The options outlined below appear as they did in the partial BRIA, and should therefore be read in that context.
Option 1 - Preferred Policy Position
The Scottish Government's preferred position is that it does not support the development of unconventional oil and gas in Scotland.
In the event the preferred position is adopted, the policy on unconventional oil and gas would be implemented using the Scottish Government's fully devolved planning powers to establish robust and effective controls.
This approach ensures decisions on onshore unconventional oil and gas developments would be made in line with planning policy and procedure, and within the framework of Scottish Government policy – a policy that does not support unconventional oil and gas extraction in Scotland.
In the event our preferred policy position is adopted, in addition to the policy being a material consideration within planning policy, Scottish Ministers would discharge the licensing powers devolved in February 2018 having regard to that adopted policy position.
Option 2 – Business as usual
Under the 'Business As Usual' scenario there is no moratorium on unconventional oil and gas development, and planning applications would be brought forward and determined in accordance with the current applicable development plan, the National Planning Framework (NPF) and all material considerations, but in the absence of the preferred policy position.
Scottish Ministers would also exercise their newly devolved powers in relation to onshore oil and gas licensing in Scotland to consider the timing of future onshore licensing rounds.
For the purposes of the assessment, the 2018 SEA Environmental Report assessed the effects of unconventional oil and gas development avoided under the preferred policy position, and compared this to the effects of the development of an industry as represented by a 'broad range of impact scenario' based on the KPMG (2016) development scenarios of 'a) central, b) low and c) high levels of exploration, appraisal and extraction of onshore unconventional oil and gas', as well as to the development of a single theoretical pilot project.
Option 3 – Pilot Project
The 2018 SEA Environmental Report assessed an alternative development scenario, based on a single theoretical unconventional oil and gas pilot project. This concerned the development of a single pilot project in one of three locations within the Midland Valley and within a PEDL area where resource has been identified. The purpose of a theoretical pilot project would be to increase the understanding of the extent of the potential resource, and impacts associated with its extraction. The theoretical pilot project was based on a number of assumptions including that it would have research and geoscience as its key driver, and be required to be delivered in collaboration with an independent research body or an academic institution and demonstrate whole lifespan of development (exploration, appraisal, production, and decommissioning) over approximately 10 years. It was unspecified whether the theoretical pilot project would be located in a rural or semi-urban or urban fringe geographical location.
For the purposes of the assessment, a theoretical pilot project was assumed to be one pad with multiple wells. The number of wells was not defined, however, it was assumed that more wells would result in greater impacts.
Sectors and groups affected
Unconventional oil and gas developers and related supporting industries
Current holders of a PEDL in Scotland with the aim of targeting unconventional oil and gas are unable to proceed until the Scottish Government policy-making process is completed. This has implications for the supply chain in relation to skills, equipment and services required to support the proposed exploration and development activities.
Companies interested in developing and producing unconventional oil and gas in Scotland are unable to pursue development plans until the Scottish Government policy-making process is completed.
Scotland's Energy Strategy reiterates the Scottish Government's preferred policy position of no support for unconventional oil and gas. This is subject to the necessary statutory and other assessments, which have now been completed.
Other regulatory bodies (such as SEPA, HSE, and planning authorities):
The Scottish Government's unconventional oil and gas policy may have an impact on the workload of these authorities in respect of their regulatory responsibilities.
Landowners, such as the Coal Authority:
The Scottish Government's unconventional oil and gas policy may result in interest amongst unconventional oil and gas developers in the exploration of land in Scotland's Midland Valley.
Community organisations and anti-fracking campaigners:
The development of the Scottish Government's unconventional oil and gas policy is an important issue for the people of Scotland, particularly those communities living in areas most likely to be affected by any potential unconventional oil and gas activity. The conclusion of the unconventional oil and gas policy-making process is awaited with considerable interest by a number of communities and organisations, with deeply held and sincere views found on both sides of this debate.
Benefits and costs
Very few studies examining the potential impact of unconventional oil and gas on Scotland's economy have been conducted. To gain a better understanding of the potential economic implications in Scotland, the Scottish Government commissioned KPMG to examine the impact that unconventional oil and gas could have on jobs and the wider Scottish economy under a range of potential production scenarios. The findings were published in 2016 and were an integral part of the Talking "Fracking" consultation in 2017.
Option 1 – preferred policy position
Partial BRIA Statements
1) Conclusion of the unconventional oil and gas policy-making process would provide certainty to interested parties, including oil and industry stakeholders and members of communities living in areas of Scotland where shale oil and gas and CBM have been identified.
2) Similarly, certainty about the future of unconventional oil and gas developments in Scotland means developers, including current PEDL holders, could make future business planning decisions.
