Those crying Not Under My Back Yard must not call the shots on fracking
04 June 2014
04 June 2014
It's time for a dispassionate assessment of the risks of shale gas extraction and whether they can be managed, argues Mark Shackleton.
Not In My Back Yard, or NIMBY-ism as it is known, is one thing, but the prospect of fracking for shale gas in rock deep underground has thrown up a new type of protest: Not Under My Back Yard.
Following unsolicited drilling for oil under his property, Mohammed Al Fayed brought a case in 2010 claiming a fraction of the extraction proceeds. Under UK law, all mineral rights belong to the Crown for it to licence, and the case was thrown out, but a small fine was levied against the drillers for trespass. This has led to NUMBY-ism, where land owners, despite having no ownership of the oil, gas, or mineral resources under their land, make efforts to prevent exploitation deep under their property.
This seems odd, especially to those in cities. With London in particular, many new infrastructure projects such as Crossrail run just a few tens of metres below thousands of domestic and commercial properties. In densely populated areas, negotiating with each and every property owner would make these projects unmanageable, and the benefits of more and better public transport would not be felt. This transport infrastructure that carries passengers from the country to the city and within it benefits rural and urban dwellers alike; why shouldn’t the same hold in the countryside?
Whether or not a land or property owner has a direct interest in exploring for shale gas or preventing it, the current proposals focus on compensation – drilling companies must pay hundreds of thousands of pounds to communities affected – rather than permission. With the potential for court cases brought by NUMBYs to prevent drillers from getting to work, the government plans to make provisions that change the definition of trespass – part of the Infrastructure Bill mentioned in the Queen’s Speech, with details awaiting the outcome of consultation.
Firms – or at least one, Cuadrilla – are now submitting drilling applications to local county councils to recommence fracking in earnest. With high levels of truck movements for a year or more, fracking is noisy and invasive to the immediate area around the well. During this time a considerable amount of water must be sourced and blasted deep below the surface, up to two miles down, at high pressure to free the gas from the shale rock. Much of this will flow back, bringing residues with it. And on top of this drillers must ensure the borehole captures the gas without letting it escape around the well, especially at shallow depths where it could contaminate the water table.
It’s time we found out whether these risks can be managed. The possible disturbance from earthquakes, which stopped Cuadrilla’s Lancashire drilling last time, are a greater risk to the borehole infrastructure itself than to the local community, and so the driller has the greatest incentives to minimise them. The challenges of not just drilling but drilling safely have not been taken lightly and concerns are still key to the choice of drilling location. But the site is still key, and should allow access to a wide shale bed accessible by horizontal drilling. We can’t allow the rise of NUMBY-ism to prevent this.
There are risks to the driller too; once the investment in prospecting and drilling has been borne, the quantity of gas from the shale bed may not match expectations. Without a return on investment, there may be no future investment.
For a limited number of sample wells and from as small a number of plots as possible, if the gas flow is insufficient then few if any new fields would be progressed. The communities that experienced the drilling could be compensated for their disruption, and the drillers would simply pack up and leave.
With North Sea oil and gas declining, the UK needs another comparable energy source if it is not to become more dependent on imported energy or face volatile and rising prices. If successful, the energy consumer and tax payer will benefit as well as the gas producer who takes considerable investment risk.
Ultimately the greatest risk is not doing anything to ensure a continued energy supply. We need to gather results now from a sufficient number of wells to resolve if shale gas can make a substantial contribution to the UK’s energy position or not, and that means removing some of the barriers that currently prevent it.
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Mark Shackleton does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.
The opinions expressed in our Comment and Analysis articles and in any attached comments are personal, and may not reflect the opinions of Lancaster University Management School. Responsibility for the accuracy of the information contained within these articles resides with the author.
Mark Shackleton is a Professor in the Department of Accounting and Finance and Associate Dean for Postgraduate Studies at LUMS. His research interests are in corporate finance, energy derivatives, real options and option rate of return.