To Launch Fracking in the UK, Property Owners get shafted

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By Don Quijones, Spain & Mexico, editor at WOLF STREET. His blog: Raging Bull-Shit.

“An Englishman’s home is his castle.” Or so the saying goes, even if said castle is actually a crumbling, damp-infested two-up, two-down on the ugly side of town. In the UK, it’s the basic principle of house ownership that counts.

But what about the land upon which an Englishman’s castle is built? Who does it belong to? More to the point, what about the minerals, gas and oil contained below its surface? The reason these two questions are suddenly of vital import is that Britain is about to experience the mother of all natural gas rushes.

Thanks to a law that was just passed, over half of Britain’s landmass is now open to bids for drilling by oil and gas companies seeking unconventional hydrocarbons. As a consequence, millions of British residents face the prospect of fracking on their doorstep.

Unlike the United States, where fracking fever has been simmering for years, the UK is a densely populated country, with 660 people per square mile, compared to the U.S.’s 83. What’s more, in the U.S. landowners have full rights to the minerals contained on or under their land. This means that while they may be compelled by law to accept hydraulic fracturing on their land, they at least get some material compensation for the irreparable environmental devastation it tends to leave in its wake (contaminated water and air, water shortages and increased risk of earthquakes, etc.). Scant consolation, I know, but at least it’s something!

In the UK, by contrast, the State owns all rights to all valuable minerals – oil, gas, coal, gold and silver – under people’s property.

To wit, from the British Geological Survey:

For landward exploration a licence is required, which grants exclusive rights to exploit for and develop oil and gas onshore within Great Britain… The Department for Business, Innovation and Skills grants licences to explore for and exploit all oil and gas resources on UK territory.

“Trespassers Are Welcome”

Property owners in the UK may think they own their land and all upon it, including the gardens they tender with a religious fervor – and to all intents and purposes they do – but just about anything of value found below its surface belongs lock, stock and barrel to Her Majesty the State.

Indeed, in the last year thousands of people up and down the country have been informed that the Queen is reclaiming ownership of what lies beneath their homes. In North Staffordshire, for example, letters have been sent to families informing them that the Duchy of Lancaster is registering its “manorial mineral rights” to their land.

Not everyone is enamored with the prospect, especially given its blatant feudal undertones. More than 45,000 people around the country have already joined legal moves to block energy companies from fracking under their properties. The law of trespass, currently, is that the property owner has to be requested – and can refuse – access to obtain those minerals/gas/oil.

However, a change to the trespass laws could allow companies to explore for shale gas without even needing their permission. And that is precisely what the government seeks to achieve through changes to the law that would remove the requirement for drilling companies to inform homeowners, landowners and tenants directly of plans to drill below their property.

That’s right: they can start drilling under your kitchen or garden without having to tell you about it. And not only that, they’ll receive taxpayer funds for doing so, for in its haste to get the drilling started, the government has provided numerous incentives “to help kick-start the industry,” including “tax breaks, payments of £100,000 [or nearly $170,000] per site plus a 1% share of revenue to local communities,” the BBC reports (link here).

Energy Security: A Convenient Lie

The reason trotted out by the UK government for turning half of Britain, including many of its national parks, into a gas prospector’s paradise is “energy security.”

The argument is as simple as it is disingenuous: an increased domestic gas supply will drive down national prices, enhancing the UK’s export competitiveness while at the same time drastically reducing domestic energy bills as well as Britain’s dependence on unpredictable, power-hungry tyrants. However, as Paul Stevens, a distinguished fellow at the energy, environment and resources department at Chatham House, pointed out in an article for The Guardian (since removed, link here), a shale gas revolution will not bring prices down in Britain, as it has done in the US where domestic production is still landlocked.

Stevens cites a host of reasons, including the UK’s poorer-quality gas deposits, its strict environmental regulations (which, to be fair, the government seems to be doing a fine job of shredding), the large gas companies’ preference to export to more expensive markets in Europe, and perhaps most importantly the steady rise of public resistance, which could end up being a game-changer.

With more than three-quarters of UK residents opposed to energy companies being able to drill without permission, including in traditional conservative strongholds, the government is likely to have an uphill struggle on its hands.

Even before the new law was enacted on Monday, the government’s plans had already received a major setback, as West Sussex county council’s planning committee unanimously refused to allow Celtique Energie to drill through shale rocks near the ancient village of Wisborough Green – an exploratory exercise that could have led to fracking. As the Daily Telegraph reports, the decision has “put at risk” the drive to unleash what ministers planned to be an oil and gas bonanza in the South East.

The battle lines are drawn. On the one side are some of the world’s biggest oil and gas companies who, with support from the UK government and financial services industry, are determined to suck hydrocarbon liquids and gas out of the British landscape without consulting its inhabitants; on the other side are local communities who are determined not to lose complete control over their land and water resources.

Who wins the battle will ultimately depend on how far the normally placid people of rural Britain are willing to go to protect their castles from the frackers’ attentions, as well as the extent to which the Cameron government is prepared to alienate its own core voters. By Don Quijones. An exclusive for Wolf Street.

It always starts with a toxic mix. This is fracking in the US. Read…. Where Money Goes to Die: How Fracking Blows Up Balance Sheets of Oil and Gas Companies

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  6 comments for “To Launch Fracking in the UK, Property Owners get shafted

  1. Aug 3, 2014 at 6:21 pm

    I’m a big supporter of fracking and the shale gas boom. But I’m an even bigger supporter of property rights.

    Land owners need to be justly compensated especially since not one individual in the UK can actually own the minerals under their feet, which is a shame.

  2. J Tan
    Aug 3, 2014 at 11:21 pm

    Blessed are the meek for they shall inherit the earth, but not its mineral rights, lol

  3. AC
    Aug 4, 2014 at 12:57 pm

    After all, poisoning the ground water used by the masses is just a cost of doing business . . . that the poisoners externalize onto other people.

  4. Joe
    Aug 5, 2014 at 6:40 am

    Anyone or institution who tamper the property right can go and frack themselves.

  5. Malcolm McIntyre
    Aug 5, 2014 at 10:21 am

    http://www.chathamhouse.org/publications/papers/view/196314 links to a December 1 2013 paper by Paul Stevens which presumably formed the basis of the now-deleted January 2014 Guardian article.

    Gas from fracking is basically another financial scam, is it not? – recovery volumes were over-estimated/fabricated, for a start. The local environments will be well and truly fracked, but hey, so long as scammers are making money that’s all that matters to captured governments and “regulators”. Works well for the financial system as a whole, too.

    • Aug 5, 2014 at 10:54 am

      The way drillers account for the actual costs of fracking a well (via depreciation) may not match the well’s rapid decline rate. So a lot of expenses don’t show up on the income statement, until periodically drillers adjust it to reality by incurring mega-billion “non-cash, one-time” write-offs.

      It’s likely that drillers end up losing money over the long term at current prices on many productive wells. And so far, they’ve been able to make up the difference with borrowed money. That sort of thing will end in tears for investors.

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