Fracking Employment

From the Financial Times 16 October 2103

AMEC forecast just 15,900 to 24,300 nationwide - direct & indirect

Jobs would typically be short term, at between four and nine years

Only 17% of jobs so far have gone to local people

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The US-based Energy Information Administration recently estimated (pre-BGS announcement) that it might be technically possible to extract about four per cent of the UK’s shale gas resource. Even that number doesn’t take economic, social or political factors into account, which could further reduce the amount it’s possible to get out. — Robin Webster – Carbon Brief

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Fracking and its Impact on the Fylde

Most people living in the UK should by now be aware of the proposals to allow the use of the controversial technique of gas extraction known as hydraulic fracturing or “fracking” in some of the UK’s rural areas. The first area being targeted is above the Bowland Shale, here on the Fylde coast. Exploratory work is already underway, but was halted last year when two earthquakes caused damage to local properties.

Fracking’s supporters make bold claims for its benefits, whilst some of those who are opposing it make what can sometimes seem, to the uninformed, like an alarmist case against it. To make sense of the opposing views we have to sift the information presented to us and balance the realistically achievable benefits for our community and the UK as a whole against the likely risks.

With the government set to give the green light for further exploration shortly we all need to look at what fracking might mean to the economy and environment.

So what is the reality? Cuadrilla, the company exploring on the Fylde now, have spent large sums to persuade local people that fracking will bring us many benefits such as employment growth, contributions to the local economy, a reduction in the UK’s dependency on foreign energy and the creation of a constraint on gas prices.

Let’s take employment first. In a report that they commissioned themselves, Cuadrilla talk of as many as 1,700 jobs being created in Lancashire (which is, of course, not quite the same thing of course as 1,700 jobs for Lancashire residents). However, even in their high-end scenario involving 800 wells, the peak rate of employment would only last for a single decade (1).

They claim that fracking will inject huge amounts of money into the local economy, but we do need to be careful before accepting such claims at face value. Cuadrilla recently claimed that their geo-physical survey contributed over £1.5 Million to the local economy but an analysis of their own data, using their own methodology, showed that barely half this figure was justifiable (2). The truth is that only a small fraction of the money spent by the fracking companies will find its way into the local economy after taxation, savings and the propensity to spend elsewhere are taken into account. In an environment where new employment opportunities in rural areas are scarce we should be careful about disregarding any of them, but we do still need to weigh up the potential downsides, before blindly accepting a relatively small and temporary economic gain as a real benefit.

Many people I speak to believe that fracking will benefit everyone in the UK by bringing us cheap gas and energy security. While Cuadrilla are careful not to make this specific claim in their publications, they do point out the downward spiral in gas prices in the USA and allow us to draw our own inferences. Unfortunately for the advocates of fracking, sources as reputable as Deutsche Bank and the Director General of the CBI (3) have stated that they don’t see shale gas fracking as having any significant downward effect on wholesale or retail energy prices in the UK. One reason for this is that the estimates by the British Geological Survey for total recoverable reserves in the Fylde currently amount to 5.3 trillion cubic feet, which is less than 2 years worth of total UK consumption (4), and so is hardly going to have a huge impact on the nation’s energy security either. Other reasons why prices won’t fall as they did in the USA include the fact that the cost of the huge volumes of water required is up to 10 times more here in the UK, and our shale plays are up to 3 times deeper down than in America.

We need to be very clear that this will not be the “game changer” that it is in the USA. In any case, the much vaunted (but apparently temporary) drop in wholesale gas prices there has the fracking companies in disarray as their exploitation of these hard to recover resources has, in many cases, become economically unviable, even with their relatively low cost structures. Many wells have been closed and won’t be operated again unless the gas price rises enough to make it worth while. This could happen of course as the gas price in the USA is set to return to somewhere near its peak 2010 level by 2014 (5)

We should also bear in mind that the lion’s share of any financial rewards will largely flow to the foreign corporate investors as dividends. Although Cuadrilla’ boast that they are a UK based company is technically true (Cuadrilla Resources Ltd is registered in Lichfield, Staffs) that company is, in turn, wholly owned by Cuadrilla Resources Holdings Ltd. Cuadrilla Resources Holdings Ltd is owned jointly by Australian company Lucas Cuadrilla PTY Limited (40.9%), Cayman Islands based Riverstone / Carlyle Global Energy and Power fund IV (Cayman) LP (40.9%) and its international management team (18.2%). If they are allowed to frack the Fylde it looks as though, instead of paying the Russian and the Qatari governments for our gas, we shall paying foreign businesses and investors instead. There is not much of an obvious improvement for the man in the UK street there is there?

