Cuadrilla’s press conference and wine and dine dinner hosted for councilors of all levels last Wednesday in Blackpool was aimed at bigging up the benefits of ‘new gas’ in the UK in order to win over investors as well as the local authorities sitting on planning application boards of the proposed sites.
Figures were drawn from an Economic Impact of Shale Gas report commissioned by Cuadrilla, based on their own industry data for the UK sites and modeled on two ‘economic impact’ reports from the US:
1) ‘The Economic Impacts of the Pennsylvania Marcellus Shale Natural Gas Play’, by Tim Considine and Robert Watson (May 2010) of Penn State University – a publication sponsored and funded by the Marcellus Shale Gas Coalition – a coalition made up from the big energy cartels operating in the region.
Of which, the Responsible Drilling Alliance say in a follow up article ‘Lies and Broken Promises’: “The Pennsylvania State University has permitted two of its former professors to use its research reputation to give authority to a blatant piece of gas industry propaganda. The university’s apparent endorsement of this industry-sponsored paper has allowed the gas industry to gain national recognition for it. Using their extensive public relations network, this work has likely become the most recognized academic paper ever published with the Penn State logo on its cover. Given the wide distribution it has received, the university should, at very least, be embarrassed by its low quality… The Penn State Report, as the industry has dubbed it, is the big lie that has put Pennsylvania citizens at a disadvantage when negotiating their future with this new industry.
Overstating their economic impact has been a very successful strategy for the gas industry. Trumpeting promises of jobs, tax generation, and economic development has stampeded our legislators into giving concessions”. Sound familiar? For the full report see here.
2) ‘Drilling for Dollars’ a report by Perryman Group consultancy firm who’s clients include Exxon-Mobil, Chevron and Texaco (also Coca-Cola, McDonalds and Wal-Mart) to assess fracking in Texas… the report title says it all.
These two industry funded reports alone constitute the ‘lessons from the US’ and unsurprisingly pretty much sum up the incentives behind the content of the UK report (funded by Cuadrilla). While the ‘economic viability’ (i.e. profit) will of course be the bottom line and holy grail for the industry, if you unravel their own figures on the benefits this will bring, and who gets what, it paints a bit of a different picture…
200 TRILLION CUBIC FEET OF GAS: first of all probably about 10-20% of this is recoverable, remembering this is low permeability rock which requires extensive fracturing to release the gas. Even if this estimate is true it would make it one of the biggest gas discoveries in the world in the past decade. However all the information on UK gas deposits is coming from the industry itself (it has not been independently verified by anyone else) and is highly speculative data based on two drilled wells. Even if this was true it would be between 6.5 and 13 years worth of present UK gas consumption not quite the 15 years that is being bandied around a drop in ocean globally, which is what matters in terms of prices. However shale gas wells have a stunningly high decline rate, generally producing gas for only a few years and one wonders to what extent this has been glossed over in Cuadrilla’s PR blitz.
LOADS OF MONEY: Cuadrilla estimate that this vast untapped amount of gas would bring local councils £120 million in business rates and £5-6 billion to HMRC. Which means the company would need to be making a profit of £25-30 billion (assuming they actually pay all their taxes and don’t channel it all of to a haven in Bermuda). Of course the company will be looking to make as much money out of this as possible and slide the government some cash for the privilege. But their figures seem at best grossly optimistic, and at worst obscene political wangling to entice investors and buy over government minsters and local authorities.
As pointed out before, a deal was struck with Hong-Kong-based fund in order to prop up one of Cuadrilla’s cash-strapped investors (who also sit on Cuadrilla’s management board) just days before Cuadrilla announced these Big Money results. A critical report by Reuters expands on the details… in this deal the Bowland licenses were valued at around 140 million Australian dollars. When you compare this to a similar deal earlier in the year, where BHP Billiton bought Petrohawk, a US gas shale producer, the deal was valued at $12 billion for 3.4 trillion cubic feet of proved reserves. You’d assume the value of a UK deal would be higher considering there is currently barely any competition here in shale gas (unlike in the US) and gas prices are about double of what they are in America. See Reuters: ‘Doubts raised about giant UK shale gas find’.
LOTS OF JOBS: A large proportion of the jobs will be technical and require specialised labour from overseas, with one third of the workforce coming directly from the US and the rest contracted in from elsewhere mainly other parts of the UK. Only 17% will be going to Lancashire area and these jobs will mainly include ‘low-end’ jobs such as transport and waste removal, or will be as a result of staff staying in hotels and restaurants, buying clothes etc. This they call the are ‘indirect’ (use of other businesses) and ‘induced’ (produced from the expenditure of staff in wider economy).
