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Business, Innovation and Skills Committee Inquiry: Extractive Industries

The Business, Innovation and Skills Committee has launched an inquiry into Extractive Industries. The submission produced by the Geological Society can be found below.

You can read the terms of reference and associated documents on the committee website.

Submitted 23 September 2013

1. The Geological Society is the UK’s learned and professional body for geoscience, with more than 10,500 Fellows (members) worldwide. The Fellowship encompasses those working in industry, academia and government with a broad range of perspectives on policy-relevant science, and the Society is a leading communicator of this science to government bodies and other non-specialist audiences.

2. We have not attempted to answer all of the questions raised in the Terms of Reference for the inquiry, some of which are outside our area of competence. Our submission draws principally on the geoscience relating to the extractive industries, as well as addressing some of the interfaces between geoscientific and other factors, and the professional experience of geoscientists.

3. The term ‘Extractive Industries’, from a geoscience perspective, covers a wide range of subsurface resources. The term is sometimes used to refer specifically to the mining and quarrying of resources such as metals, aggregates and other building materials. Taken as a whole, however, the extractive industries also include the extraction of hydrocarbons (coal, oil, conventional natural gas and unconventional gas such as shale gas), the abstraction of groundwater and the extraction of heat through the use of geothermal energy. This is a huge range of industrial sectors. Each of these sectors varies considerably in terms of its geographical distribution, environmental setting and relevant stakeholders, and there is also much variation within sectors. Companies in some fields, such as mining, may be based and listed in the UK but operate mainly or solely overseas. This means, for instance, that stakeholder engagement may be required in different countries, where public and stakeholder concerns and values can differ widely. In some industries (e.g. hydrocarbon or aggregate extraction) operations may be onshore or offshore, which has significant bearing on what is required by way of public and stakeholder engagement, for instance, as well as operational matters.

4. As we seek to use natural resources more sustainably and equitably, there is a widely recognised need to move away from traditional resource ‘exploitation’ to consider more holistic resource cycles. Wastes and by-products generated by extracting and using geological resources must be carefully managed, and may indeed have considerable value. In the case of some geological resources, these by-products may include subterranean voids or pore space in geological formations, created by the extraction of natural resources, which can subsequently be used for other purposes. The reprocessing of historic mining tailings to extract secondary resources is the subject of active research in the UK and elsewhere, and increasingly present-day mining operations are designed to allow the simultaneous extraction and processing of multiple resources. Creative thinking about the links between hitherto apparently distinct industries and extractive processes may uncover synergies and thereby add significant economic and societal value.

What is the contribution to the UK economy of extractive industries in the UK?

5. The British Geological Survey (BGS) provides useful data on the economic value of various sectors of the extractive industries in their submission to the present inquiry. They also provide extensive further data at It is difficult to capture fully the value of the extractive economy of the UK in absolute terms, as it does not exist in a vacuum.

6. In addition to wealth creation from the removal and trade of geological resources themselves, they also feed manufacturing and other industries. As noted at paragraph 4, wastes from historical or present day extraction of geological resources can also have considerable value as sources of further resources. Furthermore, the extraction process creates voids and pore space in the subsurface, which can themselves have value. These can be used for waste disposal such as landfill, or in the case of depleted oil and gas reservoirs (for instance under the North Sea) the evacuated pore space may in future be used for the sequestration of CO2. Indeed, it is vital that subterranean pore space be used in this way if we are to continue to use fossil fuels in the coming decades while maximising our chances of avoiding dangerous climate change. In this context, depleted hydrocarbon reservoirs represent a major asset for the UK, conferring considerable potential competitive advantage on us as we seek to develop a world-leading carbon capture and storage (CCS) industry. Subsurface voids and wastes of this kind should be recognised as valuable resources, which in turn need to be developed and used in a responsible and sustainable manner.

7. Examples in the UK of such re-use of space include the development of the Holme Pierrepont National Water Sports Centre near Nottingham and the Olympic rowing venue, Dorney Lake, near Windsor - two international venues that were created as a consequence of sand and gravel extraction. At Dorney Lake, 4.5 million tonnes of sand and gravel were mined, generating a royalty value of around £8 million which was almost half of the cost of the project. Another example of extraction resulting in secondary wealth creation is in north-east England, where surface mining of coal has in some areas resulted in improvement of land quality, enabling further wealth creation through agriculture, tourism and other activities. An instance of this is remediation work carried out by the Banks Group, who have created Northumberlandia (the world’s largest sculpture of a female figure, sculpted by Charles Jencks), which has in turn created the opportunity for new tourism and associated economic activity that would not have happened without mining. Similarly, plans currently being developed for a new surface mine near Druridge Bay (Northumberland) involve significant improvement of land previously damaged by mining.

