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Sunday, July 21, 2013

Fracking Tories

In July 2013 George Osborne announced a new low-tax regime for shale gas fracking operations, which he described as "the most generous for shale in the world". Before I get to analysis of this new tax regime and the brazen Tory party conflicts of interests, I'll first describe what fracking is.

What is fracking?
Hydraulic Fracturing, commonly known as "fracking" is a process for the extraction of gas. It involves pumping vast quantities of water, laced with countless toxic chemicals deep under the ground under high pressure, in order to force out natural gas. The process is highly controversial, and can cause extreme environmental damage if the toxic fracking liquid seeps into the water table. It is even claimed that fracking can cause earthquakes. The global capital of hydraulic fracking is the United States, where vast swathes of land have been taken over by fracking operations. In 2010 the documentary film maker Josh Fox made a film called Gasland about the environmental impact of fracking which won the Special Jury Prize at the 2010 Sundance Film Festival. It is worth watching Gasland to see the potential economic destruction caused by fracking. Some of the most striking images in the documentary are the clips of people setting fire to their contaminated tap water.

Fracking is an economically inefficient method of energy generation. Fracking operations are highly energy intensive, requiring extremely deep drilling, the transportation of millions of gallons of water, the production of fracking chemicals and the production of various other components. In return for this extremely large energy investment, the amount of gas produced is very low. In comparison to a conventional oil well, the amount of energy investment needed to extract gas via fracking is enormous. The Energy Return on Energy Invested (EROEI) on shale fracking can be as low as 1.5 (that means just 1.5 units of energy for every 1 unit of energy spent on extraction). To put this figure into perspective, the EROEI on conventional oil drilling can be as high as 100, and even hard to access oil supplies like North Sea Oil has an EROEI of between 10 and 25. If all of this EROEI talk is a bit too technical for you, this brilliant short documentary is worth a watch.

Put simply, fracking produces such low returns on energy investment it is only profitable when energy prices are high.

George Osborne's tax break for the frackers
George Osborne stated that "fracking has the potential to keep energy bills low for millions of people" when the economic reality is that fracking depends on high energy prices in order to generate profits. Either Osborne is completely clueless about the industry he is giving this enormous tax break to, or he is straight out lying about it.

If Fracking is so efficient that it will "keep energy bills low", one must wonder why it needs such a vast tax break in order to make it profitable. It's almost as if George Osborne knows that the fracking industry is grotesquely inefficient, and that the only way he can make it financially viable is to offer tax breaks that are unavailable to more environmentally sound practices (wind, wave, solar, geothermal), or to significantly more efficient forms of fossil fuel extraction (coal, natural gas and North Sea oil).

The fracking tax break will set taxation at just 30% for onshore shale gas production. That compares with a top rate of 62% on new North Sea oil operations and up to 81% for older offshore fields. It seems a bit confusing that a government that bragged about how they were going to be "the greenest government ever" have concluded that they must give vast tax breaks to one of the most environmentally destructive and downright inefficient forms of energy extraction possible. It's almost as if they lied about their environmental credentials in order to convince gullible people that they give a damn about the envirnoment isn't it?

One of the most remarkable things about George Osborne's announcement of such a huge tax break is that UK research into the environmental effects of fracking has not been completed. Recall energy secretary Owen Paterson's refusal to ban neoncotinoid pesticides because the government hadn't completed their (botched) research project. Well Osborne's fracking tax-break decision is the polar opposite. Is it not strange how the Tory government insist that their research must be completed when a legislative delay clearly benefits major corporations, yet they plough ahead with legislation before the research is completed when such haste clearly benefits major corporations? It's almost as if corporate financial interests are some kind of over-riding imperative for the Tory party isn't it?

Conflicts of interests

Aside from the environmental disregard, the unfair competition and the grotesque hypocrisy this fracking tax-break exposes, there is also the fact that several members of the government stand to gain considerably from such an enormous tax break for the fracking industry.

David Howell
Perhaps the best place to start is with George Osborne's own family. His father-in-law, the Conservative peer Lord Howell is a lobbyist for the fossil fuel industry. He combines his role as president of the British Institute of Energy Economics (sponsored by Shell and BP amongst others) with the role of energy minister at the Foreign Office. He is notoriously skeptical of renewable energy sources and the sponsors of his institute stand to gain dramatically from the lucrative tax break being handed to them by his son-in-law.