3) Current holders of PEDLs in Scotland may consider changing the hydrocarbon resource they wish to target, with the agreement of Scottish Ministers as licensing authority, allowing them to continue to take advantage of their investment to date in the licence. The choices made by individual PEDL holders will have implications for those businesses providing the skills, equipment and services required to support any future activities, whether it be exploration of another resource or decommissioning of existing sites.
4) A policy of no support for unconventional oil and gas in Scotland may result in an increase in the attractiveness of investment opportunities in Scotland for some sectors.
5) Relevant public bodies will be able to finalise hydrocarbon related policies and strategies, such as local development plans, while relevant regulatory authorities will be able to finalise processes for dealing with hydrocarbon related applications.
1) The predominant view, expressed by a range of organisations and most individual respondents, supported this statement.
2) Oil and gas industry stakeholders noted that the conclusion of the policy development process with the adoption of the preferred policy would not provide clarity, as they consider this to equal a ban on UOG development. This is considered by oil and gas industry respondees to be legally challengeable, which would create further uncertainty.
3) Oil and gas business and industry respondents argued that this option was unrealistic as a business opportunity, highlighting the lack of evidence on the presence of other hydrocarbon resources that could be exploited on a commercial basis in the geographic areas covered, as well as the lack of clear government policy in this area.
Other respondents did not think it was appropriate to include this as a potential 'opportunity', given the Scottish Government's stated commitment to a low-carbon economy.
4) Again, the predominant view expressed by a range of organisations and most individual respondents supported this statement, noting this would likely create opportunities for the development of other businesses – including those related to the renewable energy and low carbon technology sectors, and those that made use of Scotland's natural environment, e.g. tourism, farming and the food and drink industry. It was thought that opportunities for other businesses would compensate for any lost opportunity in the onshore oil and gas sector.
However, oil and gas industry members responded on this point that "whatever sectors those might be, it is unlikely that the list would include the energy sector."
5) Regulatory authorities agreed with this point in their consultation responses.
Partial BRIA Statements
1) As indicated at the start of this section, the Scottish Government commissioned KPMG to examine the impact that unconventional oil and gas could have on jobs and the wider Scottish economy under a range of potential production scenarios (each of which is outlined in the SEA Environmental Report which accompanied the partial BRIA). In KPMG's central scenario, the study estimates that:
- the total, cumulative industry expenditure in Scotland would be £2.2 billion through to 2062.
- this would add £1.2 billion to Scotland's economy over this period, which is approximately equivalent to 0.1% of Scottish GDP – a measure of Scotland's economic output – per year over the lifetime of the industry.
- the industry would support 1,400 jobs in Scotland at its peak. This includes indirect jobs in the supply chain and jobs created in other sectors of the economy, for instance hotel and taxi businesses.
- the cumulative, additional tax receipts (for the UK and not including coal bed methane) would be £1.4 billion on the development of unconventional oil and gas through to 2062.
2) Turning to those businesses which received a PEDL from the UK Government in previous years and have undertaken limited unconventional oil and gas exploration to date, this investment may not yield any returns unless planning permission is received for any future proposed activities on the site.
Should a current licence holder conclude they wish to surrender their licence, the licence holder will be liable for the decommissioning and aftercare costs in relation to the work which has been undertaken and the infrastructure installed.
3) The value of the investment and the related decommissioning and aftercare costs will vary from development to development and will depend on the conditions set by the various regulatory authorities and other public bodies in respect of consents, licences, and access agreements provided. The lack of available evidence in relation to decommissioning costs makes quantifying the relevant sums challenging. Licensees responding to the 2018 consultation advised that they have assessed the cost to decommission all the associated wells in one PEDL to be in the region of £32 million.
4) In addition, the fees and annual charges due in respect of some licences and consents held, will be lost to the relevant public body.
5) SEPA is the principal environmental regulator for onshore oil and gas in Scotland. SEPA has no specific budget set aside for the monitoring and regulating of onshore unconventional oil and gas as this is built into the licence fees for the various authorisations. SEPA has advised that no significant loss of income in respect of these fees is anticipated and no significant resource implications under this option.
6) Any activity which intersects, disturbs or enters coal seams requires prior written authorisation from the Coal Authority. The Coal Authority has advised that due to the infrequency of the granting of relevant access agreements, the potential loss of related fees and annual charges would be insignificant under this option.
7) The HSE has advised that it charges £173 per hour for its work but not all HSE work in relation to its responsibilities in respect of oil and gas developments is cost-recovered. Income from planning applications does not currently meet the costs of delivering development management services. As a result, this option would result in no additional costs to the HSE or planning authorities.
