Regulatory provisions governing key aspects of unconventional gas extraction in Denmark

Transcription

1 Regulatory provisions governing key aspects of unconventional gas extraction in selected EU Member States /2012/630593/SER/ENV.F1 Regulatory provisions governing key aspects of unconventional gas extraction in Denmark

2 This National Report has been prepared by Anita Rønne for Milieu Ltd. under Service Contract /2012/630593/SER/ENV.F1 with DG Environment of the European Commission. The views expressed herein are those of the consultants alone and do not necessarily represent the official views of the European Commission. Milieu Ltd. (Belgium), 15 rue Blanche, B-1050, Brussels, tel: ; Fax ; marta.ballesteros@milieu.be; web address:

3 Regulatory provisions governing key aspects of unconventional gas extraction in Denmark Table of contents 1 GENERAL BACKGROUND INFORMATION ON UNCONVENTIONAL GAS EXTRACTION IN DENMARK PRIOR TO DEVELOPMENT PHASE Site identification and preparation phase General description of key legal requirements Specific requirements above ground Specific requirements below ground EXPLORATION AND EXTRACTION PHASE General requirements Above ground requirements during the exploration and extraction phase Drilling requirements Well requirements Below ground requirements during the exploration and extraction phase Drilling requirements Well integrity (casing and cementing) Hydraulic fracturing CLOSURE PHASE GENERAL CROSS-CUTTING ENFORCEMENT REGIME IDENTIFICATION OF POTENTIAL LIMITATIONS AND USEFUL PRACTICES Prior to development phase Exploration phase Exploitation phase Closure phase ANNEX 1 LIST OF STAKEHOLDERS INTERVIEWED...32 ANNEX 2 LIST OF NATIONAL LEGISLATION...32

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5 1 GENERAL BACKGROUND INFORMATION ON UNCONVENTIONAL GAS EXTRACTION IN DENMARK Potential resources for unconventional gas extraction The US Energy Information Administration has assessed the potential Danish shale gas reserves to about 617 billion recoverable cubic meters gas which is equivalent to two to three times the size of Danish gas production during Concurrently, the Danish Geological Surveys (GEUS) has started work on an independent evaluation of the potential of Danish shale gas resources. This is being carried out in cooperation with other European geological survey entities in the Baltic Sea area. However, it is not expected to be completed before spring Political context and stage of development Since 1995, Denmark has had a large trade surplus in oil and gas. In 2010 the State received about 61percent of the surplus from production of oil and gas, corresponding to DKK 24 billion (3.2 billion EUR). 3 Even though the Danish Government's target is a 100 per cent transition to renewable energy by 2050, it is considered by the energy sector and industry that fossil fuels will remain an important resource in energy supply in the decades to come. The exploration of shale gas lived a silent life till the spring of 2012 when the political opposition put forward some parliamentary questions to the Minister of Climate, Energy and Buildings on the environmental risks, and the approval of activities connected to shale gas exploration, and the division of responsibilities between the local and state level in this respect. The Minister has announced that no further licences (tilladelser) will be approved until the results of the test drilling, under the licences that were granted under the previous government in 2010, are available. At the same time however, the Minister declared that if shale gas may be produced in a commercial and uncomplicated manner with no environmental harm, he would be (in favour of production if the gas at the same time would assist in the planned green energy transformation. The local municipalities are responsible for planning, including the EIA procedure and the granting of various permits (water, waste, buildings etc). On 4 December 2012, the municipality of Frederikshavn approved the carrying on of the activities connected to shale gas subject to a hearing process of the neighbours to the project. Moreover, a small majority of the council members decided that the Minister should be approached to ask him to re-consider shale gas activities. 4 Following the completion of the EIA screening procedure, and a public information meeting held on 10 January 2013, the municipal Committee for Planning and Environment decided on 5 February 2013 to recommend to the Council that a rural zone permit be granted to allow initiating drilling activities which do not include hydraulic fracturing and that no full EIA was required. 5 The Council did not follow the recommendation from the administrative committee but decided that a full EIA should be prepared. 6 The Danish Minister for Climate, Energy and Buildings has so far granted three licences in total for 1 Information provided by the Danish Energy Agency during interviews, 2 Danish Geological Survey, 4 January Danish Energy Policy Report 2011, p DR P4 Nordjylland, 04. dec Nyheder (News) and Minutes of the meeting 5/2 2013: percent20Referatpercent20afpercent20Referat.aspx# Regulatory provisions on unconventional gas extraction in Member States /5