8. In addition to the re-use of space, there are also synergies between the extraction of resources and the transfer of knowledge and relevant techniques to related industries and processes. For example, the research base developed by UK universities and industry in respect of the exploration and characterisation of oil and gas reservoirs, and a wealth of practical experience and know-how derived from 40 years of North Sea production, will be invaluable in delivering CCS at scale. This is a further national asset, complementing the pore space at our disposal, which should be valued and developed to maximise our competitive advantage, as well as to allow the UK to play a leading role in international efforts to abate carbon emissions. Another example of the deployment of expertise and techniques across multiple applications is hydraulic fracturing (fracking). Fracking can be applied to stimulate groundwater wells, to induce collapse in mining, to dispose of waste by injection into deep rock formations, to extract fossil fuels such as shale gas and tight oil, to extract heat in geothermal systems and to increase injection rates in CO2 sequestration. Its use therefore creates learning opportunities and enhances understanding of a technique that can improve the efficiency of these complementary processes, adding economic and societal value.

How does the UK based extractive industries support employment a) in the UK and b) for UK citizens overseas?

9. The BGS submission to this inquiry includes data on the number of employees in the minerals industry and the oil and gas sector. These figures do not include those employed in water abstraction.

10. Across the extractive industries, many of the employment opportunities are high-value jobs requiring expertise in geoscientific, engineering and other disciplines. Increasingly, a taught applied MSc is a de facto prerequisite for entry to many of these careers. Similarly, extractive industries around the world, whether UK-owned or not, provide opportunities for highly skilled and trained UK geoscientists. These individuals are in competition for opportunities in the UK and elsewhere with their peers from around the world, and the trained workforce in many extractive industries is highly mobile. The UK has a reputation for producing world-leading geoscientists trained to postgraduate level. However, as we have noted elsewhere (including in our response to the BIS Committee’s 2011 inquiry into the Future of Higher Education), the supply of graduates to UK geoscience masters programmes is under threat. A number of MSc programmes in disciplines needed in the extractive industries have already closed, and more may yet do so unless this asset is nurtured, jeopardising the supply of trained scientists on which UK industry depends. Global demand for such qualified personnel is high, so we cannot depend on substituting home-grown talent by importing the expertise required to sustain and grow UK industry. Furthermore, geoscientists trained to masters level in the UK, for example in mining geology, are in great demand internationally – an opportunity which will be lost if this training provision is allowed to dwindle. It is outside the scope of the call for evidence to address this matter in detail, but we would be pleased to discuss further this serious threat to UK competitiveness.

Has the boom in London-listed extractive companies with businesses overseas over the last two decades resulted in a strengthening in the UK’s competitive position in this sector?

11. It is outside our competence to answer this question, but we note that the concentration of extractive industry companies listed in London depends on high levels of specialist geoscience expertise, both in terms of the UK presence of companies, and in the financial services sector (including insurance and asset management companies). This further highlights the need to maintain the concentration of geoscience skills and expertise in the UK if it is to remain competitive.

Is there sufficient engagement between UK extractive industries and the NGO sector? Are there examples of best practice in engagement between the extractive industries and NGOs?

12. Extensive high-quality public and stakeholder engagement is imperative for sustainable development of extractive industries and gaining a ‘social licence to operate’. Relevant stakeholders include but are not limited to NGOs. The length of this submission precludes an exhaustive answer to this question. We focus here on examples of best practice in mining, but these can be found in other sectors of extractive industry too. Best practice is far from universal, however, and the extent and quality of engagement varies considerably.

13. The level of engagement has improved significantly in the last decade, with both major and minor mining companies recognising the need for constructive relationships with stakeholders in order to manage environmental and social risks. There is also recognition that being able to demonstrate constructive relationships with stakeholders contributes to a positive legacy at closure, increasing companies’ ability to access further resources in future. Such relationships are also of value to development financiers, as they play an important role in managing financial and reputational risks.

14. The drivers for public and stakeholder engagement, and the ways in which this is done, will differ depending on the nature and location of operations. In the case of offshore activity, for example, local communities are less likely to be directly affected by extraction activity, although there may nonetheless be public concerns and stakeholder interests to address. Metalliferous mining in the UK, which tends to be restricted to high-value relatively small-scale deposits, is likely to require different forms of public and stakeholder engagement than large-scale operations in a developing country, where local concerns and financial and other impacts of mining activity on local communities will be quite different.

15. The BGS response highlights the important work of the UK Minerals Forum, which facilitates dialogue between industry, regulators, policy makers and NGOs. It also refers to BGS’s own work to disseminate information on minerals and mineral planning, which is extremely valuable in developing public and stakeholder understanding of resources and confidence in operations in the UK and overseas. Importantly, the BGS factsheets address issues of demand as well as supply. Developing understanding among the public at large of the role of geological resources, including energy and water, in their everyday lives and in the economy is an essential part of meaningful engagement, alongside addressing legitimate concerns about potential negative impacts on the environment and quality of life.

16. Internationally, several NGO initiatives provide frameworks for best practice, including the International Finance Corporation (IFC) Performance Standards; the Equator Principles, which are applied to mining projects by development financiers and require observance of the IFC Performance Standards; and World Bank Group Environmental Health and Safety guidelines. The International Council on Mining and Metals, founded in 2001, brings together 21 mining and metals companies and 35 national and regional mining associations to address sustainable development challenges. Together they have developed a sustainable development framework to establish transparent and accountable sector-specific guidelines and reporting practices to complement existing international law. Member companies listed on the London stock exchange include Anglo American, BHP Billiton and Rio Tinto.

