Shale gas Europe’s shale gas question


It has been suggested that gas from shale deposits will rival conventional sources in the US in a few years, yet the emergence of shale gas as a significant force is still very new. So is it possible that the story will be repeated in Europe? Nicholas Newman has been taking soundings.


T


here has been a surge of excitement that Europe will be able to repeat the US shale gas revolution.


European Union decision makers have welcomed such prospects as an additional tool to add to Europe’s energy security, inter alia, by weakening Russia’s market share of the European gas market. For EU member states, like Britain, a


new shale gas future could mean domes- tic shale gas production meeting 10% of the country’s needs. However, energy expert Pawel Nierada from the Sobieski Institute in Warsaw is suggesting that Poland's shale gas resources could turn the country into an important regional supplier on the European gas market.


Market issues Currently, growth in demand in the EU gas market is forecast to grow at 0.6% per annum. Anouk Honoré at the Oxford Institute of Energy Studies (OIES) esti- mates that Europe will have to seek additional supplies, to supplement exist- ing contracted gas supplies, after 2014. The question is what role, if any, will shale gas play. At present, so much hinges on gas prices and the timing of the EU’s economic recovery, since the main growth of demand for gas in Europe is the power sector. The timing of construction and completion of new stations is likely to affect demand; already investment in several gas power stations has been delayed. In addition, the timing and impact of planned coal and nuclear power stations is almost certainly likely to affect the growth in the demand for gas, post 2014. On the question of energy security,


shale gas appears to answer many of Europe’s energy security of supply ques- tions. It could certainly reduce the EU’s dependency on gas imports and reduce Gazprom’s market share on supplies to the European gas market. Nevertheless, the real question is: can shale producers in Europe produce shale gas at a competitive price against other fuels. But, many of these countries will have to wait for their long-term gas supply contracts to end before they can switch to shale gas. However, it is likely, suggests Olaf Mager at energy consultancy Germanisher Lloyd SE, that commercial gas production will start towards the end of this decade. On the supply side, shale gas is likely to


face continued competition from import- ed LNG and, ironically, shale gas imported fromthe US. Further, the timing and com-


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pletion of various pipeline projects such as Nabucco, Nordstream and Sudstream is also likely to add to shale gas problems.


Investor interest At present, there are estimated to be at least 40 companies taking an active inter- est in Europe’s shale gas potential. They vary from the traditional world major players like Exxon and Shell, medium rank players like Austria’s OMV and independ- ents like Britain’s Caudrilla Resources. Caudrilla Resources is presently drilling just a few miles from the seaside resort town of Blackpool in NorthWest England. However, the big excitement is in


Poland, where over forty licences have been granted to such operators as Chevron, ConocoPhillips, Exxon Mobil and Halliburton, in part due to the promising geology and a favourable tax regime for investors. While Russia’s Gazprom shows little interest in shale gas exploration, its rival TNK-BP has announced plans to explore for shale gas in the Ukraine’s east- ern Donetsk region. Last year, Halliburton initiated with its


Polish partner PGNiG, the state- controlled oil and gas company, Poland’s first ever large-scale hydraulic fracturing operations at the Markowola-1 well located within the Pionki-Kazimierz license. The aim of this operation is to dis- cover if there are sufficient reserves of shale and tight gas reserves in the reser- voirs. Halliburton is suggesting that, if commercial reserves are proven, shale gas production could begin in Poland within three to four years. Elsewhere in Europe, investors are busy


acquiring a portfolio of shale gas licences. So far, ten EU states have issued licences. France’s Total has announced it has acquired licences in Denmark, Germany and France and Total aims to start test drilling its first wells near Montpelier in 2012.


American experience In the US, shale gas has radically changed the national picture, from being a net gas importer to today a net gas exporter due to shale gas production leaping from 1% in 2000 to 14% in 2009, reports the US Energy Information Agency. In Europe, we have already seen the side effects of this American shale gas revolution. LNG car- goes that were originally bound for US markets are now flooding Europe with their gas cargoes. In addition, Gazprom has had to put on hold its ambitions to


supply the US market with gas from the Siberian Arctic, and more recently, Europe has begun to receive the first LNG tanker deliveries from the US. Already, potential US shale gas exporters are looking at the North Asian market with its premium gas prices. Now, there is much media speculation


that the US, due to its immense recently discovered shale gas resources, is trans- forming the country into the ‘Saudi Arabia of gas’. However, not all is well in the American


market for gas. Attempts to ramp up fur- ther production have been hindered by an unlikely coalition of interests, including the powerful coal, rail and environmental lobbies in Congress. Furthermore, by the lack of additional domestic demand for shale gas by America’s gas-powered sta- tions that have been hit by a lack of demand for electricity due to the current state of the American economy. This has led to some shale gas operators scaling down or suspending operations for the present.


European prospects In Europe, energy consulting company Wood Mackenzie suggests that there could be between 1.4 and 3bn cubic metres (bcm) of shale, while the IEA esti- mates for Western Europe are rather higher. In effect, there are estimated to be sufficient shale gas reserves to meet Germany’s current needs for the next 175 years. Advanced Resources International estimates that Poland could hold enough reserves to meet the country’s require- ments for the coming two centuries. In Europe, the prospects are not as easy


for prospectors as operators found in the US. Despite current industry speculation, the industry in Europe is yet to complete its early stages of testing and evaluation. It will not be until we hear the results fromoperators that we will have a clearer picture. In the next ten years, it is unlikely that Europe will replicate the same scale of development as the US has experienced in the past decade. The factors that are likely to slow down the pace of develop- ment in Europe include technology issues, market issues and planning and policy issues.


Knowledge gap In Europe, the geology is quite different from the North American experience. It tends to be less promising and more expensive to exploit. Due to the infancy of


Energy World April 2011


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