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Shale Gas - Rural Economy Impacts

Draft DEFRA Report March 2014

This report was released last week, highly redacted - ie censored - after an FOI request.

We can draw the following conclusions from what remains.

Shale gas will NOT provide national energy security in terms of reducing the need for imports.
Very few local jobs will be produced.
House prices will fall near fracking sites.
Incoming workers will create demands on social services eliminating any benefit to the local councils.

The release letter stated
‘Shale Gas Rural Economy Impacts report’: Excerpts from a draft internal document which we shared with the Environment Agency and which considered the potential impact of shale gas development on the rural economy.
The remainder of the information requested is being withheld as it falls under the exception in regulation 12 (4) (e) of the EIRs, which relates to formation of government policy. Information contained in any internal communication of a public authority including correspondence between officials in any public authority may be protected under this exception. In applying this exception we have had to balance the public interest in withholding the information against the public interest in disclosure. We recognise that there is a public interest in disclosure of information concerning policy development in relation to shale gas. On the other hand, there is a strong public interest in withholding the information because it is important that officials can consider implications of potential impacts and scenarios around the development of the shale gas industry and to develop options without the risk that disclosure of early thinking, could close down discussion.

Therefore, we have concluded that, in all the circumstances of the case, some of the information should be withheld.”

In fact so much information has been withheld that the report is less than useful. It seems clear that the parts withheld would indicate a very limited benefit if any for rural economies. The redaction therefore appears to be out-and-out censorship to hide the bad reasoning behind a government policy.

The full (!) report is accessible here

There are, however, despite the heavy censorship, some useful snippets to extract, so we can make our own summary of the effects on the local economy. The only BENEFITS suggested in the report are the government-approved industry bribes, and payoffs to councils. Full discussion of any further impact (suspected to be negative) has been censored.

1. Summary benefits - jobs

The DEFRA report uses no new data, but relies heavily on two reports paid for by Cuadrilla for its assessment of job benefits, plus the AMEC report which was produced for the 14th licencing round assessment and an EA-commissioned Ricadro-AEA report.

The problem with the summary of the jobs created and the gas expected is that the summary figures mislead. Even if between 16,000 and 32,000 jobs were created nationally it is not clear what the timescale and location would be. There is the clear indication these would not be “local” jobs.

“The extent to which these jobs might directly benefit local communities would depend on the availability of skills and experience in the local labour market.”

2. Summary benefits - gas

The summary chooses (of course!) to describe a high case scenario when it suggests that at peak production the shale gas produced could be twice the UK annual gas usage.

” The high activity scenario could generate in total some 0.12 to 0.24 trillion cubic metres (4.32 to 8.64 trillion cubic feet) of gas, more than six times the 0.037 trillion cubic metres (1.31 trillion cubic feet) of gas produced in the UK in 2012 or more than twice the approximate 0.1 trillion cubic metres (3.52 trillion cubic feet) of gas consumed in the UK per annum. “

However the summary is deceitful. It neglects to say, as further down in the report, that this scenario is highly unlikely and that this optimistic peak production would be very short.

3. Report detail extracts

Some summary figures and estimates are there from the IoD report paid for by Cuadrilla, and the Regenris report commissioned by Cuadrilla. We have commented on the optimism of these reports before.

Suffice it to say here that even Cuadrilla’s OWN regeneris estimates for LANCASHIRE jobs created during shale gas exploration is a mere FORTY.

When we look at this figure against the number of people in nearby communities who will be adversely affected over years by exploration and testing this is pitifully small.

Ricardo AEA was commissioned to estimate gas output under three scenarios high, medium, low.

The summary of output under the high scenarion featured in the above-quoted summary. However, when we see the number of wells assumed for the high scenario (12,800 total with a maximum of 1,100 drilled per year) it is clear that even the high-scenario is both short-lived and optimistic. From US experience the lifetime output from wells is variously estimated (by US Geological Survey and industry sources quoted by the IoD report) to be between 1.1 billion cubic feet (bcf) and 3 bcf.

This would make the TOTAL production from 12,800 wells over their lifetime of fifteen to twenty years between about 14 trillion cf (tcf) and 38 tcf.

So on the most optimistic forecast, over decades the gas produced would be between 4 and 10 years supply of UK gas, well under half the annual requirement.

But the figures get worse. DEFRA say this estimate is highly unlikely

”The high growth level represents growth in the UK similar to that experienced in the USA, which it recognises is highly unlikely to occur given the different market, regulatory, environmental and geological conditions. The medium case is based on industry well drilling forecasts and the low case draws on UK experience of new energy infrastructure.”

And the figures get far worse for the mid and low scenarios

”In the mid case scenario, production would peak at around 9.8 billion m³ per year, around 11% of the UK’s current demand for natural gas. “

So under the mid-case scenario, about 1/8th of the high scenario, shale gas would make an insignificant contribution to reducing the need for gas imports, far less meeting demand. The scenarion indicates a TOTAL output over twenty years of under 6 months of gas supply.

And as for the LOW scenario, ” In the low case scenario, total cumulative production would reach 12 billion m³ from a total of about 580 wells. Under this scenario, production would peak at about 1 billion m³ per year, about 1.1% of the UK’s current consumption. Consideration of gas price predictions indicates that the high and mid case scenarios could potentially be commercially viable, whereas the low case scenario seems unlikely to be viable. “

Note that the MID case is that predicted by the industry itself. This estimate comes NOWHERE NEAR eliminating reliance on imports if gas is to continue being used at its current rate.

So in summary, shale gas is a crock. It won’t help the nation, but it could be a “commercially viable” enterprise for the industry.

4. Social Impacts

a) House prices The report looks at studies from the US - Texas, Pittsburgh, Pennsylvania and Canada and in each case the conclusion was that house values had fallen, from 3/5% to 14%, for houses near (the studies varied, but say 2 to 4km) wells.

Unsurprisingly, the conclusion as to how this might apply in the uk was REDACTED.

b) Social services ” As new workers arrive to commence jobs within the shale gas sector there is likely to a proportion that prefer to live in rural areas, particularly if this is close to the operation site. Some of the workers will also bring families and children with them into the area who will require school and access to other local services (doctors, dentists, libraries). This may create additional pressures on local services if insufficient capacity is available to cope with the increase in demand.”

Significantly, in addition to pointing to a community cost, this confirms an influx of outside labour is expected, ie few jobs for locals.

c) We can not see any further disbenefits because the following sections have been heavily redacted. Nor can we see the conclusions, similarly censored.

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