Whilst the fracking companies may have offered local communities some flowers for an “In Bloom” competition or a contribution to paint a local village hall, I don’t think this should really be exciting any of us given the billions that the corporate stakeholders stand to make from what they are doing. I’m sure most of us are intelligent enough to see those gestures for what they really are.

It seems then that the benefits, such as they are, are temporary and not over-exciting for the local residents or indeed for the UK as a whole. So, what are the potential downsides?

Much has been said about the potential environmental impact of shale gas drilling. It is clearly a developing technology, and nobody who has read any of the reports coming from the United States can be left in any doubt that without stringent and properly enforced regulation it is potentially a very dangerous technology indeed. Obviously any environmental accidents could have a devastating effect on the local economy.

It would be wrong to suggest that our experience in the UK will exactly mirror that of communities in the USA. There are too many differences of geography, geology, demographics and regulation, but those of us who have read, with increasing concern, about the now well-documented environmental and health impacts of fracking on previously rural communities have genuine and reasonable concerns for the future of our area.

When we read the industry’s continued insistence, against all the emerging evidence, that there is no proven link between fracking and water contamination or between fracking and health problems, we are inevitably reminded of the tobacco industry and its similar insistence that smoking does not cause lung cancer. It is perhaps no accident that the same Public Relations company that for decades created the PR strategy for the tobacco industry to combat reports that cigarette smoking caused cancer, Hill and Knowlton, have been hired by America’s Natural Gas Alliance to convince people that fracking, too, is safe.

For those of you who remain convinced that environmental and health concerns are being exaggerated, here is the risk assessment table that was published by the EU in September 2012.

EU Risk Assessment

EU Risk Assessment

This is not just about the potential environmental and health issues though. Even safely executed fracking might have an extremely negative impact on the amenity value of our surroundings. By that I mean the things that make us want to live and work somewhere, buy houses somewhere and bring up our kids somewhere.

Many of us choose to live in and around rural environments because of the associated tranquility. Fracking is an industrial process that requires rural land to operate so there is an immediate source of tension here. If Cuadrilla’s high end scenario of 800 wells in their permitted development area came to pass, we would have 80 well pads of around 200 metres square in size each, spread across the Fylde countryside. Some in the USA might consider this size and number of pads acceptable, but here in the Fylde our population density is 12 times higher than it is over the Barnett Shale in Texas, which means that any impacts on the local environment will be far more noticeable.

The MP for Fylde, Mark Menzies, understands this. He stood up in parliament in October 2012 and said “Knowing the countryside of Fylde as I do, I know it would be completely unacceptable to take many sites to extraction phase.” However, in saying this he has placed himself on collision course with his senior colleagues at the Department of Energy.

Whilst not all the wells would be in operation simultaneously, we would still have to get used to a huge amount of disruption and change. In the development phase we would see the creation of the necessary infrastructure such as pipelines, power stations and access roads completely changing the character of our rural area. In the exploitation phase we would have to live with a huge number of transport movements of rigs and of tankers laden with undiluted toxic chemicals and contaminated flow back waste, gas wells being drilled and flared, and fugitive methane emissions and drilling dust contaminating the air. On top of all of these are the risks from further unexpected earth tremors and the possibility of general subsidence resulting from the drilling. If you think these are minor risks then ponder the fact that some property owners in America have already had damage from fracking excluded from their cover by their insurers (6). All of these things will have a significantly detrimental impact on the amenity value of the locality by affecting its look, feel, smell and sound.

This amenity value is tremendously important for existing industries like leisure and tourism in the area and it is why we buy houses here and it is why people choose to come here to spend their money in local hotels and shops.

If we allow it to be degraded because of some questionable and transitory benefits, then we risk the very prosperity, which makes most of us want to live in and visit this area. Ask yourselves how attractive this area will seem to the visitors driving down the M55 with gas wells flaring on either side of them. I have a hunch that these new Blackpool Illuminations won’t be considered as much of a tourist attraction as the originals.