6 exploration and production of shale gas from the Alum Shale formation 7 but two more applications have been submitted to the Ministry. 8 The first licence (tilladelse) issued in 2009 to Schuepbach Energy LLC (80 percent) and the Danish state-owned North Sea Fund (20percent) was however abandoned the following year. On 5 June 2010, Devon Energy Netherlands BV and the Danish North Sea Fund were awarded two new licences in an Open Door procedure: licences 1/10 and 2/10 situated respectively in Northern Jutland and Northern Zealand. Later that year, Devon handed over its licence shares to Total E&P Denmark B.V. (with an 80 per cent share and appointed as operator) in partnership with the Danish state-owned North Sea Fund (20 per cent). For the 1/10 licence in Northern Jutland, the exploration period is divided into three phases from 2010 to Exploratory drilling is planned to take place at Dybvad 20 kilometres from the town Frederikshavn in May/June 2013 to investigate whether shale is present at the location. Cores of the shale will be taken, and by investigations of the cores in the laboratory it will be evaluated whether natural gas is present in the shale. The drilling is expected to last about three months. If the results are positive, further activities in the drilled exploration well will be performed such as fracturing in the shale formation drilled (and cased off) and a short production test to see whether natural gas can be produced at all. However, the Danish Energy Agency has not issued yet the necessary drilling permit pursuant to general mining legislation. 9 General legislative context To date, there is no specific legislation applicable to shale gas. The Danish mining legislation is composed of one key act the Subsoil Act 10 that is applicable to both offshore and onshore activities and does not distinguish between different hydrocarbons. However, in terms of environmental and safety issues, the Subsoil Act is supplemented with important legislation. Whereas special legislation has been adopted for the offshore areas, it is the general rules applicable to all onshore activities that are relevant also for exploitation of shale gas like the Planning Act 11, the Environmental Protection Act 12 and the Working Environment Act. 13 Moreover, secondary legislation and the licence conditions based on a Model Licence (Modeltilladelse) provide the details within the framework set out by the primary acts. An amendment to the Executive Order on Environmental assessment of certain public and private projects (Bekendtgørelseomvurderingafvisseoffentligeog private anlægsvirkningpåmiljøet (VVM)) was introduced on 1 July This now includes shale gas projects within the requirement to notify the municipality in writing, and obliges the municipality to require a full EIA both at the exploration and production phase if a drilling operation includes hydraulic fracturing It is a combined licence although with an exploration period of normally six years and a possible prolongation for 30 years for production 8 Danish North Sea Fund, Annual Report for 2010, p Danish Energy Agency, 7 December Consolidated Act No 960 of 13/09/2011, see 11 Consolidated Act No 937 of 24/09/2009 as amended, see 12 Consolidated Act No 879 of 26/06/2010 as amended, see 13 Consolidated Act No of 07/09/2010 as amended, see 14 Order No 1510 of 15/12/2010, see as amended by Order No 744 of 28/06/2012, see Regulatory provisions on unconventional gas extraction in Member States /6

7 2 PRIOR TO DEVELOPMENT PHASE 2.1 Site identification and preparation phase Key findings: The permitting system and the granting of a licence for the exploration and extraction of unconventional gas does not differ from conventional hydrocarbons. It is a combined licence with 6 years for exploration and production. The licence can be extended for 30 years for the purpose of production. A Parliamentary Committee must be informed beforehand about all licences to be granted. A phase divided work programme is agreed prior to the granting of the licence and based upon either further work obligations to move to the next phase or to relinquish the licence. Each individual work activity must be approved and a special evaluation work programme agreed. The current system covers all hydrocarbon resources. Some references in implementing legislation to specific aspects of unconventional gas extraction start to be adopted with respect to fracturing (EIA). The licensee must notify the local authority and there is a mandatory screening process for all hydrocarbon activities. On this basis it is decided whether a full EIA is required. For exploration drilling that does not include hydraulic fracturing, a screening process must be carried out. Public and stakeholder participation must be involved before a rural land zone permit is granted and if a EIA is decided based on the screening process General description of key legal requirements Permitting regime/procedure, relevant definitions (e.g. licence, permits, authorizations, concessions) The central element of the Subsoil Act is the establishment of a licensing system permitting private and State-owned companies and individuals to explore for and produce hydrocarbons under the control of the Energy Agency. There are two main granting procedures. Invitations rounds applicable offshore in the most Western part of the North Sea Area and the Open Door procedure for the rest, i.e. all onshore areas. The above mentioned licences (for shale gas) were granted under the Open Door procedure where the companies can apply for licences at any time during the yearly opening period from the 2nd of January until the 30th of September. This procedure comprises an area with no previous oil or gas discoveries, 15 and the Open Door licences are consequently granted on easier terms compared to the "Licensing Round Area" in the westernmost part of the North Sea. Thus the oil companies do not have to commit to exploratory drilling when the licence is granted. The work programmes that determine the exploration work to be carried out by the oil companies during the sixyear exploration period are divided into phases, such that the companies must gradually commit to more exploratory work or relinquish the licence. 16 The Subsoil Act includes certain procedures that have to be followed (sections 6 and 12). It requires that the Parliamentary Committee on Energy Policy be informed of licences before they are granted. The Minister may refrain from granting a licence on the basis of the applications which have been received (section 12). In relation to hydrocarbon activities, the Subsoil Act distinguishes between two main types of licences 15 Traces of hydrocarbons were found in the southern part of Jutland in the 1980 ies, but were not considered commercially exploitable Danish Energy Agency, 18/02/ See Anita Rønne in "Energy Law in Europe" by M.M. Roggenkamp, C. Redgwell, I del Guayo & A. Rønne, Ch. 7. There are two more granting procedures mini rounds and neighbouring blocks procedure. Regulatory provisions on unconventional gas extraction in Member States /7

