, in the UK’s carbon budgets. This is despite the fact that local shale gas production is significantly less impactful than transporting gas across oceans and continents.

•    At present, there is no viable or affordable alternative to natural gas to heat our homes or provide high grade heat and feedstocks to our industry that also meets our climate change targets and keeps people in the jobs they currently have.

•    In Scotland, there are nearly 2m homes and over 22,000 commercial businesses that are connected to gas. 78% of domestic heating is provided by gas in Scotland and 43% of all gas consumed is by industry.

•    The current argument that all our heat and industrial needs will be met by some other means is currently not credible.
However, with all the research, polarised debate and simply hot air there is one simple fact that has been ignored – without exploration we cannot know to what extent any of the economic forecasts are on the money.

The way forward

Given the outcomes of the research, the undeniable future need for gas and the growing import dependency faced by the UK, the onshore oil and gas industry in Scotland believes a pragmatic and progressive choice by the Scottish Government would be the immediate lifting of the moratorium.

The Industry believes that the lifting of the moratorium should be accompanied by the introduction of a regulatory forum to address any additional guidance on regulation identified in the research and the creation of the necessary bodies within the Scottish system to allow for the devolution of onshore oil and gas from Westminster. The Industry and the Government need to agree a way forward for exploration, including how local communities can participate and benefit and how structures can be put in place to create funds that can be allocated through the proceeds of the onshore oil and gas industry towards research and development of renewable technologies.

The Industry believes the science is clear and regulation competent to deal with the safe roll out of the shale industry in Scotland, and previous government commissioned scientific reports have confirmed this. However, given the clear need to continue to build public confidence the industry is fully committed to being a partner with the Scottish government and would be keen to share with the Scottish Government the early stage findings from activities in England which would act as a complement to the analysis already completed by the Scottish researchers.

For more information contact:

Jason Nisse/Deborah Saw/Andrew Turner 0207 680 6500 This email address is being protected from spambots. You need JavaScript enabled to view it.
www.gas4scotland.scot

Notes to editors

Industry’s view on the research produced by the Scottish Government

Economic

  • Onshore oil and gas could make a meaningful contribution to the economic position of Scotland
  • Up to 3,100 jobs could be created in Scotland.
    • This excludes any share of the estimated 64,000 jobs that could be created using Scottish expertise by a wider industry in the UK.
  • The industry has pledged between 6 and 8% of revenue in benefits and business rates to local communities worth up to a total of £1bn for Scottish communities.
  • Up to £6.5bn could be spent in Scotland with an additional £4bn created in tax receipts.
    • This excludes the positive economic impact on other sectors, such as petrochemicals, of not having to import their raw materials and the impact of Scotland developing and exporting its skills and resources to supply shale companies across the UK and Europe.
  • The KPMG report was published using DECC’s 2015 low gas price forecast, which is historically low, projecting an average gas price of 43 pence per therm from 2022-2040, and much lower than that before 2022.   Since the report was published, gas prices have risen, and are expected to be much higher than the DECC low price scenario used in the KPMG report.  On 22 March, spot prices were 48 pence per therm, compared with DECC’s low estimate of 33 pence per therm for 2017, and futures prices were 50-52 pence per them for 2018-2023.
  • The KMPG report’s high scenario envisages 3tcf of gas production, which is just 3.75% of the gas resources in the Central Belt estimated in mid case scenario produced by the British Geological Survey (BGS) – this is a low percentage compared to results from other countries.

Health

  • The overall conclusion of the research was that the evidence reviewed was judged not to be of adequate quality, consistency or statistical power to demonstrate a hazard or health risk.  This conclusion is supported by a previous study by Public Health England for the UK Government.
  • Given the fear created by our detractors about the impact of the industry’s planned activities on the health of children we would like to particularly draw attention to the following key parts of the research:
      • The evidence for a link between UOG activities and physician-reported high-risk pregnancy is inadequate.
      • The evidence for an association between UOG exposure and reproductive and developmental effects is weak.
      • There was ‘inadequate’ evidence to suggest that UOG activities, particularly drilling, were associated with a risk of increased incidence of childhood cancer.
      • There was ‘inadequate’ evidence to suggest that UOG activities were associated with a risk of neurological, cardiovascular or dermatological effects.

Transport

  • The additional traffic movements associated with onshore oil and gas resources are unlikely to be significant or detectable at a regional or national scale, in view of the much greater numbers of traffic movements resulting from other activities.
  • The contribution of UOG development to traffic and associated impacts such as carbon emissions at a regional or national scale would be slight and comparable to many other industry sectors and activities.

