Socio-Economic Impact of Unconventional Gas in Wales
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Socio-economic Impact of Unconventional Gas in Wales A Final Report by Regeneris Consulting, Cardiff University and AMEC Welsh Government Socio-economic Impact of Unconventional Gas in Wales July 2015 Regeneris Consulting Ltd www.regeneris.co.uk Socio-economic Impact of Unconventional Gas in Wales Contents Page Definitions i Executive Summary ii Recommendations 1. Introduction 1 Definitions and Terminology 1 Our Approach 6 2. Policy and Planning Framework in the UK 8 European Policy 8 United Kingdom 9 Policy in Wales 13 Summary 15 3. Unconventional Gas Resource in Wales 16 Global Resources 16 Unconventional Gas Resources in the UK 18 Unconventional Gas Resources in Wales 20 Factors Influencing Future Extraction within Wales 29 Implications for Economic Scenario Development 34 4. Review of Socio-economic Impact Evidence 35 5. Economic Impact Scenarios 56 Development Scenarios 56 6. Supply Chain Opportunities in Wales 62 The Supply Chain Opportunity 62 Supply Chain Opportunities in Wales 66 Summary 71 7. Estimated Economic Impact in Wales 72 Economic Assessment Approach 72 Outline Methodology 72 Socio-economic Impact of Unconventional Gas in Wales Data Sources 74 Economic Impacts of Development in Wales 75 Summary 78 8. Employment and Skill Needs & Opportunities 80 Range of Skills Requirements 80 The Scale and Source of Requirements 82 Existing and Planned Skills Infrastructure 83 Implications of Competing Uses 84 Summary 85 9. Other Potential Economic Impacts 86 Energy Price and Sector Effects 86 10. Local Community Impacts 93 Local Access to Employment and Skills 93 Community Benefit Packages 94 Potential Impacts on Tourism Activity 95 Summary 99 Appendix A - Economic Modelling Framework Appendix B - Skills Matrices Socio-economic Impact of Unconventional Gas in Wales Definitions Coal bed methane - methane gas which is contained within coal seams as the result of coal formation, either being adsorbed into coal micropores (<2nm) or dispersed in pore spaces surrounding it Shale gas - natural gas that is trapped within rock shale formations, with a combination of horizontal drilling and fracture technology being required to enable economic extraction of oil or gas Underground coal gasification - a process by which air, oxygen and steam are injected into coal seams at depth in order to partially combust the coal, producing heat, hydrogen, carbon monoxide and methane and in some seams, sulphur gases Direct economic impact – the economic activity which arises as a direct consequence of expenditure associated with exploration, extraction and long term production of unconventional gas Indirect economic impact – the economic activity which arises through the supply chain supporting the exploration, extraction and long term production of economic impact Induced economic impact – the economic activity which arises through the personal expenditure of workers whose jobs are supported directly or indirectly by unconventional gas extraction FTE – full time equivalent employment is a measures of economic impact used in the assessment GVA – Gross Value Added (GVA) is a measure of wealth creation used in the assessment Input-Output tables - the assessment uses the Input-Output (IO) tables for Wales in order to estimate the direct, indirect and induced GVA and FTE effects of economic activity in Wales. i Socio-economic Impact of Unconventional Gas in Wales Executive Summary Introduction i. The exploitation of unconventional gas in the UK, covering shale gas and oil, coal bed methane and underground coal gasification, is at an early stage. However, it has been the focus of much interest due to the potential to provide additional security of supply, to enhance the UK’s energy mix and to potentially provide a lower cost energy source. ii. However, there remains considerable uncertainty about the amount of resource and the extent to which this is technically or economically recoverable. Various strategic studies have been commissioned by the UK Government’s Department of Energy and Climate Change (DECC) for the UK as a whole and in areas of the UK considered to be most prospective for gas and oil. The Welsh Government commissioned a study on the potential unconventional gas resource in Wales, which concluded that further data on the geology, engineering and associated costs of production is needed to make credible resource and reserve estimates. iii. It is recognised that the industry has the potential to bring significant economic benefits to the UK and to particular locations. This has focussed on shale gas in particular, with widely differing estimates of the scale of employment supported. At the same time there are concerns about the potential environmental and social impacts