8 (tilladelse): a preliminary investigation licence and a combined exploration and production licence. The preliminary investigation licence authorizes initial investigations, such as seismic, geological, and geochemical surveys, to be conducted in order to map an area and to make a preliminary evaluation of the possibility of finding hydrocarbons there. The licence does not give its holders exclusive rights, and it carries no assurance of an entitlement of preference at a later time to an exploration and production licence (Subsoil Act, section 3). The combined exploration and production licence - as the two ones for shale gas activities - authorizes all activities necessary for exploration for and production of hydrocarbons. Contrary to the preliminary investigation licence, this licence grants an exclusive right of exploration and production, although it should be emphasized that the actual commencement of production is subject to further permissions or approvals (sections 5 and 13). In addition to the principal licence, a separate approval is necessary for each individual project and work carried out from time to time (section 28). Moreover a plan for the production activities, including the organization of production and the layout of production installations and any pipelines, shall be approved by the Danish Energy Agency before they are initiated (Section 10 in the Danish Subsoil Act). It should be highlighted that under Danish law there is considered to be no legal difference between a concession, a licence, a permission, or a permit. All these are looked upon as public administrative decisions (as opposed to contracts) and the exact phrase is often chosen at random. The basic concept of the combined licence is that each licensee will enjoy, for a certain period and within a delimited area, an exclusive right to explore for and produce, and an ownership interest in the natural resources won and saved. Licences are granted for an exploration term of six years, with a right to a 30-year extension for fields where production is initiated, cf. section 13 of the Subsoil Act. Under special circumstances the exploration period may be extended by as much as two years at a time to a maximum of ten years and under certain circumstances even longer (section 13). In special cases also the production period may be prolonged. Upon the expiration of the exploration period, the licence area is reduced to cover only those areas in which the licensee has demonstrated the presence of exploitable hydrocarbons (section 13 and the Model Licence, section 5. The Subsoil Act merely lays down the framework within which operations under a licence are to be carried out. The more specific terms are included in the issued licences and published in advance by the Ministry of Climate, Energy and Buildings in the form of a Model Licence for Exploration for and Production of Hydrocarbons attached to a general Invitation Letter to the public, outlining the main criteria for obtaining a licence. Both onshore and offshore operations are governed by a single set of Model Licence terms. The provisions in the Model Licence are standard terms in the sense that they are not subject to negotiation. However, although there is no negotiation as such, it is still necessary for certain terms to be fixed individually: area, duration of the exploration period, and work obligations. Among the licence obligations is the requirement that all essential arrangements concerning the operations of licensees are subject to official approval. Thus, under the Subsoil Act, a separate consent - which may be granted in the form of either standard or individual terms - is required for the commencement of most essential stages of the operations. It is emphasized in the model Licence that the licence does not exempt the licensee from obtaining any other licences and approvals required pursuant to the Subsoil Act and legislation in general (Model Licence Article 39). The grant of a licence is conditional upon a company undertaking a specific work programme. The content of that programme is determined by negotiation with the applicants and constitutes an appendix to each licence. The work programme may be considered as part of the payment for the licence: if the work obligations are not met, the licensee must pay an amount corresponding to what the performance of those obligations would have cost, unless the Danish Energy Agency grants a complete or partial exemption (section 32 and Model Licence, section 36). The work programme relates exclusively to the exploration phase. General rules of reporting give the State a broad right to receive information from the licensees. The work programme is decided when the licence is granted and will differ from one licence to the Regulatory provisions on unconventional gas extraction in Member States /8