Seismicity

  • The process of hydraulic fracturing is generally accompanied by microseismicity, which is too small to be felt.
  • The probability of felt earthquakes caused by hydraulic fracturing for recovery of hydrocarbons is very small. 
  • Recent increases in earthquake rates elsewhere have been linked to the disposal of wastewater by injection in to deep wells rather than hydraulic fracturing:
    • Under EU and UK legislation disposal of wastewater in this manner is highly unlikely to happen, as Flowback is not allowed be injected into the ground

Decommissioning

  • Decommissioned oil and gas wells are unlikely to leak gases if constructed and abandoned to comply with international standards and industry best practice.
  • The risk of leakage from abandoned UOG wells is likely to be very low.
  • In the event that surface spillages or leakages occur there is appropriate legislation already in place in Scotland.
  • Existing post-decommissioning monitoring required by SEPA should be sufficient to identify any post-decommissioning issues.

Climate Change

  • Domestic gas production is projected to continue its decline over the coming decades and most projections suggest that the share of imports may rise over time, even as consumption falls.
  • There may be benefits for energy security and domestic industry if new domestic sources of natural gas production reduce dependence on imported gas. There is no case, however, for higher levels of gas consumption.
  • Current evidence suggests that well-regulated domestic production could have an emissions footprint slightly smaller than that of imported liquefied natural gas (LNG):
    • Furthermore, while the central emissions estimate under the 'minimum necessary regulation' case for domestic production is only slightly below that of LNG, the high end of the range is around 50% higher for LNG. Tightly regulated domestic production would therefore reduce the risk that the greenhouse gas footprint of gas supply is high and would also provide greater control over the level of such emissions.
  • The Committee on Climate Changes ’s assessment is that exploiting unconventional oil and gas by fracking on a significant scale is compatible with Scottish climate targets if three tests are met, which the industry believes are already achievable.

Communities

  • Research shows that communities don’t always trust business and feel better when they are part of the process.

About UKOOG:

UKOOG is the representative body for the UK onshore oil and gas industry, including exploration, production and storage. The organisation’s objectives are to enhance the profile of the onshore industry, promote better and more open dialogue with key stakeholders, deliver industry wide initiatives and programmes and to ensure standards in safety, the environment and operations are maintained to the highest possible level. Membership is open to all companies active in the onshore industry including those involved in the supply chain. www.ukoog.org.uk

 

 

1 Oil and Gas Authority, UKCS oil and gas production (and demand) projections https://www.ogauthority.co.uk/data-centre/data-downloads-and-publications/production-projections/; 27.1 million households in the UK (see ONS - https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/families/bulletins/familiesandhouseholds/2016

2 Stirling net non-domestic rates income of £45.4 million in 2015-16 (Stirling Council accounts 2015-16, p.58 http://www.stirling.gov.uk/__documents/stirling-abstract-2015-16-final-version-signed.pdf); Falkirk net non-domestic rates income of £62.3 million in 2015-16 (Falkirk Council accounts 2015-16, p.98 http://www.falkirk.gov.uk/services/council-democracy/budgets-spending-performance/docs/annual-accounts/audited/2015%20-%202016%20Audited%20Annual%20Accounts.pdf?v=201610031410); Fife net non-domestic rates income of £166.6 million in 2015-16 (Fife Council accounts 2015-16, p.121 http://publications.fifedirect.org.uk/c64_Fife_Council_Annual_Accounts_2015-16.pdf); i.e. total net non-domestic rates income of £274.3 million in 2015-16.  Total shale gas tax receipts of £3.9 billion in the KPMG high case is therefore equal to 14.2 years of total net non-domestic rates income for these three councils.

3 Scotland income tax revenue of £12.2 billion in 2015-16 (Government Expenditure and Revenue Scotland, Table 1.1 http://www.gov.scot/Topics/Statistics/Browse/Economy/GERS).  1.5% = £183 million.  Total shale gas tax receipts of £3.9 billion in the KPMG high case is therefore equal to 21.3 years of 1.5% of Scotland’s income tax receipts

4 https://www.gov.uk/government/publications/fossil-fuel-price-projections-2015

5 http://www.ercequipoise.com/graph/uk-natural-gas-nbp-spot-price/ and http://www.ercequipoise.com/graph/uk-natural-gas-futures-curve/

 

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