EIS0007 - Evidence on Extractive Industries Sector

EIS 07

Written evidence submitted by the Natural Environment Research Council (NERC)

Introduction

The Natural Environment Research Council (NERC) is one of the UK’s seven Research Councils. It funds and carries out impartial scientific research in the sciences of the environment and trains the next generation of independent environmental scientists. Details of NERC’s research centres, marine delivery partners and research programmes are available at www.nerc.ac.uk.

This response is based on input from NERC Swindon Office, the British Antarctic Survey (BAS) and the British Geological Survey (BGS).

Additional data provided by BGS has been submitted to the Committee’s inquiry.

Although mineral and hydrocarbon extraction are forbidden in Antarctica (south of 60°S) as a consequence of the Antarctic Treaty, BAS still has a role to play in the future planning of mineral activities in the Arctic and sub-Antarctic.

BGS is NERC’s principal supplier of national capability in geoscience and is a world-leading geoscience centre for survey and monitoring; modelling and research; and data and knowledge.

MineralsUK [1] is the BGS Centre for Sustainable Mineral Development. The Centre is a global leader in the compilation, provision and analysis of mineral statistics and the major UK national provider of spatial and statistical minerals information. The Centre also carries out research in areas directly relevant to its user community, such as metallogenesis, land-use impacts of mineral extraction and geomaterials.

In 2011, the total value of the UK minerals production was £37,704 million. Energy minerals (oil, gas and coal) comprised 92% of overall production.

Question 1: What is the contribution to the UK economy of extractive industries in the UK?

BAS is increasingly playing a significant role in the Arctic region as a result of NERC defining the scientific and research remit of BAS to encompass both Polar Regions. BAS geologists have involvement in initial surveys in southern Greenland to assess rare earth element (REE) deposits and a project is underway to develop the use of airborne surveying equipment to remotely identify REE deposits as a precursor to detailed field surveys.

In the Southern Ocean, BAS have field geologists who have worked on sub-Antarctic islands, including the Falkland Islands, and have compiled geological maps of the region. Our primary research ship, the RRS James Clark Ross, has compiled multiple seismic and bathymetric surveys of the Scotia Sea. Although mineral resource activity is prohibited in the Antarctic, BAS has compilations of geological maps and data of British Antarctic Territory acquired over the last 50 years.

BGS publishes an annual compilation of statistics related to UK mineral production in the form of the UK Minerals Yearbook. In 2011, the total value of the UK minerals production was £37,704 million. Energy minerals (oil, gas and coal) comprised 92% of overall production. The remaining non-energy (construction and industrial) minerals represented a total value of £2,894 million.

Question 2: How does the UK based extractive industries support employment a) in the UK and b) for UK citizens overseas?

In 2011, over 17,000 people were employed in mines or quarries in the UK. Oil and Gas UK estimates that in 2012 over 440,000 people were employed on the UK Continental Shelf.

BGS has no data on UK citizens employed overseas.

Question 3: Does UK industry benefit more widely from the UK’s position as a centre for extractive industries i.e. In sales of machinery and services to international businesses in the sector?

We are not in a position to provide a comment.

Question 4: 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?

We are not in a position to provide a comment.

Question 5: What are the corporate governance concerns raised by the number of extractive industries companies listed in the UK? Are there reputational risks for the UK and UK financial institutions in being a centre for such businesses?

We are not in a position to provide a comment.

Question 6: 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?

At the national level the UK Minerals Forum (UKMF) facilitates regular and structured dialogue between industry, regulators, policy makers and NGOs. UKMF is valuable in debating contentious topics and identifying key issues relating to sustainable development of UK mineral resources. For example, the UKMF is currently undertaking a forty year horizon scan on the future of UK mineral extraction. BGS is a founder member of the UKMF.

BGS has an important role to play in helping NGOs and the wider community understand the economic, social and environmental issues related to mineral development. For example, the BGS Mineral Planning Factsheets [2] are designed to inform debate and decision-making around planning for domestic mineral supply.

Question 7: 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?

NERC funds training and development of environmental scientists at PhD and post-doctoral level in the UK. Training the next generation of scientists is a fundamental component of NERC's activities ensuring that the UK maintains its position at the forefront of environmental science research and in supplying skills to industry.

Each year, NERC funds around 1,100 PhD students through university departments and NERC research centres, such as BGS. In 2012/13, this amounted to over £20million of investment. Between 2006 and 2013, NERC has spent over £11million training over 600 PhD students in geological subjects, many of whom go on to employment in the extractive industries.

The excellence of research and training in UK universities and research centres is recognised through regular co-investment from the oil/gas and minerals/mining sector. The importance of post-graduates has been spelled out by a senior Oil Industry Executive, who said: "Many of our geoscientists, reservoir engineers and environmental scientists have benefited from NERC funding during their careers and today play a significant role in the UK's global competitiveness."