9 next. Moreover, each actual activity of work needs a special approval pursuant to the Subsoil Act section 28 apart from desk surveys. According to general administrative law such an approval can be subject to special conditions. The exploration period is normally set for 6 years, and will be followed by a development phase and a production phase if the results from the exploration phase are satisfactory and the licensee obtains all other needed permits. The work programme in the Model Licence based on the Open Door Procedure is divided into three phases for the exploration period. It is based on the principle that to move from one phase to the next, the licensee must commit to carry out additional exploratory work or relinquish the licence. 17 The necessary work during phase 2 is generally related to such additional exploration as is necessary to select a suitable well site within the licence area, and to decide whether a well should be drilled whereas phase 3 includes a requirement to either undertake the drilling of an exploration well at least 6 months prior to the termination of the licence or to relinquish the licence. 18 As this is a typical model for the work programme, it is possible to adjust the work obligations both before granting the licence and as the activities are progressing and moving from one phase to the next. The actual work programme for licence 1/10 19 In licence 1/10, the work programme follows the general outline for a phased approach as set forward in the Model Licence and is divided into 3 phases. It covers the period Phase 1 ( ): During the first two years, preliminary geological investigations have been performed on the basis of existing information and data collected by geologists from surface outcrops to establish a preliminary assessment of the area of interest. Phase 1 has also included initial environmental and social investigations to describe the general environmental conditions in the exploration permit area. The work primarily consists of desk research. This work has been completed in The licensee has agreed to move further into the next phase of the exploration period and has committed to carry out further exploratory work. Phase 2 ( ): The activities have moved into the current Phase 2 because results have been encouraging. The period is devoted to investigating technical feasibility. A vertical exploration well will be drilled to check if Alum shale exists in the subsoil and examine the characteristics of the shale. Information on the subsurface will be gathered, particularly on rock characteristics (natural gas content and mineralogical composition). Data acquisition in the well and coring should provide information to prepare the production test programme. If necessary, seismic data will be acquired as well. The community and environmental investigations conducted in Phase 1 will also continue. For instance, factors such as biodiversity, soil quality, hydrography, hydrogeology, landscape and land use will be assessed. Studies will be performed by external consultants. Further investigations may be done to determine the best locations for operations (seismic surveys or exploration wells) so as to cause the least possible environmental impact. With respect to the actual licence in Northern Jutland, the drilling approval pursuant to the Subsoil Act Article 28, has not as yet been granted. Phase 3 ( ): 17 Cf Cf. Model - Licence For Exploration for and Production of Hydrocarbons Open Door Procedure, Annex 2, Ministry of Climate and Energy. 19 Information retrieved from Total E&P Denmark B.V. website: Regulatory provisions on unconventional gas extraction in Member States /9

10 If the Phase 2 results prove positive, Phase 3 will be devoted to investigating the financial feasibility of production. This will include drilling and production testing a few horizontal wells to obtain information about production rates and costs. The hydraulic fracturing technique is used for production testing. Also, other exploration wells might be drilled in other parts of the licensed area. Further environmental, community and safety investigations will be performed and/or supplemented as the investigation area grows and new operations are initiated. The overall administrative responsibilities under the Subsoil Act are vested with the Danish Energy Agency. The Geological Survey receives samples and information from subsoil activities and handles the access to and sales of released well information and seismic data. Supervision of health and safety on onshore activities according to the Working Environment Act is vested with the National Working Environment Authority (Arbejdstilsynet). Protection of nature and the environment is vested with the Nature Agency and the Environmental Protection Agency whereas local municipality has the planning responsibility including the screening and EIA process and the granting of a long range of permits. Requirements regulating impacts towards public and local communities affected by the activity - Public participation procedure in the grant of the licence Open Door Procedure There is a requirement to inform the Parliamentary Committee on Energy Policy of all exploration licences before they are granted. The Committee could in principle raise questions for clarification to be answered by the Minister. Apart from this there are no public participation procedures prior to or during the grant of the licence according to the Open Door procedure. The procedure was launched already in 1997 prior to the adoption on the legislation on strategic environmental assessment. If the procedure is changed these rules would come into play. In practice the relevant municipalities and other authorities are informed about planned licensing and requested for comments. This is a procedure implemented 4-5 years ago Public participation during the investigation phase Pursuant to the Guidelines for pre-investigation activities onshore related to seismicity and geochemical properties, 21 the consent of the landowner shall be obtained not later than 30 days prior to the initiation of the investigations on the individual property, and the investigations shall be carried out in such a way that they are to as little inconvenience as possible to the landowners and to other people (Section II). The public in the regions affected must be informed, normally at least 30 days prior to the start of the investigations, publish - by inserting advertisements in local papers - that the investigations will be made and state the estimated time schedule and the approximate geographical location. The advertisement shall include address and telephone number at which further details can be obtained (Section III). Likewise the police, local authorities and agricultural organisations must be informed. The affected landowners shall be informed in writing, including info on the damage that may typically occur, and about the procedure for payment of compensation. If needed, a local information meeting may be organised. Notification must also be given to the Energy Agency and GEUS and weekly reports submitted (Section IV). - Public participation and consultation within the framework of an EIA Where an EIA is required (See section below), the EIA report completed must be subject to public consultation for at least 8 weeks before the final approval or rejection of the project and subsequent to the review and response to any objections received. During the same period the Minister for the Environment and other state authorities may raise objections to a proposal with the effect that the 20 Danish Energy Agency, 22/02/ Conditions Regarding Pre-Investigations Onshore of 6 October 2008, Danish Energy Agency 21/12/2012. Regulatory provisions on unconventional gas extraction in Member States /10

