Until last week, I had specifically steered clear of commenting on the Scottish Government’s approach to the development of onshore unconventional oil and gas (let’s call it ‘fracking’). The government seems categorically and absolutely opposed to the issue as are all the other parties at Holyrood (bar the Conservatives). There seemed little point even raising the issue again. However, the recent Court of Session judgment shows how ludicrous the whole situation is. There cannot be many times when the Scottish Government lawyer has essentially argued black is white in such a blatant manner.
So, what is the background to this issue?
It has been known for well over a hundred years that there is oil and gas potential onshore the Central Belt of Scotland. Indeed, the oil industry essentially started with the work of James ‘Paraffin” Young in West Lothian who heated up the red, shale rocks found at the surface to produce oil. However, the focus for Scotland’s oil and gas industry over the last 50 years has been offshore in the North Sea and West of Shetland. These fields have exploited traditional, conventional oil and gas accumulations where the hydrocarbons flow naturally through pores in the rock (largely sandstone and limestone). However, developments over the last 20 years in the USA have shown the huge potential of ‘unconventional’ resources. As the oil and gas does not flow naturally, the subsurface rock, thousands of feet underground, needs to be hydraulically fractured (or ‘fracked’) to allow the oil and gas to be exploited. Over the years, these techniques have been significantly improved, so that longer horizontal wells are drilled to access larger areas from one surface location, less fracking fluids are required, electrical equipment is used which is quieter, and there is an increasing focus on reducing gas leaks from the wells and pipelines. This fracking revolution has dramatically decreased gas prices in the USA, catapulted the country, by some measures, to being the largest oil and gas producer in the world, fundamentally changed the control OPEC has had on oil prices and revitalised the chemical industry in the US due to much cheaper feedstock, while reducing CO2 emissions. Scotland is also a beneficiary of these developments as INEOS imports ethane from the USA as feedstock for its Grangemouth petrochemical complex. These techniques have also been used elsewhere including Argentina, Australia and Canada but the USA is by a huge distance the most important country for unconventional development. There is potential in the UK with a number of companies considering acreage in Lancashire and the East Midlands, as well as Scotland. However, the potential is very uncertain given the very early stages of exploration in the UK.
As an aside, as of 9th February 2018, the Scottish Government has the regulatory powers in relation to onshore oil and gas licensing. That is, the Scottish Government can now award licences to oil and gas companies to explore for and develop fields onshore in Scotland. However, licences previously awarded will continue in force administered by the UK BEIS.
Given the significant public interest in relation to fracking, the Scottish Government set up an expert commission in September 2013 to consider the key concerns. The issues considered included the economic impact, environmental and social concerns (including public health, contamination of groundwater and induced seismicity), regulatory framework and impact on climate change targets. The commission reported in July 2014. Although a number of challenges were identified, the commission essentially saw no reason to ban such developments.
However, despite the government claiming that they take an evidence based approach this was clearly the wrong answer and hence decided that the best way of getting the correct answer was to undertake a public consultation. This consultation sought the ‘full participation of local communities and stakeholders in the decisions that matter to them and impact upon them’ (which must make interesting reading for communities blighted by industrial scale wind farms imposed on them by the government in Holyrood). The ‘Talking Fracking’ consultation reported in October 2017. Overall 99% of responses opposed fracking. The Energy Minister announced that ‘fracking cannot and will not take place in Scotland’. The subsequent vote at Holyrood endorsing the “effective ban” on fracking was supported by 91 to 28 with only the Conservatives voting against. The First Minister stated that ‘fracking is being banned in Scotland, end of story’.
The next stage in this saga was the action taken by Ineos, the owners of Grangemouth petrochemical complex and licence holders in Central Scotland. They challenged the ban presumably with the aim of being allowed to progress work in their onshore licences or, failing that, to be compensated for costs incurred to date in undertaking exploratory work. On day one of the hearing, the Lord Advocate, acting on behalf of the government, seemed to argue that the government were perfectly within their rights to impose a ban. However on day two of the hearing, in a bizarre turnaround, the Lord Advocate claimed that there actually wasn’t a ban but rather that the government had only expressed a preferred stance. I assume that everyone in the court had to stifle guffaws at this line of argument, the remarkable volte face from the previous day’s argument and all the proclamations from the Energy Minister and First Minister. However, this line of argument was accepted by Lord Pentland. He said that Ineos’ stance was based on a ’series of misunderstandings of the Scottish Government’s position’.
I am fairly simple minded and no lawyer. I have therefore assumed that I live in a country where if the First Minister makes an unequivocal statement that ‘fracking is being banned in Scotland’ then that is what she actually means. However, that would appear not to be the case.
So, what is the next step? Well, a government that has an evidence based approach to policy would presumably allow fracking given the conclusions of the expert commission. Equally, a government that supports and encourages oil and gas development offshore should be supportive of the onshore industry. Likewise, a government that realises the importance of gas for heating in a large majority of Scottish homes and the need to support the petrochemical industry at Grangemouth should be encouraging gas developments. The relatively free market approach espoused in the recent Growth Commission would also suggest support for new economic development such as onshore gas fields. And all these benefits from domestic gas production rather than gas imported from long distance by pipeline or tanker often from unsavoury regimes (and the USA).
However, there does not seem to be any chance of a change in position. Despite all these very strong arguments, the public have spoken overwhelmingly against fracking. And we all know what happens when the public speak.
Stuart Paton in an adviser to the oil and gas industry and former chief executive of Dana Petroleum.