of particular technologies and the effect they may have on host communities, and particular sectors (e.g. tourism, intensive gas using sectors). iv. Given that the industry in Wales is in its infancy, there is an opportunity to consider the potential socio-economic impacts of unconventional gas for Wales. This study aims to make an important contribution to this thinking and inform policy development. Whilst the Welsh Government does not have full devolved responsibility for energy policy, it has various regulatory, policy, fiscal and resourcing mechanisms available to influence the development of the sector in Wales. Policy v. Within the UK Government, there is a clearly now a supportive policy environment for the development of unconventional oil and gas, setting out to provide a safe, responsible and environmentally sound basis for the recovery of the unconventional reserves of oil and gas within the UK. The UK Government has committed to exploiting the potential of unconventional gas production, with support for the industry including: Undertaking research to demonstrate the extent of unconventional oil and gas reserves within the UK, as well as the economic benefits of the growth of the sector and its supply chain. The establishment of the Office for Unconventional Gas and Oil (OUGO) which works with HM Treasury to support the growth of unconventional energy industries by ensuring coherence between the regulatory, licensing and taxation regimes, as well as providing a framework to deliver benefit to local communities that accommodate development. ii Socio-economic Impact of Unconventional Gas in Wales iii Socio-economic Impact of Unconventional Gas in Wales Publishing guidance on the regulatory and permitting framework for unconventional oil and gas in order to improve understanding of the framework and procedures (the Regulatory Roadmaps). Provision of greater clarity for industry around the long-term tax treatment of shale gas profits by providing a new shale gas field allowance and extending the ring-fence expenditure supplement in order to promote investment. Consulting on measures designed to simplify the existing procedure for underground access when seeking to exploit oil, gas or geothermal resources, with resulting amendments proposed to the Infrastructure Bill. More generally, working with key stakeholders including industry (through the UK Onshore Operators Group, UKOOG), on issues such as regulation, supply chain development and skills. For example, UKOOG has introduced the Community Engagement Charter in order to ensure that local communities benefit from hosting future oil and gas developments. vi. Policies surrounding the use of unconventional gas as a source of energy is set at the UK level by the UK Government. However the Welsh Government is responsible for a number of areas which impact on the industry, such as planning policy and environmental regulation. vii. The Welsh Government is committed to moving towards a low carbon economy and sets out its ambitions for tackling climate change in the Climate Change Strategy for Wales. While meeting these climate change goals, the Welsh Government aims to maximise the benefit to the people of Wales and create wealth and employment in the process. Its approach to unconventional gas is currently precautionary while it considers the evidence and undertakes further research into benefits and disbenefits of unconventional gas in Wales. Potential Unconventional Resources and Reserves viii. The UK has substantial unconventional reserves of oil and gas. However, at present neither DECC nor the industry have sufficient engineering, geological or cost information to make a meaningful estimate of overall technically recoverable reserves. Whilst this information will improve as further intrusive exploration is undertaken, it needs to be borne in mind that estimates of technically recoverable reserves have no implication for whether these reserves are economically viable at current prices, or in relation to other economically marginal sources of fuel that may become attractive following a price increase. ix. Potential unconventional gas resources in Wales are most likely to be found in association with coal seams or shales. The evidence on resources in Wales, which is currently much more extensive for coalbed methanes, points to the following: Six wells have been drilled to date and other permissions are in place for exploratory drilling. Based on a 10% recovery factor, BGS suggest a combined resource estimate for CBM in South Wales of between 3 and 6bcm (equivalent to between 4% and 8% of annual UK gas consumption1) and between 3 and 9bcm in North Wales (equivalent to between 4% and 11% of annual UK gas consumption) Outside the coalfields, there has been very little exploration for unconventional hydrocarbon