11 proposal cannot be adopted before an agreement has been reached. The decision to allow a project can be appealed. A specific EIA permit is needed if the project is not otherwise subject to an environmental permit or consent procedure. - Public participation in the rural zone permit Pursuant to the rural zone permit it is required to implement a hearing process of the neighbours to the project. No permits may be granted till two weeks after the written orientation of neighbours to the project (Planning Act Section 35). The permit itself must also be published and the decision to grant a permit may be appealed by the Minister of Environment, and anybody with a legal interest in the outcome of the case. The time limit is set at 4 weeks during which period the permit cannot be utilised (Section 59-60). In the actual project case - licence 1/10, the municipality of Frederikshavn decided in addition that a public orientation meeting on the activities connected to shale gas should take place on 10 January 2013 involving the authorities and the developer as speakers. Moreover, the municipality has given access to the public to all the relevant material (minutes of meetings, draft permits etc) via the internet Public participation pursuant to the Act on Public Administration Pursuant to the general Act on Public Administration, 23 Chapter 5 sets forward requirements for an authority to make sure that a party to a case is notified about decisions. It is also a requirement that guidance on appeal possibilities are given. According to the Danish Act on public access to documents in public files (the Public Administration Act), there is general access to official files from public authorities. The main rule of the Act is that all documents are available to the public. Financial guarantee (coverage, time scope, when is it required in the procedure) The licensee is subject to a parent company guarantee or bank guarantee and a draft Model has been prepared and published by the Energy Agency. 24 The Guarantor guarantees irrevocably and without any time limit, as surety with primary liability (selvskylderkautionist) for all existing and future obligations and liabilities caused under the licence activities towards the Danish State, and towards the state participant Danish North Sea Fund assigned; and liability for damages pursuant to section 35 of the Subsoil Act including liability of making good any pollution or other environmental damage, irrespective of which party is suffering. The licensee is liable to pay for any loss or damage caused by the activities carried on under the licence, even though the loss or damage was caused accidentally. Where the guarantee becomes operative due to obligations for which the company is jointly and severally liable with the other co-holders of the licence, the guarantee in respect of each obligation shall not be invoked for amounts exceeding 200 per cent of the company's share of the relevant obligation. The company's share of the obligation shall be determined, regardless of the mutual ratio between the co-holders of the licence, as the company's percentage share of the licence at the time of the rise of the claim. Where the insurance has been taken out by several co-holders of a licence, the share of insurance coverage corresponding to the licensee's share is deducted from the Guarantor's maximum liability. The licensee is also liable for accidental damage caused. Liability is strict and unlimited and includes personal injury as well as injury to property (section 35). This liability provision must be considered together with the Model Licence, which states that oil companies jointly holding a licence are jointly Act No 988 of 09/10/ Danish Energy Agency, 14/12/2012. Regulatory provisions on unconventional gas extraction in Member States /11