8) In the case of Scottish Ministers, as the onshore oil and gas licensing authority, to date no annual land rental charges (set by the UK Government) have been payable to the Scottish Government in respect of those licences which have been unable to progress due to the moratorium on unconventional oil and gas developments in Scotland. Therefore there would be no loss to the Scottish Government in respect of land rental income.
1) Business and industry respondents argued that the adoption of the preferred policy position would bring about the effective shutdown of the onshore industry in Scotland, and would have wider economic repercussions in terms of reputational cost for Scotland regarding its commitment to science and technology, and its ability to attract investment in this sector. Moreover, they did not think that option 1 would lead to investment in other sectors.
They also noted a range of issues which they considered had not been properly accounted for under option 1 in the partial BRIA:
(i) the cost (environmental as well as economic) of importing gas and feedstock to replace that which have might have been sourced in Scotland;
(ii) the cost to the chemical industry of importing feedstock;
(iii) the lost opportunity for supply chain investment;
(iv) the potential (negative) impact on the deep geothermal heat industry.
2) Some consultation respondents provided the view that decommissioning obligations should be enforced against operators where licences either expired or were surrendered.
3) Oil and gas business and industry respondents argued that such costs should be met by the public purse, with compensation paid to operators who had invested in PEDLs in good faith.
Option 2 – business as usual
Partial BRIA Statements
1) Implementation of this policy option will allow unconventional oil and gas developers to plan exploration, development and production activities in Scotland, subject to receipt of relevant licences and consents. Those current PEDL holders who have been unable to progress work under their licence due to the unconventional oil and gas moratorium will be able to plan the recommencement of activities, subject to receipt of relevant licences and consents. The potential evolution of the unconventional oil and gas industry under this option, will also have implications for those businesses providing the skills, equipment and services required to support the proposed future activities.
2) In the case of regulatory authorities and landowners, this option will result in a return to the well-established pre-moratorium processes and systems.
3) As indicated in Option 1 Costs, the Scottish Government commissioned KPMG to examine the impact that unconventional oil and gas could have on jobs and the wider Scottish economy under a range of potential production scenarios.
4) The economic impact study also highlights that natural gas liquids produced from shale reserves can be an important feedstock (a raw material to supply or fuel an industrial process) in manufacturing industries. The commissioned research also highlighted the potential for domestically produced unconventional oil and gas to have a positive impact for manufacturing companies which use it as a feedstock, should import substitution lead to lower costs of their primary input through avoiding importing and transportation costs, but did not quantify these potential impacts given the uncertainties.
5) In Scotland there are 150 manufacturing companies involved in the manufacture of chemicals and chemical products supporting around 3,500 direct jobs. These companies are involved in the manufacture of primary chemicals, chemical products for industrial applications, pharmaceuticals, and plastic manufacturing. The chemical sciences industry is estimated to support a direct employment of 9,000 in Scotland and around 70,000 people are employed in dependent services.
6) There is also uncertainty regarding the impacts of a new supply of unconventional oil and gas on the wider energy market. However, the Scottish Government commissioned research identified that the relative small scale of potential Scottish production relative to the scale of US production and a highly interconnected European market would likely mean there was no impact on domestic or global energy prices.
1) One oil and gas industry respondent commented in response to the 2019 addendum consultation that the Scottish Government has awarded offshore oil and gas licences in the Scottish 'inshore area' as part of the OGA 31st Offshore Licensing Round. These licences were, in fact, awarded by the UK Government, as offshore licensing powers have not been devolved to the Scottish Government. They are not subject to the preferred or finalised policy position, which applies only to onshore unconventional oil and gas development.
3) Under Option 2, oil and gas business and industry respondents noted that the assessment of financial benefits needed to be revisited in order to take account of (i) recent increases in the price of gas, and (ii) benefits that would accrue on a UK-wide basis.
5) Oil and gas business and industry respondents considered that the partial BRIA underestimated the benefit to other industries and the wider economy, while the majority of other respondents considered that Option 2 did not take full account of the negative impacts that development of an unconventional oil and gas industry would have on other businesses and economic sectors.
6) Oil and gas business and industry respondents considered that this underestimated benefits offered to the country by self-sufficiency in gas.
Partial BRIA Statements
1) The findings of the Scottish Government commissioned Economic Impact Assessment included observations by KPMG that exploration work would be required to determine the commercial feasibility and production potential of Scotland's resources.
2) In order to progress unconventional oil and gas exploration, development and production, relevant consents, licences and access agreements will be required, which will have related fees and annual charges. Securing all the necessary consents and licences may prove difficult in the event of opposition to the plans from local communities (detail on views expressed through the Talking "Fracking" consultation is available on the consultation analysis report).
