The U.S. shale gas boom has significantly changed the world’s energy landscape, probably making the U.S. independent from gas imports in the long term. In Europe, the oil and gas industry has laid its enthusiastic eyes on local shale gas resources hoping to replicate the US success story.
However, the technology to develop unconventional gas is highly controversial, economic benefits are dubious and political and public support for a European shale revolution is low.
Shale gas is natural gas that is trapped in complex rock formations and only possible by deploying a method known as ‘fracking’. This is where a special fluid of water, sand and chemicals is injected into the ground at a high pressure to crack the rock and release natural gas.
In the U.S., fracking has been applied a million times since the end of the 1940s, when oil and gas companies first experimented with the technology. At the end of the nineties, George P. Mitchell refined the technology and used fracking for drilling shale formations. It is thanks to him that shale gas development became commercially viable and unleashed the ‘shale boom’.
The Shale Boom: Energy independence, economic growth and less carbon emissions
Indeed at first sight recent figures are impressive: The U.S. Energy Information Administration (EIA) projects U.S. natural gas production to tick up 44% from 23.0 trillion cubic feet (tcf) in 2011 to 33.1 tcf in 2040. Responsible for this growth is mainly the production of shale gas, which will grow from 7.8 trillion cubic feet in 2011 to 16.7 tcf in 2040. And the boom is likely to continue, as new figures from the EIA indicate, increasing drilling productivity which means drilling companies can drill more efficiently and economically.
Shale gas production, experts say, will make the U.S. independent from natural gas imports; last year the U.S. even outpaced Russia a biggest producer of natural gas. Moreover, increased production has dropped energy prices significantly in the U.S., leading to a boost particularly in energy intensive branches such as the chemical and manufacturing industry with thousands of newly created jobs. Not to forget the positive impact natural gas from shale resources had on carbon emissions. Between 2005 and 2012, U.S. carbon-dioxide emissions fell by 12 per cent, due to increased gas burning in the power sector.
But is this Just another Bubble?
But that’s only one side of the story. U.S. carbon emissions stepped up 2 percent last year as rising natural gas prices made coal cheaper and more attractive for electric power sector in the second half of 2013. Moreover, the shale revolution seems to devour its children when it comes to the economic aspects of shale extraction. Experts found that the decline rates of existing wells are high which means that high levels of drilling are needed only to maintain production. This makes drilling more costly for E&P companies. In autumn last year, Royal Dutch Shell had to write off $2bn on shale assets in the US due to disappointing wells and plunging prices. Also investors have slowed their appetite in investing into shale assets. According to the energy researchers at HIS, foreign investments in shale assets decreased from $7bn to $3.4bn last year. In 2011, foreign investments reached the amount of $35bn.
Europe: High hopes but Low future prospects
So what’s the situation in Europe? The US shale dream in sight, European industry representatives saw an era of cheap gas, increased security of supply and economic boost dawning. The reality is somewhat different. When comparing US and European shale plays, Florence Gény from the Oxford Institute for Energy Studies has pointed out that;
“European unconventional gas basins tend to be smaller, tectonically more complex and geological units seem to be more compartmentalized. Furthermore, shales tend to be deeper, hotter, more pressurized. The quality of the shales is also different, with generally more clay content in Europe.”
Taken together, these facts would make shale gas development in Europe significantly more expensive for drilling operators as compared to the US.
Insufficient legislation and lack of political support
Apart from these geological conditions, environmental legislation plays a key role in the question whether to frack or not. In July last year, France introduced a government ban on fracking and President François Hollande emphasized that under his presidential term exploitation of shale gas in France can be ruled out. In Germany, the political landscape is highly split on that matter. Only few politicians advocate the deployment of fracking in order to exploit German resources, which are rather modest compared to the estimated resources of the Big Three, USA, China and Argentina. The Conservative-Liberal coalition missed out on regulating the issue adequately during their last term which has lead to a de facto fracking moratorium.
The new Grand Coalition has not concluded any new legislation yet. However, the new minister of environment, Barbara Hendricks, stated that fracking will not be allowed until the technology can be applied without the use of chemicals. And experts warned that large scale deployment of the fracking technology in Germany on the basis of the anachronistic mining law could lead to “undesired socioeconomic and environment related consequences.” Overall, political support for fracking is quite low in Germany.
EU does not want to regulate anything?!
At the European level, the situation is quite different. The European Commission is divided in proponents of the technology, such as EU energy commissioner Günther Oettinger, and opponents like Connie Hedegaard, EU commissioner for climate action. While the latter warns that Europe should not fool itself over the opportunities of shale gas, Oettinger is generally in favour of the technology, hoping it could provide cheap energy and security of supply for Europe. As a consequence of the different views within the Commission, the recommendation adopted in January reflects once again the typical muddling-through approach of EU politics.
Rather than taking a clear stand on that matter, the Commission backed away from legislation on fracking, recommending ‘minimum principles’ for environmental and health issues instead which could not be more ‘general’ in its character.
The public opinion: No Thanks
Policy makers and the industry have to deal with massive public concerns across Europe. Citizens’ initiatives mushroomed across Germany: wherever the deployment of fracking was debated, citizens formed local initiatives to prevent any fracking related activities and raise public awareness on the potential dangers of fracking. A network of citizens’ initiatives has evolved across Europe capable to organize and mobilize high-profile protests as seen in the UK, Bulgaria, France and Germany.
No fracking revolution in Europe
As explained, the situation in Europe differs considerably from the conditions in the US. The geology is more complex which would make fracking much more expensive and thus unattractive for oil and gas companies. Also fracking legislation is insufficient if not inexistent, political support in most of the European countries is rather low and widespread public resistance is remarkable.
It is likely that Europe will neither see a fracking revolution nor an evolution. Or as Michael LaBelle and Andreas Goldthau recently concluded in the Journal of World Energy Law & Business: “[Fracking] fails to surpass essential policy, industry and social barriers required for a new energy technology innovation to succeed.”
What do you think? Is this a missed opportunity or a great move by Europe? Leave your comments below.