UK university and research centres train students in a wide range of areas of relevance to the oil/gas and minerals/ mining sectors, including: structural geology, geophysics, geochemistry, palynology, palaeontology, fluid flow, field geology, remote sensing.

In many cases, UK universities are the world-leaders in these fields, enabling students to 'learn from the best' and work with world-leading scientists from other countries.

UK-trained scientists develop a combination of skills from different disciplines, integrating knowledge from geochemistry to the analysis of real geological basins. There is a considerable field work component in UK training, which is valued by the mining sector.

UK-based students have access to world leading technologies (such as autonomous technologies for ocean exploration, including sea-bed mining) and facilities, including the cutting edge geochemical facilities in the UK. These include the Ion Microprobe Facility at University of Edinburgh and the Argon Isotope Facility at East Kilbride, both of which are NERC-funded. Around 75% of students using these facilities go on to work in industry.

UK-based students have access to and regularly work on data from the Integrated Ocean Drilling Program (IODP) and data accessed through the BGS National Geoscience Data Centre. The importance of data was echoed by a senior manager working for an exploration consultancy, who said about the National Geological Repository: "These collections are immensely valuable for training. I don't know any geologist in my industry who has not been in these sessions and who would not consider them to be important and instrumental in developing their understanding of both the dataset and how to use them in their jobs".

As well as their world-leading expertise in resource identification and extraction, UK universities also have expertise in the following topic areas which are relevant to the oil/gas and minerals/mining sector including: microbiology of hydrocarbon reservoirs and reducing mine-waste contamination risk.

Question 8: What is the impact of the industry of the UK signing up to the EITI?

We are not in a position to provide a comment.

Question 9: 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?

We are not in a position to provide a comment.

Question 10: 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?

A large part of the UK domestic mining and quarrying industry is owned and operated by relatively few large multinational companies, the majority of which are foreign-owned. A high percentage of total output of construction aggregates in the UK is from quarries operated by four companies. These companies are all vertically integrated and include cement manufacturing in the UK or Europe. The indigenous silica sand and ball clay/ kaolin industries are also dominated by just two large, foreign owned companies. Ownership of the coal industry across the UK is more diverse.

The consolidation of mining and quarrying companies is partly in response to competition for land use. The commercial risk involved in setting aside time and financial resources needed to obtain a licence to operate (planning permission and environmental permits) in the UK is relatively high by both world and European standards. The response of the market to this risk has been for companies to replenish reserves by acquisition (in order to access additional permitted sites or to deny them to rivals) and by vertical integration (for cement companies to secure supplies of vital aggregate raw materials).

The result is a relatively small group of large companies who have sufficient investment capability to meet permitting costs and maintain a portfolio of different supply options. This situation may present a barrier to entry for smaller local operators. It may also encourage consolidation of production at fewer, larger quarries where larger companies can take advantage of economies of scale, as well as the ‘trading’ of sites with permitted reserves between companies and the giving up of dormant sites in scenic areas such as National Parks in exchange for a licence to operate elsewhere.

ANNEX A

Response by the British Geological Survey to the Business, Innovation and Skills Committee Select Committee Announcement No.11 –

EXTRACTIVE INDUSTRIES INQUIRY

Background to the British Geological Survey

The British Geological Survey is a part of the Natural Environment Research Council (NERC) and is its principal supplier of national capability in geoscience. It advances understanding of the structure, properties and processes of the solid Earth system through interdisciplinary surveys, monitoring and research for the benefit of society. The BGS is the UK's premier provider of objective and authoritative geoscientific data, information and knowledge for wealth creation, sustainable use of natural resources, reducing risk and living with the impacts of environmental change.

We are a world-leading geoscience centre for:

survey and monitoring
modelling and research
data and knowledge

MineralsUK is the British Geological Survey (BGS) Centre for Sustainable Mineral Development. Facilitated by the BGS Minerals and Waste science programme, the Centre is a global leader in the compilation, provision and analysis of mineral statistics and the major UK national provider of spatial and statistical minerals information. We also carry out research in areas directly relevant to our user community, such as metallogenesis, land-use impacts of mineral extraction and geomaterials.

Questions

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

The BGS publishes an annual compilation of statistics related to UK mineral production in the form of the UK Minerals Yearbook. (http://www.bgs.ac.uk/downloads/start.cfm?id=2876). The following are extracts from the latest version of the Yearbook which give a good indication of the contribution of the minerals sector to the UK economy.

Note that the value of energy minerals (oil, gas and coal) dominates overall production. These data have been removed from the second pie chart to reveal the value of all non-energy minerals produced from the UK.

The table above gives some context to the earlier value data by showing the volume of minerals produced in the UK. Note the very large tonnages of construction aggregate (igneous rock, limestone and dolomite, sand and gravel) and the very small volume of metals.

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

The BGS have no data on UK citizens employed overseas.

Does the UK industry benefit more widely from the UK’s position as a centre for extractive industries i.e. In sales of machinery and services to international businesses in the sector?