March 3, 2014

Commercial Property e-brief – To Frack or not Frack?

It’s difficult to not have seen the recent discussions about fracking in the news with the North of England having specifically been identified as potentially containing trillions of cubic feet of shale gas underneath the soil.  The process is fairly widespread in the US but has to date only been used in the UK at one site although permissions have now been granted to explore several sites.

WHAT IS IT?

Hydraulic fracturing or “fracking” is the process of injecting a high pressure water mixture underground into rock in order to release and extract gas or other substances that exist below the surface of the land.  The rock is “fractured” apart by the process.

THE CURRENT POSITION

Legislation determines that all natural gas (including shale gas) in the UK is vested in the Crown but not the land within which the gas is situated.  There is a presumption that a landowner owns (in addition to the land and buildings) the airspace above and the ground below right down to the core.  So an operator will need the permission of the landowner to search and explore for gas, both over and under the land and for the duration of the project.

Otherwise, this currently would amount to trespass which could enable the landowner to stop the operation and potentially sue for damages.  Suggestions that ministers are currently reviewing trespass law to potentially take away the rights of landowners, if correct, could mean hostile landowners are taken out of the equation in the opposition to fracking.

An operators’ only other recourse currently is to apply under a compulsory purchase scheme which allows the acquisition of rights and easements to enable drilling.  Factors affecting the grant of such a statutory easement include:

  • the effect of the proposed right on the occupation of the land
  • the amenities of the locality
  • whether it would be in the national interest and
  • that private agreement has not been possible due to the refusal or unreasonable demands of the landowner

In view of this, as is often the case in wayleaves and the statutory powers which surround these, a landowner may decide that it is preferable to consent in advance to access so as to tailor the consent to their particular circumstances, limit the extent of the rights granted and negotiate and agree any licence fee payable.

LICENCE AND PLANNING PERMISSION

In addition to the consent of the landowner, an operator will require a licence and planning permission to drill or search for shale gas and if found another licence will be required to frack and/or extract it.  A planning permission would then be required and could be another battle ground for the opposition to fracking operations in the objection stage.

CONSIDERATIONS

Potential liability needs to be considered by both operator and landowner in advance (the US has shown that most litigation has been after the event with claims for damage to land caused by the fracking operation).  The main grounds for opposition seem to be:

  • environmental damage and water contamination in view of the huge amounts of water used and the chemical substances within it
  • damage to land caused by the operations, both physically and visually
  • air quality, and
  • possible seismic activity (following fracking near Blackpool, two small earth tremors occurred in the area)

which need to be balanced against the UK’s future energy needs and the possibility of cutting energy prices.

Fracking has been deemed to be safe as long as best practice and regulations are enforced and there is good management of waste water.  With the government highlighting benefits for the community (percentage of revenue/ bulk payments) if shale gas is extracted in an area, consultations already taking place on tax breaks for operators to alleviate the high upfront costs and increasing pressure to find alternative energy resources and reduce imports, despite the opposition, fracking and its potential cannot be ignored and “to frack” seems the inevitable outcome.

If you would like to find out more about the issue of fracking, please contact Rachel Thompson or a member of the commercial property team on 0113 227 0308.