As well as the BIEE lobbying interest that has been widely reported in the press, Howell is also the chairman of another energy lobbying group. In the Parliamentary register of members interests he is listed as chairman of Windsor Energy Group. On the Windsor Energy Linkedin profile (registration necessary) they boast about "building bridges between the public and the private sectors" and brag about their lack of openness and transparency - "discussions are kept non-attributable to allow full and frank exchanges of views". The financial backers of Howell's energy lobbying group listed on their webpage include the British Foreign and Commonwealth Office, the Chinese government, various petrochemical companies including British Gas, British Petroleum, Shell, Marathon Oil, Kuwait Petroleum, Petrofac, PDVSA, and even NATO!

It is absolutely clear that many of the clients of Howell's lobbying groups stand to benefit enormously from his son-in-law's actions.

John Browne
The former chairman of BP and admitted perjurer John Browne who sits in the House of Lords as "Lord Browne" is another member of the current administration with close links to the fracking business. Browne is the lead Non-Executive in government. For those of you that are unfamiliar with what Non-Executives do, they are unelected people that sit in and advise government departments. Of the 60 unelected Non-Executives influencing public policy, almost all of them come from the corporate sector. As the lead Non-Executive, Browne has the power to appoint other Non-Executives (see Baroness Hogg).

Browne's interests in the fracking industry are numerous. His most obvious financial interest in fracking is his chairmanship of Cuadrilla, which is exploring for shale gas in Lancashire and West Sussex. The huge tax break Osborne is giving to the fracking industry will obviously be of enormous benefit to Cuadrilla. Browne is also managing director of, partner in and a major shareholder of Riverstone LLC, the venture capital firm that backs Cuadrilla.

Browne also holds an unspecified number of shares in BP (likely to be extremely substantial considering he received millions of pounds worth of shares a year during his tenure as chairman). BP are another company that would benefit from a fracking tax break. Another of Browne's interests in the shale fracking business is his role as Chairman of Accenture Global Energy Board, which produces reports on the expansion of the shale gas industry like this one and works to promote shale gas extraction as a future energy source.

Browne also has registered financial interests in several other petrochemical companies including White Rose Energy Ventures LLP (director) Fairfield Energy Ltd (director) Schlumberger Business Consulting Advisory Group (member) Mubadala Oil and Gas International Advisory Board (chairman) and Letterone Petroleum Limited (member).

It is undeniable that Browne, who is a passionate advocate of shale gas fracking stands to make significant financial gains from George Osborne's fracking tax break.

Ben Moxham

Moxham is former executive at BP when John Browne was at the helm, he followed the Browne to Riverstone Holdings, which owns 42 per cent of Cuadrilla. Moxham was David Cameron's adviser on energy and the environment, but quit in May just a couple of months before the announcement this fracking strategy (which was obviously many months in the making).

Sarah Hogg
Hogg was appointed to the House of Lords in 1995 by John Major. She is a Non-Executive for the Treasury, a position created for her by John Browne (see above). She has a substantial shareholding in, and sits on the board of British Gas, which has significant shale gas assets in the United States.

Sam Laidlaw
Sam Laidlow is yet another of these unelected non-executives with interests in the fracking industry. Laidlow is the non-executive to the Transport Department is also chief executive of British Gas owner Centrica, which recently bought a £40 million stake in one of Cuadrilla's UK shale gas operations.

Ian Taylor
It is not just members of the government that have significant interests in the fracking business, one of their biggest donors also has too. Ian Taylor (who has appeared on AAV before in my expose of major Tory donors) is the Chief Executive of Vitol, a company which owns a stake in Dart energy. Taylor has also donated half a million pounds to the anti-independence propaganda campaign in Scotland. I wonder if people would be so keen to buy into the "better together" propaganda campaign if they knew it was bankrolled by an English major donor to the Tory party with a financial interest in a company with licences to frack in Scotland.

Lynton Crosby
David Cameron's chief strategist has already been implicated in one conflict of interests scandal, which came about in the wake of the Tories U-turn on the introduction of plain packaging legislation for cigarettes, when it was revealed that his lobbying company Crosby Textor is employed by the tobacco giant Philip Morris. Several Liberal Democrat members of the coalition government called for his resignation, but Cameron refused to sack him. Just a few days later Osborne announced his huge tax break for the shale gas industry and it was revealed that Crosby Textor also represents Dart Energy, a firm that holds shale gas extraction licences in Scotland.

How many more of these transparent conflicts of interests is it going to take before Crosby has to step away from his role in government?

Conclusion
George Osborne's announcement of a humungous tax break for the fracking industry, whilst simultaneously cutting funding for renewable energy generation would have been bad enough on it's own, given all of the greenwash about being "the greenest government ever". However, the fact that so many members of the government, and Tory insiders (including Osborne's own father in law) have major interests in the fracking industry make this look less like a case of environmental negligence and extreme hypocrisy and more like a case of outright corruption.



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