Spanish Government Gives Green Light to Fracking, but Questions Remain
In an effort to promote shale gas exploration and drilling projects to boost its ailing economy, on 30 October 2013, the Spanish government explicitly legalised hydraulic fracturing (fracking). In a law heavily focused on boosting the electricity supply to the Balearic and Canary Islands, the government amended Article 9 of a 1998 hydrocarbon exploration law (Law 34/1998), to include hydraulic fracturing under the permitted exploration techniques for the oil and gas sector.
Although the law confirms political support for shale gas exploration, it raises questions about whether the legal authority to determine shale gas regulation rests with central or regional governments. The disagreement between Madrid and autonomous communities on who has jurisdiction over hydrocarbon techniques has the potential to result in a legal quagmire that will hallmark the regulatory outlook for the foreseeable future.
New fracking legislation raises legal questions on extent of regional autonomy
Despite the regulatory green light, the attempt to provide legal certainty and raise investor confidence in Spain’s shale gas sector may result in adverse consequences, as new questions emerge over the jurisdiction of shale gas exploration. In Spain, hydrocarbon extraction falls under the authority of both the central government and the autonomous communities. Shale gas resources of particular interest to potential investors are located in the autonomous communities of Asturias, the Basque Country, Cantabria and Castile and Leon. Anxious to contain a regional trend of banning shale gas exploration, the Spanish government has responded by explicitly incorporating the permission to pursue hydraulic fracturing into legislation with national application.
However, the precise legal situation regarding the distribution of competencies for hydrocarbon exploration between the national and regional governments remains uncertain. For instance, on 7 October 2013, Spain’s minister for industry, energy and tourism – Jose Manuel Soria – stated that the authority of autonomous regions with regard to fracking was limited to the imposition of environmental conditions and the distribution of permits. In the view of the central government, a regional moratorium on shale gas exploration would thus be in conflict with the newly amended national law on hydrocarbon exploration. However, regional MPs have accused the central government of forcing a conflict between Madrid and the regions and implied that regional governments may refuse to comply.
The divergence of opinion between central and regional governments creates two specific areas of uncertainty for prospective and established investors. Firstly, the new amendment does not prevent regional governments from limiting licences or imposing exceptionally stringent environmental conditions to make shale gas too costly to be commercially viable. Moreover, it is unclear whether regional governments will comply with the new directive. It is possible that at least some will choose to dissent and refuse to relinquish what they perceive to be their autonomous rights.
For the time being, autonomous communities appear divided – some have imposed temporary moratoria awaiting more clarity on potential impacts, while others have voted for complete bans on fracking. Two autonomous communities, Cantabria and la Rioja, have already ratified anti-fracking legislation in April and May 2013 respectively. This came as a surprise to the government in Madrid, since both regional governments are ruled by the conservative Partido Popular (PP) that constitutes the majority in the pro-fracking central government. Additionally, in September 2013, in Navarra, the ruling Navarrese People’s Union (UPN) introduced a ban on fracking – this time with the abstention of the PP.
Investors face uncertain landscape despite new legislation
Despite the aim of providing legal certainty for investors, the new amendment is unlikely to be the final stage in the evolution of the regulatory framework for shale in Spain. And while it remains unclear how regional governments will react to the central government’s gambit, it is likely that some, along with civil society actors, will challenge the amendment in courts. This would further extend uncertainty over the future of shale gas in Spain.
Conversely, particularly stringent environmental conditions imposed by regional governments could potentially be challenged by the government in Madrid or oil and gas companies investing in Spain, also serving to prolong ambiguity. In a political atmosphere marked by a precarious balance between central and regional governments, and protests by some for greater independence, a further worsening of relations in light of the amendment cannot be discounted. Overall, the amendment to the 1998 law is unlikely to provide certainty for investors as long as the debate on the authority of central and regional governments over the hydrocarbon sector remains unsettled.
Danielle Feldstein, Europe Analyst at Maplecroft
The article is provided by Maplecroft, a Natural Gas Europe Industry Partner.