For each site the high-end estimate is for approximately 30 jobs in total per well. Across three test wells in Lancashire they estimate 19 local jobs ‘due to subsistence expenditure’, 17 jobs within Cuadrilla, 4 within the rest of the supply chain and 3 from further ‘Induced Impacts’. This also could include one-off jobs and temporary contracts. Given the quick turn-over time of installing a single well – to prepare, drill and fracture ‘can take up to half a year to complete… when full commercial extraction occurs certain elements of the process can be completed more quickly and efficiencies will emerge’ with ‘less analysis and testing required, and as such a quicker drilling and fracturing process’ – it seems more than probable many jobs will be short-lived.
AVERAGE SALARY OF £55,000: this is also a speculative figure modeled solely as an estimate based on a mid-way point between the petroleum industries average salary of £89,800 and UK all sector average of £32,100. Even if you take this at face value it masks the vast inequality of the distribution of income and how this affects averages… i.e. that the CEO’s and management roles will be making mega-bucks many-fold higher than the local truck driver or hotel laundry cleaner. Given that the top 12 managing directors awarded themselves $3.2 million salary and shares between them last year, at the same time as their company was making a loss of $17.6 million, it is totally misleading to use an ‘average’ salary of total income for all employees, seeing as the vast majority of workers will not be making anything anywhere near as much as £55k.
What’s worse – this ‘average’ salary is being used interchangeably with the number of jobs the industry says it can create in the area, the Economic Impact Report says ‘Average wage levels across Lancashire currently stand at £27,500 according [to] the latest (2009) Annual Survey of Hours and Earnings, and we would anticipate the average salaries on offer as a result of shale gas activities will be broadly twice that currently on offer on average across Lancashire‘ … implying that the 17% of low-mid range temporary jobs ear-marked for Lancashire residents will be at a £55,000 wage. Fat chance.
The Impact Report turns to Aberdeen as a bastion example of the benefits that could be reaped from the exploration industry. Aberdeen has the biggest concentration of UK oil companies with 40% of total employment supported by the offshore industry. Big industry dominates the area, almost all of which is oil and gas, including Exxon-Mobil, Apache, Total, Haliburton etc and has included development of airport which has three terminals and passenger growth exceeding both Edinburgh and Glasgow – largely due to in-goings and out-goings of top-level industry and helicopter traffic to North Sea oil and gas. They state the industry has induced population growth 15% over 30 years and ‘the strength of Aberdeen City and Shire’s retail sector is linked to the relatively high level of disposable incomes in the area’.
The difference of course is that while Aberdeen may host the company HQ’s the exploration sites themselves are off-shore, out of sight and out of mind, not sprawled across rural countryside in people’s backyards, where the damage to the environment will be felt and directly effect neighbouring villages and livelihoods. While a ‘not in my backyard’ sentiment is short-sighted in the wider scheme of things given that the mass exploration and exploitation of resources is damaging where-ever it is, the direct risks to people in the area is significant, especially when locals are being coaxed into thinking that the industry will bring them lots of benefits.
In the report there’s no mention whatsoever of potential negative effects, economic or otherwise for example on agriculture and food supply (including the risk of contamination of water sources and interaction of chemicals on plants, and other chemicals used on plants) … except one acknowledgement that ‘West Lancashire… [has] a significant, though weakening agricultural sector’. Accurate figures are difficult to come by but agriculture in Lancashire must contribute in the hundreds of millions to the local economy and tourism as much as £3 billion. These would both be threatened by an expansion of fracking in the county.
While Cuadrilla are quite happy to draw lots of lessons from the profit the industry has made in the US, there is complete silence on the damage it has caused to the environment, eco-systems, climate, water, human health etc.
Now what is worrying is that in Lancashire Cuadrilla are pushing to develop four – twelve test wells within the next year and scale up to commercial production by the beginning of 2013, and propose to develop 20 new wells in year one, 30 in year two, 40 wells in year three… so that by low estimates 190 wells are complete by 2019 and by high estimated 800 wells are in production by 2022.
It seems Cuadrallia have gone on a PR offensive in order to big up their operations, trying to overshadow criticisms and concerns with promises of easy cash, hoping that investors and government will buy in quickly.