the shale gas industry in Europe, there are significant geological knowledge gaps – Europe has little history of onshore drilling as compared to the US. In an attempt to rectify this problem, industry-sponsored research teams have been established; for example, GASH (Gas Shales in Europe), which in August 2010 started drilling on Denmark’s Bornhorm Island to discover more about Europe’s Alum shales. In terms ofdrilling, EU shale gas deposits


begin at 5,000 to 6,000 metre depths as compared to the US experience of3,000 to 4,000 metres. In addition, EU shale gas deposits tend to be more fragmented and richer in clay than the North American experience, making conditions harder for fracturing. It is not surprising that many firms are operating as joint ventures on schemes in order to benefit from the tech- nical expertise and hands on experience. Wolfgang Ruttensoffer, CEO at Austria’s OMV, observes that on average US shale gas deposits are at depths ofthree to four kilometres, and drilling can cost $5mn, while in Europe wells can cost $20 to $50mn, due to the more difficult condi- tions involved. As well as having a knowledge gap,


Europe has an inadequate service capacity to facilitate the development on a large scale. For a start, there are simply not suffi- cient rigs available to meet existing shale exploration and production (E&P) contracts, suggests research fellow Professor Paul Stevens at Chatham House. At present, around one hundred land-based drilling rigs are operating on the continent, as com- pared to the US experience ofaround 2,000 land-based rigs operating at any given time. It has been estimated by Paul Stevens that Europewould need to drill at least 800wells each year to produce one trillion cubic feet (tcf) of shale gas over the next ten years. Not only is Europe's shale gas sector fac-


ing a shortage ofrigs, there are also short- ages oftrained staff, experienced in horizontal drilling and fracturing. Most of the labour force tends to be brought from the US. European labour costs tend to be higher than in the US for staffing rigs, notes Anouk Honoré.


A matter of access Access to Europe’s shale gas potential poses quite different challenges for for- eign investors. The legal, environmental, planning and land rights issues are often very distinct from the US experience. In Europe, the state usually holds the sub- service mineral rights and E&P licences are issued on a smaller scale than in the US. Europe’s Member States often share no common legal system and regulatory planning framework to make, coordinate and implement decisions to ensure access for exploration and production purposes. In fact, many of the appropriate laws and policies were written in the days before shale gas came on the scene.


Energy World April 2011


A diagram from the US Energy Information Administration (EIA) shows clearly the source of shale gas, alongside other sources of conventional and non-conventional gas


Florence Geny at the OIES observes that


hydrocarbon mining laws in Europe have been designed for conventional E&P activi- ties. As a result, a large number ofdefini- tions, concepts, and permitting approaches taken by these laws are unsuited to the nature ofunconventional gas deposits and operations. Geny warns that because of these issues, there can be potential for legal uncertainty and operational chal- lenges that will likely generate expected and unexpected project delays. At present, Europe’s decision makers at


all levels are on a consistently moving learning curve to develop the appropriate policies and regulatory structures that will meet Europe’s requirements. Some states will have one centralised regulatory and planning authority while others, like Switzerland and Germany, have state or local agencies responsible for the work ofissuing E&P licences, observes Kenneth Culotta, Partner at energy lawyers King and Spalding. Even when approval for exploration has been given by the granting authority, there may not be a unified permitting approach, and no ‘lead agency’. Thus material approvals from other agencies that have jurisdiction over regional or even local planning, envi- ronmental issues and water usage must often be independently obtained before the project can begin. American shale gas prospectors will find the regulatory and planning environments different, more in favour of local vested interests than pro- development.


Sceptics challenge


environmental impact At present, there is beginning to be growing public concern about the impact that shale gas development could have on the environment. In Britain, the House ofCommons Energy and Climate Change Committee is holding an inquiry


into shale gas exploration, while the Tyndall Centre for Climate Change Research has called on the government to impose a moratorium. Elsewhere in Europe, France has called a


halt to drilling and the European Commission has announced a legal study to assess whether industrial practices relat- ed to shale gas exploration and produc- tion meet the EU’s environmental standards. There are concerns that the chemicals used in the hydraulic fracturing (‘fracking’) process could pollute ground- water used for drinking and irrigation. However, Erik Oswald, Operations Manager at Exxon Mobil Europe, suggests that there have been no documented cases. Nevertheless, it is clear that the potential environmental impact of hydraulic fracturing on underground water tables is a highly complex matter and not well understood.


Conclusion The existing evidence would seem to sug- gest that shale gas output, as forecast by its promoters, is unlikely to meet their expec- tations by 2020. It is likely that, due to the many challenges that need to be overcome in Europe, the pace ofdevelopment in Europe is likely to be slower than the US experience. It is more likely that the contri- bution that shale gas delivers will not play a significant contribution to EU gas sup- plies until the end ofthe decade. In fact, for it to play a more important


role in the EU energy mix, there must be investment in research and development to reduce E&P costs, together with improvements in the EU’s energy, planning and regulatory policies. Perhaps there is room for a single Europe-wide framework to facilitate development and provide con- sistent regulation for potential investors, where such operations take place on a con- tinental scale.


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