Does the UK have the skills base to remain a centre for the extractive industries and to ensure that UK based businesses benefit from potential future opportunities such as shale gas?

17. The UK’s research and skills base in areas of geoscience underpinning the extractive industries has a long-standing excellent worldwide reputation. In order to maintain it and secure the competitive advantage it brings, it is vital that geoscience education is maintained and enhanced at school, undergraduate and postgraduate level, and that research funding is secure and sustained. As noted at paragraph 9, the current vulnerability of taught applied MSc programmes is a particular concern in the geoscience community. A report commissioned by the Geological Society in 2012 on geoscience skills needs in UK industry indicates current shortages of experienced trained scientists in some key specialisms, which are expected to be exacerbated in the coming years by high levels of retirement, due to the demographics of the current workforce. It is therefore vital to attend to threats to the supply of geoscientists trained to postgraduate level as a matter of urgency.

18. It is essential that undergraduate and postgraduate degree programmes equip students with the skills needed by industry, as well as maintaining excellence in the teaching of core geoscientific skills and knowledge. The Geological Society’s accreditation of undergraduate and taught masters degree programmes plays a vital role in this regard. It brings together leading academics with representatives from industry and government bodies (such as BGS), to develop standards and content requirements for university programmes, and to assure quality of teaching. Almost all UK undergraduate geoscience degree programmes are now accredited by the Geological Society, along with an increasing number of MSc programmes.

What is the impact of the industry of the UK signing up to the EITI?

19. UK government has announced its intention to implement the Extractive Industries Transparency Initiative (EITI). Given the UK’s leading role in establishing the initiative, this is important in setting a positive example to other countries, as well as in committing UK industry to its principles. Openness of communication between operators and the public is essential to building effective dialogue and informed public decision-making, benefitting both industry and the public. It can be key to successful planning applications and to the ongoing support of local communities, as has happened for example in connection with surface mining of coal in Northumberland.

20. An example of good practice in building relationships between extractive industries and their neighbours, allowing the successful extraction of resources while meeting the highest environmental and social standards, is that seen at Wytch Farm, Dorset. It is the largest onshore oil field in Western Europe, and is currently operated by Perenco following 27 years of BP operations. It is located in one of the world’s most famous and sensitive regions of outstanding beauty and natural interest, which includes the Jurassic Coast (formally, the Dorset and East Devon Coast World Heritage Site), designated wetlands of international importance and national nature reserves. World standards in environmental protection and community engagement have been set at Wytch Farm, using horizontal drilling at distances of more than 10km, keeping the footprint of well sites to a minimum, and restricting the height of facilities to below the tree line, in order to minimise environmental and visual impacts. While such measures increase costs, they have allowed activity with considerable economic and social value to proceed with the consent of its host community.

21. Instances of best practice such as Wytch Farm and modern open pit coal mining in Northumberland can counter-intuitively make it harder rather than easier for industry to convince communities that mines and other extractive operations run to high environmental and social standards can be good neighbours. In cases where they are scarcely visible or audible, most of the local population may be unaware of their existence. Consultations on planning applications may raise objections that are based on historical rather than present day perceptions, and operators may have to work harder than expected to demonstrate that they meet high standards.

Would increased regulation for London listed extractives companies result in competition from elsewhere or can it be used to make the UK a centre of excellence for best practice and corporate governance?

22. It is outside our competence to answer this question, but we draw the Committee’s attention to the importance of establishing and implementing internationally agreed resource reporting codes. The Pan-European Reserves and Resources Reporting Committee (PERC) is actively supported, promoted and sponsored by the Geological Society, along with the Institute of Geologists of Ireland, the Institute of Mining, Mineralogy and Materials and the European Federation of Geologists, among others. It sets standards for public reporting of mineral and hydrocarbon exploration results, as well as resource and reserve estimates, by companies listed on European stock markets. Through the Committee for Mineral Reserves International Reporting Standards (CRIRSCO), these standards are aligned with those in other jurisdictions.

23. We also note that while in the short term new regulation can increase costs, if it is evidence-based and is designed and implemented effectively, in the longer term it should aid sustainable development, increase efficiency and improve environmental standards. It is important to work towards internationally agreed regulatory standards, both to increase their effectiveness and to ensure that good national regulation does not result in loss of competitiveness.

What is the competitive landscape for the extractive industries in the 21st Century and is it in the UK’s interest to remain a global centre for them?

24. It is in the UK’s strategic interests to secure sustainably the resources which support its population’s quality of life (including for food supply, drinking water, construction and energy); to capitalise on its competitive advantages in the extractive industries (some of which are referred to above) for economic benefit; and to ensure that industry has access to the critical and emerging resources it will need to be innovative and competitive. The pressure on all geological resources will increase as the world’s population grows – this is a geopolitical matter, because deposits of these resources can only be found where nature has put them. Some commodities trade globally, and for these the UK will be in competition with other countries. Within the UK, some commodities (shale gas, for example) may occur in sensitive areas, and there is an opportunity to provide global leadership in securing social consent to operate. To capitalise on our geographical and historical competitive advantages will require world-leading research and training.