12 and severally liable for claims arising under the Subsoil Act. Thus, even if the activities are in principle conducted by one member of the group (the operator), strict liability extends to the other participant as well. The damages claimed against the licensee may be reduced or eliminated if the victim intentionally or by gross negligence contributed to the injury. The licensee is thus in principle liable for all damage, regardless of its cause, subject to the limiting principle that there must be causality between the injury and the activities carried out by the licensee. The liability must be covered by insurance (Model Licence, section 30). The Licensee's insurances shall cover Injury to the Licensee's own employees; injury to any third party (including damage to property of a third party); pollution damages caused by the activities. The coverage for damages shall include all insurances which the Licensee is obliged to take out under Danish law i.e. work injury, motor vehicles. In addition the coverage for damages shall include insurances otherwise required in accordance with section 30 of the Licence (cf. section 35 of the Subsoil Act) in order to cover the general third party liability. According to section 30, subsection (2), of the Licence, the Energy Agency may require that additional insurance coverage must be taken out in case the Agency does not consider the insurance coverage to be sufficiently extensive. The insurance coverage must provide a reasonable coverage, based on the risks involved in the operation of the enterprise and the premiums to be paid. Pursuant to section 30 of the Model Licence the Agency has introduced an Operators Insurance Declaration form. With this form the operator declares to have received insurance certificates or declaration of self-insurance from all co-licensees (including the operators own certificate) and that the insurances satisfy a number of conditions. The form must be submitted to the Agency not later than 1 March of the covered year. If it is not possible to submit the form by this date, the Agency must be informed in due time, and a new arrangement made Specific requirements above ground Environmental and health information requirements prior to the start of the project (e.g. EIA for exploration and/or extraction/any other national provisions) The Planning Act 26 establishes a land use planning system as well as a rural zone permit system, and a planning hierarchy consisting of national and local planning. 27 Lower level plans may not conflict with higher level plans. Municipal planning will result in plans that lay down municipal planning guidelines for various land use interests. This includes not only planning guidelines for the construction of technical installations, but also planning guidelines for safeguarding other interests, such as nature protection, landscape, cultural, geological and agricultural interests (Section 11a). Local planning is the detailed planning level. A local plan is required for new activities that may lead to significant changes in the existing environment. Local plans are legally binding with the effect that activities may not be carried on in contravention of a local plan (Section 18). On the other hand activities which are in accordance with the local plan are allowed unless other restrictions or permit requirements apply, for example building permits according to the Building Act. 28 The rural zone permit (landzonetilladelse) system in the Planning Act establishes a general permit requirement for new activities in rural zones (Section 35). The purpose of the rural zone provisions is to protect rural areas against unplanned industrial or urban development. The Planning Act provides for extensive public participation in the planning process at local level. It is generally applicable to all projects and not specifically to shale gas. 25 Cf. Guide to Hydrocarbon Licences in Denmark Exploration and Drilling, September 2011, Danish Energy Agency, p Consolidated Act on Planning No. 937 of 24 September 2009 as amended, cf See Helle T. Anker in Legal Systems and Wind Energy by H.T. Anker, B. E. Olsen & A. Rønne (eds), Ch Consolidated Act No of 14/10/2010 on Buildings, as amended, cf. Regulatory provisions on unconventional gas extraction in Member States /12

13 The EIA rules for land-based activities in the Planning Act (Section 11 g) are detailed in an Executive Order on Environmental Assessment of Certain Public and Private Projects (EIA) (Bekendtgørelse om vurdering af visse offentlige og private anlægs virkning på miljøet (VVM) 29 and operate with mandatory Annex I projects and Annex II projects that, on the basis of an individual screening, require a full EIA. All Annex I and Annex II projects must be notified to the municipal council concerned (Section 2). Shale gas exploration well drilling without hydraulic fracturing are as all other well drilling e.g. geothermal activities subject to a screening procedure within the responsibility of the local municipality (for licence 1/10-Frederikshavn). Hydraulic fracturing of an exploration well (production tests) where the exploration target is shale gas on land is, however, subject to a full EIA due to the mentioned important amendment to the EIA Order that was adopted on 1 July 2012 to include shale gas projects under Annex 1. The criteria for the evaluation of whether a full EIA is required are included as Annex 3 to the executive order and match the EIA-directive. The responsibility to receive sufficient information rests with the municipality, but the developer is required to submit it. The criteria include the characteristics of the project e.g. dimension, use of natural resources, waste, pollution, risks, location and potential impacts. The written report attached to the notification of the developer in the actual case is 36 pages long and has been published. 30 With respect to licence 1/10-Frederikshavn, the technical administration has put forward a recommendation to the Council of Frederikshavn that a full EIA is not necessary for the next phase in the exploration period that involves a deep exploration well and sample taking without hydraulic fracturing and following the implementation of a screening procedure. During the screening process the municipality has approached the Danish Nature Agency, the Environmental Protection Agency and the Energy Agency for comments to the notification of the planned exploration well. Based on the presumption that the drilling will be implemented in the same way as other deep wells including the use of the same chemicals, the environmental agencies informed the municipality that they had no comments to the material or activities. 31 Subject to requesting the Geological Surveys (GEUS) to evaluate the ground water reservoirs and who recommended the developer to carry out analysis of the layers of ground water (as also suggested in the project description of the developer), the Energy Agency concluded the evaluation by stating that the drilling was not considered to have any substantial impact on close to surface ground water reservoirs that may be utilized for drinking water. It was also considered that the impact of the drilling activities to the subsoil layers would be limited to the closest areas surrounding the drilling hole. 32 The decision on screening must be published (Section 5) but there is no requirement to involve the public in the screening process as such. The publication must, however, include information about where and how relevant informative material about the project may be obtained (Section 6). The Council did not follow the recommendation from the administrative committee but decided that a full EIA should be prepared. An assessment must then be carried out and municipal planning guidelines for the project must be adopted. The information required for an EIA are included under Annex 4 to the Order on EIA 33 and includes a description of the project size and characteristics, land requirement, production processes type an amount of materials, emissions and other environmental impacts in terms of noise, vibration, lightning, water, air and land pollution etc., various alternatives and the reasoning for the final choice including locations, impacts on the environment and surrounding areas in the short and long term in terms of habitants, flora, fauna, air, soil, water; the extent of transportation and descriptions of options to avoid and limit the impacts. The requirements are fairly comprehensive. The municipality may 29 Executive Order No. 744 of 28/06/2012, cf rkningfratils%c3%a6tningsstoffer_ pdf 32 %C3%A5virkning%20af%20undergrund%20og%20grundvand_ pdf 33 Executive Order No. 744 of 28/06/2012, cf. Regulatory provisions on unconventional gas extraction in Member States /13

