Recent Hydraulic Fracturing Trends in the United Kingdom

by Akin Gump Strauss Hauer & Feld LLP

August is known as the “silly season” in the U.K. media. With a large part of the country on vacation, it is a month in which newspapers struggle to fill column inches. Stories emerge that would typically not receive as much prominence at other times of the year.

Politicians are now better at using this void to promote policies. Two stories have recently emerged on hydraulic fracking. Both emanated from the Conservatives (the senior coalition party). One item was the result of news management intended to promote government policies. The other was a blunder.

Shale extraction is less advanced in the United Kingdom than in the United States. As the British are now discovering, development of shale requires hydraulic fracturing of source rock (or “fracking”). On a densely-populated island that is largely unused to either conventional or unconventional production, government recognises the need to address concerns arising from this process. This task is made more difficult by a system of petroleum regulation which does not reward landowners. Government (not private citizens) controls - and benefits from - the right to extract oil and gas under both public and private land. Recent government policy, however, now offers financial rewards for local communities where fracking takes place.

Let’s start with the blunder. In a parliamentary debate, Lord Howell (a former Conservative energy minister) suggested that there are “large, uninhabited and desolate areas, certainly in parts of the North-East, where there is plenty of room for fracking.”

An outcry followed. An apology was quickly issued. The political damage was compounded by an acknowledgement that his lordship, in fact, intended to refer to the Northwest (not Northeast) of England. This correction served only to redirect the remark to a different part of the country.

Ten days later, the government media machine went into action in an attempt to reverse the damage. David Cameron, the British prime minister, set out to sell fracking to the public. It was a debate, the prime minister said, that he was determined to win. Many environmental myths had sprung up. However, the United Kingdom’s supplies of shale gas had the potential to create jobs, drive down both gas and electricity prices and supply the country’s energy needs for more than 50 years. Furthermore, according to the british prime minister, international evidence did not show that the process (if properly regulated) contaminated water supplies or caused environmental damage.

Those arguments have already been well rehearsed, but the prime minister did not stop there. More eye-catching was the government’s promise to pay £100,000 (about $155,000) to communities situated near exploratory wells, along with 1 percent of production revenues. Communities can use this money to reduce local property taxes or invest in neighbourhood projects such as schools.

This intervention by the prime minister significantly raises the stakes on the fracking debate in the United Kingdom. A recent survey by the British Geological Society reports 1300 trillion cubic feet of natural gas in northern England alone. This doubles the amount previously estimated. Notwithstanding injudicious remarks by its own side, the government now seems determined to influence public opinion on this issue.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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