Of course, we do need companies to invest in rural areas if we are to retain our prosperity, but we must be careful what we wish for. Tourism already provides around 16,500 jobs across the Fylde, Wyre and Blackpool (7). A temporary increase of 10%, which might eventually risk them all, looks like a very bad bet from where I am sitting.

If we allow our countryside to be ruined by ill-advised and unnecessary industrialisation then we will have to accept that people may no longer want to come here to holiday and that other companies may not be able to persuade employees to remain in or relocate to our area, thus reducing still further the likelihood of more sympathetic and acceptable inward investment. Our existing industries will decline and our investments in our own homes will suffer as a result.

What will the effect of this loss of amenity value be on our property prices? That is, of course, hard to predict, but a report in the Daily Mail on Sunday on 4th November 2012 (8) suggested that houses within 2 miles of a fracking well might lose up to 24% of their value. With 800 wells planned for the Fylde that would mean that most of the housing stock in the area would be affected, as few of us would live more than 2 miles from a well pad. With the average house price in the Fylde standing at £175,000 in June this year (9) that’s quite a high price to ask us all to pay to secure less than 2 years worth of UK consumption. Amazingly Cuadrilla publicly blame this possible effect on “misleading claims from a minority of people” rather then the potential impact of their own operations.

So, does the evidence in favour of fracking stack up? It is clear that the minimal gain to the UK as whole cannot even start to justify the wholesale industrialisation of a beautiful rural area and the price we would individually be asked to pay. Whatever benefits there might be from this exercise are transitory and will mostly flow out f this country. Unfortunately this does not seem to matter to our government who appear intent on allowing fracking, regardless of its potential impact on our local environment, as long as it allows them to skim some tax revenues before the bulk of the cash leaves our shores. With the tax arrangements of companies like Starbucks, Google, Amazon , Boots , Vodafone and Topshop very much in the news, one has to wonder how effective HMRC will be at even extracting that small benefit for our country efficiently from Cuadrilla’s international owners.

Our government is not only taking a strong pro-gas position, but certain prominent ministers are pursuing an actively anti-renewables agenda. Speaking about wind farms in the Daily Telegraph recently, energy minister John Hayes said “We can no longer have wind turbines imposed on communities. I can’t single-handedly build a new Jerusalem but I can protect our green and pleasant land.” Here in the Fylde we can only hope he feels the same about fracking wells. I have a horrible feeling though, that Mr Hayes’ vision of a ‚”green and pleasant land” doesn’t stretch quite as far North as Junction 32 of the M6, and that we shall soon be seeing some dark satanic wells looming over our fields here in the Fylde.

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Notes:

1. http://www.cuadrillaresources.com/wp-content/uploads/2012/02/Full_Report_Economic_Impact_of_Shale_Gas_14_Sept.pdf

2. http://stopfyldefracking.org.uk/latest-news/guest-blogger-local-management-consultant-john-hobson-investigates-cuadrillas-claim-for-a-1500000-contribution-to-the-local-economy/

3. http://www.businessgreen.com/bg/news/2208266/cbi-rejects-calls-for-allout-dash-for-gas

4. http://www.publications.parliament.uk/pa/cm201213/cmselect/cmenergy/writev/isg/m17.htm

5. http://www.ogfj.com/articles/2012/11/upcoming-changes-in-shale-fracturing-can-impact-proppant-use.html

6. http://www.huffingtonpost.com/2012/07/13/nationwide-insurance-fracking_n_1669775.html

and

http://www.nationwide.com/newsroom/071312-FrackingStatement.jsp

7. http://www.nomisweb.co.uk/reports/lmp/la/2038432055/subreports/abi_compared/report.aspx?

8. http://www.thisismoney.co.uk/money/news/article-2227344/Shale-gas-redraw-economic-map-Britain–price-houses-nearby-wells-fall-24.html?ito=feeds-newsxml

9. http://news.bbc.co.uk/1/shared/spl/hi/in_depth/uk_house_prices/html/30uf.stm

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Fracking here’s a bad idea!

Who's fault?

"What you have to be able to do when you decide you want to hydraulic fracture is make sure there are no faults in the area. That's really very very important"

Professor Mike Stephenson - Director of Science and Technology - British Geological Survey

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