14 request all the necessary information from the developer and the competent authority publishes the final assessment in the form of a statement attached to the municipal planning guidelines. The statement must include, inter alia, an assessment of the relevant alternatives examined by the developer or by the authorities, including the zero option. Requirements on strategies to avoid/minimise disruptions to land use, biodiversity, community and water stress (in particular for cumulative developments) The protection of habitats and species in Denmark primarily relies on the Nature Protection Act. 34 Pursuant to Section 3 of the Act there is a prohibition to change certain nature categories like heather, wetland and meadows and other protected areas subject to limited dispensation. In this connection the international protection areas - Natura should also be mentioned (Section 19 a-f). The Executive Order on the designation and administration of international nature protection areas delimits habitat areas, bird protection areas and Ramsar areas. 35 The Executive Order restricts planning for new activities in the designated areas. An assessment must be carried out prior to granting a permit for a number of listed activities which require a permit according to several provisions of environmental laws (Sections 7 to 9). A permit cannot be granted if the project will affect the integrity of an area. Similar rules apply to plans for new activities within the designated areas. The nature planning and nature management is widely based on a strategy founded on a local conservation structure where emphasis is on conservation and restoration of ecological coherence. Spatial planning is an important instrument in the conservation and restoration of biodiversity. The objectives are to make sure that continued development is on a sustainable basis, and to safeguard important Danish nature and landscape resources. The EIA is carried out for projects which have significant impacts on the environment. For a number of specific projects, EIA is obligatory. For more details on this see the description on EIA above. Anybody who initiates an activity that may cause pollution must implement actions that may prevent such pollution, and organize the operations in such a way that would limit the pollution as far as possible, pursuant to the Environmental Protection Act Section 4. The one who causes pollution of air, water, soil or subsoil or is creating a risk for such pollution can arise, must implement the necessary actions to prevent in an efficient way the effect of the pollution. Moreover, the existing conditions must be re-established. The Act on Environment Protection is a framework Act and is therefore supplemented with administrative orders and guidelines. It is also based on a principle of decentralisation, and it is the municipalities that administer and enforce most of the legislation which is issued centrally. Environmental permits are required for different types of environmental hazardous activities and activities that involve the use of natural resources. The types of activities that require a permit are listed as an annex to the Permit Order. The annex includes the majority of Danish industries, except those that are specifically and exhaustively regulated in other orders or subject to permit requirement in other regulations etc. Environmental permits in Denmark contain e.g. descriptions of production processes, measures to limit contamination, and waste products and their disposal. A permit is required for commencement of the specific activity and also changes and expansions that involve increased contamination. Operations that do not require an environmental permit can be subject to orders by the environmental authorities to reduce pollution if they cause problems. A decision not to grant an environmental permit or specific conditions in such a permit can be appealed to the Nature and Environment Appeal Board, which is an independent appeal body. Also permits regarding discharge of wastewater can be appealed to the Nature and Environment Appeal Board. When applying for an environmental permit, an environmental impact assessment will often be required. The extent of such an assessment depends on what assumed impact the planned activity may have on the environment. 34 Consolidated Act No. 933 of 24/09/2009 on Nature Protection as amended, cf Executive Order 408 of 01/05/2007, cf. Regulatory provisions on unconventional gas extraction in Member States /14