3) In 2016, the Scottish Government commissioned the British Geological Survey to undertake a research study into understanding and monitoring induced seismic activity. The study concludes that the risk of felt earthquakes from unconventional oil and gas developments is low. In addition, the study notes that improved understanding of the hazard from induced earthquakes and the successful implementation of regulatory measures to mitigate the risk of induced seismicity is likely to require industrial data from hydraulic fracturing operations, seismic, geological and geophysical data.
4) The Committee on Climate Change was asked by the Scottish Government to examine the impacts of extraction of unconventional oil and gas on greenhouse gas emissions and climate targets. The Committee found that additional production emissions from shale wells would need to be offset through reductions elsewhere in the Scottish economy, such that overall effort to reduce emissions would be sufficient to meet emissions targets.
5) The Committee's findings included the need for strong, coordinated regulation to reduce or eliminate adverse impacts. Experience with the remediation of open-cast coal sites in Scotland has highlighted the importance of robust decommissioning and restoration regimes. Robust regimes would be required to ensure operators/owners comply with their obligations, and communities and the public sector were not left to deal with restoration and aftercare issues and costs.
6) Consideration, design, collection of relevant data, introduction and regulation of robust regimes to mitigate the risk of induced seismicity and adverse environmental impacts would have resource implications for the relevant authorities and stakeholders and may lead to increased costs for operators/owners during all stages, including decommissioning, of an unconventional oil and gas development.
7) It is very difficult to predict the potential upscaling of the unconventional oil and gas industry under this option. HSE has advised that resourcing would be kept under review under this option and SEPA has advised that the potential resource implications of this option would be informed by discussion with the Environment Agency. The Coal Authority has advised that due to the infrequency of the granting of relevant access agreements, it would be difficult to calculate the resource implications of this option.
8) The Scottish Government is committed to reviewing the wider planning fee regime to better reflect the developments which are now coming forward and to take account of the changes brought in by the Planning (Scotland) Act 2019.
1) Both groups of respondents expressed concerns about the KPMG report, and how the findings of this work had been used to inform the partial BRIA.
The predominant view of Option 2 (offered by a range of organisations and most individuals) was that any benefits would be minimal and would be confined to businesses in the oil and gas industry. Furthermore, these benefits were not worth the likely negative impacts for the environment, for communities and for other businesses.
3) A number of respondents, including community groups and individuals, were concerned that the partial BRIA had underestimated, or did not take full account of, the risks involved in unconventional oil and gas operations and the costs that might be incurred as a result of operational accidents and failures.
6) A number of respondents, including community groups and individuals, were concerned that the partial BRIA had also underestimated, or not taken full account of, the costs related to development and operation of a satisfactory regulatory regime.
Option 3 – pilot project
Partial BRIA Statements
1) All those benefits outlined in Option 1 are considered relevant to this option.
In addition, this option increases understanding of the extent of the potential resource and impacts associated with unconventional oil and gas extraction over the whole lifespan of development (exploration, appraisal, production, and decommissioning) - approximately 10 years.
2) The theoretical pilot project would be delivered in collaboration with an independent research body or an academic institution which will help ensure the objectivity of the research undertaken and conclusions, robustness of the data collected and emphasis on dissemination of the findings.
1) A number of respondents noted that this would extend uncertainty for communities and businesses; however, others (including oil and gas business and industry respondents) noted that this option could provide opportunities for informing future debate on onshore unconventional oil and gas extraction, and Scotland's energy policy more widely. This option could also contribute to a positive economic future for the Central Belt area of Scotland, where shale gas is predominantly located.
2) Oil and gas business and industry respondents stated this option would provide potential benefits for business by enhancing knowledge.
Partial BRIA Statements
1) All those costs outlined in Option 1 will be relevant to this option.
In addition, the delivery of a pilot project in Scotland would require funding by project partners. The costs of the project will require to be discussed with the PEDL holder, project partners and relevant regulatory bodies and will depend on a range of factors, including the exploration activity which may already have been undertaken at the location, the drilling depth, number of wells required, and the infrastructure required to be installed to support the operation. Delivery of the project would also be dependent on receipt of relevant licences, consents and access agreements, for which there may be application fees and annual charges.
2) The Oil and Gas Authority advises that an onshore exploration well typically costs between £0.5m and £7m and may take two years to plan.
1) Some oil and gas business and industry respondents stated there was insufficient information provided on this option, and queried the practical and financial feasibility of the type of research-led pilot proposed in the SEA.
As part of the consultation, we asked for stakeholder views on potential costs and funding sources. No views were offered in the responses received.