Shale’s unknown potential

Because little is known about the likely impact of shale gas on the EU energy market, the Commission cannot yet provide regulatory certainty.

Over the past decade, as the United States embraced new extractive technologies for mining unconventional oil and gas, Europe has remained cautious. But now the European Union’s skyrocketing energy prices, in contrast to decreasing prices in the US (see page 17), are forcing a rethink on this  policy.

When EU leaders met at a summit in Brussels in May, shale gas was high on the agenda, along with discussions on the slow implementation of the internal energy market. “While the United States is on its way to becoming a net exporter of gas instead of an importer, as a result of the shale-gas boom, Europe’s import dependence is further increasing and, for oil and gas, is set to grow to over 80% by 2035,” José Manuel Barroso, the president of the European Commission, said ahead of the meeting.

But the Commission is in a delicate position. Some member states want to plough ahead with shale exploration, while others are adamantly opposed over environmental concerns. Barroso has tried to walk a tightrope, saying those member states that wish to begin should do so.

Barroso wrote to EU leaders in May, saying that the EU needs a “Union-wide approach” on shale gas and that “we need to act swiftly”. But this sort of timid encouragement is not enough to give oil companies the certainty and encouragement to start explorations, the industry warns. They want more positive signalling from the EU.

The problem is that nobody knows yet if the same potential exists in Europe. Some countries want to push ahead with exploration, particularly Poland. But other countries have serious concerns about the environmental impact. There are concerns that the chemicals used in hydraulic fracturing – or ‘fracking’ – can seep into water supplies. There have also been concerns that the horizontal drilling necessary for extracting this type of gas, which is embedded into narrow fissures in the rock, can cause small earthquakes. France and Bulgaria have banned extraction. This has left the Commission awkwardly stuck between the two sides. But energy companies say they need more regulatory certainty and encouragement for investment.

A consultation conducted by the Commission found that the majority of respondents want some kind of EU legal framework on shale-gas extraction. But nearly half of the respondents were from Poland, shale’s most enthusiastic supporter. The Commission plans to put forward a proposal for a framework on shale gas by the end of the year, but it is not yet known whether it will be just guidelines or something more robust.

Derek Magness, general manager for Europe for energy company Chevron, says an EU legal framework should work on the same timeline as in the US, where state laws cover the early exploration process but federal law comes into play later. Chevron is drilling four exploration wells in Poland and hopes for two more later this year. A balance needs to be struck, he says, between setting enough guidance to establish regulatory certainty, and setting onerous rules that do not take into account the varying geography of Europe.

“If the EU tried to write a big comprehensive manual with all possible environmental risks, that would take ten years,” he says. “It’s better to have an umbrella policy, with national rules under it.”

Magness says that the industry is looking for the Commission to share best practice with the general, non-geographically specific aspects of shale-gas extraction, so that each member state is not learning on its own. The lack of regulatory clarity has been cited as a factor behind other companies, such as Exxon Mobil, pulling out of some exploration operations.

Unknown impact

Although little is known yet about the potential for shale gas in Europe, few would claim that Europe’s deposits have the same potential as in the US. “We know that it won’t be a boom like the US had, but a more modest development that could compensate for the decline in the current conventional gas production,” says Monica Cristina of industry group Shale Gas Europe. She says shale gas could maintain the current EU’s import dependency at 60%, rather than seeing it rise to 80% by 2035 as Barroso predicted.

A report published earlier this year by A.T. Kearney, a consultancy, found that exploiting shale-gas reserves in Europe could cause gas prices to fall by up to 6%.

Environmentalists, however, say the potential benefits of shale gas in terms of energy independence and prices are being wildly exaggerated. Janez Potoc?nik, the European commissioner for the environment, cautioned earlier this year that the EU should not get overexcited by the idea that shale gas can reduce Europe’s energy dependence or solve high prices, given that at most it can only stop an increase in dependence.

The debate is not going away any time soon. But at the very least, May’s discussion of shale gas by EU leaders sent a positive signal to the industry. “We’re hearing more positive signals than we were 18 months ago,” says Magness.

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