15 Operators must apply for a number of permits in order to commence drilling activities including permits for the abstraction of water, drilling water wells, discharge in surface water, construction of waste water tanks, change of road access, construction of diesel tanks, control of waste discharge etc. The authority to grant these permits are vested with the local municipality The protection of ground water supply is ensured via the Water Supply Act with the prime objective is to make the use of water resources subject to an overall planning and evaluation to ensure water supply of sufficient quality and quantity. 36 As any well drilling requires the use of water and hydraulic fracturing the use of high quantities of water, there is a general permit requirement to use water pursuant to Chapter 4 of the Act (Section 18). The procedures connected to application for a water exploitation permit is further specified in the Executive Order on Water Exploitation and Water Supply. Furthermore the protection of drinking water resources when drilling the deep exploration well is ensured by the Danish Energy Agency in connection with approval of the drilling programme in accordance with section 28 of the Subsoil Act. It is the relevant municipality that issues the permits for the withdrawal of water up to 3000 m3 per year, cf the Act on Water Supply Section 20 and 21. Under the actual licence 1/10, a permit for two water wells have been issued for the purpose of water supply for the exploratory well. Based on the advice of the authorities, the licensee has decided to gather data to analyse and control the ground water quality before, under and after the drilling has taken place. The purpose is to prevent any criticism of contamination afterwards. 37 The drilling must be carried out according to an Executive Order on the implementation and abandonment of drillings and wells on land. 38 The permit includes the maximum exploitation of m3 water per year which must be measured, reported and controlled. The drilling must be commenced before 1 January 2014 and production may continue till 1 January Pursuant the Act on Water Supply, the owner of the facility is liable for any damage to the existing circumstances due to changes in the ground water level or water level of lakes and rivers (Section 23). The municipality decided concurrently that the impact on the environment did not require a full EIA. The decision is subject to publication in the newspaper and an appeal procedure. Setbacks, zoning restrictions and minimum well spacing requirements There is no legislation with requirements on well spacing. However, according to the Danish Energy Agency, before production and measures aimed at production are initiated, a plan for the production activities, including the organization of production and the layout of production installations and any pipelines (production measures, etc.), shall be approved by the Minister for Climate and Energy, ref. section 10 of the Subsoil Act. In such an approval well spacing will be an issue. In practice, the Danish Energy Agency will look during the process of approving the well drilling further into the location of the well to ensure that different wells are not too close and may influence each other. It is also considered whether a well pad including more drilling may be used to assure as little impact as possible. 39 Rules on vehicles and mobile working machines during levelling phase The EIA will include information about the working machines to be used but also the environmental permits may include conditions on these issues Specific requirements below ground Requirements for geological characterization including risks of geological faults, manmade 36 Consolidated Act No. 635 of 7/ as amended, cf Danish Energy Agency, 22/02/ Order No of 26/7/2007, cf Danish Energy Agency, 22/02/2013. Regulatory provisions on unconventional gas extraction in Member States /15

16 structures (e.g. abandoned wells, characteristics of the cap rock) According to the guidelines for drilling during the operation phase, prepared by the Danish Energy Agency, operators must provide in the drilling programme to be approved by the Danish Energy Agency information on; Depth and description of the anticipated geological horizons and areas which include - Stratigraphic column showing and describing anticipated lithology, as well as stating the planned casing points. - Representative, interpreted seismic sections near the planned well (normally 2 intersecting lines). - Depth and time structure maps showing primary and secondary prospects as well as time and possibly depth structure maps for other key horizons with a scale of not less than 1:25,000. The licensee shall, free of charge, submit samples and other information acquired during the performance of the activities comprised by the Subsoil Act pursuant to an Executive Order on Submission of Samples and Other Information about the Danish Subsoil (Section 2). 40 The Order is listing the required information to be submitted (subject to some exemptions) and with respect to geophysical surveys and three-dimensional surveys it concerns information on the lines and number of km collected and information about seismic, gravity and magnetic measurements. The reports, maps, data and samples for geophysical surveys, well-site, subsoil and soil surveys must also be submitted (Section 3). More specifically, the Executive Order on Submission of Samples and Other Information about the Danish Subsoil provides that geological surveys in the investigation phase must provide the following information: 3.- (1) The licensee shall submit the samples and information as soon as they are available. (4) For wellsite, subsoil and soil surveys, the reports, maps, data and samples shall be submitted. (5) For drilling operations the following are to be submitted: (i) Report on the previous day s operations and results. The report shall from the time the drilling equipment is positioned at the wellsite and until the wellsite is abandoned be submitted daily before a.m. by telefax or in electronic form according to more specific agreement with the Danish Energy Authority and the Geological Survey of Denmark and Greenland. It is further detailed in the Schedule as follows: Daily reporting during drilling operations. Daily reports shall include all main data about the work carried out in the preceding 24-hour period, including a geological description of the layers penetrated and descriptions of any cores extracted and any results obtained from geophysical measurements made in the well during drilling (ii) Monitoring and surveying data from the well. (iii) In case of sampling (cuttings, drilling fluid, sidewall cores, cores and formation fluids), sampled material. The samples shall be provided with a durable marking indicating the well designation and sample depth, so that the samples can be identified at all times. The samples shall be delivered in packaging which provides for long term identification and storage. (iv) Reports on analyses of samples from the well. (v) Reports on raw data and processing results for test production. (vi) For test production concluding report. The report shall be submitted no later than six months after termination of the drilling operation. 40 Order No. 56 of February 4, 2002, cf. Regulatory provisions on unconventional gas extraction in Member States /16