SHALE REVOLUTION
jointly run by European oil and gas states, such as the UK and Norway, which have the relevant experience, and would include representatives from all CE states as well as industry and NGO participants.” The costs of developing shale
operations in Europe will certainly be higher than in the US. European geology is said to be less favourable with shale deposits tending to be deeper underground and harder to extract. Critically, the US has a long history of drilling for fossil fuel deposits which has spawned a hugely competitive and well-developed oil and drilling services industry.
Shale development takes time, and that will certainly be the case in the EU
Europe (outside of the UK and
Norway) has nothing to compare. And sinking wells in Europe is significantly more expensive. Well costs range from $6.5 m to $14m, in comparison to $4m at the Marcellus Shale in Pennsylvania, according to Deutsche Bank. “At the peak in 2008, roughly 1,600 gas drilling rigs were in operation in the US, while fewer than 100 such rigs are in operation in Europe,” say Deutsche Bank.2 And according to Wood Mackenzie, only 100,000 horsepower (hp) of hydraulic fracturing equipment is available in Europe, compared with 8 million in the US.
Land & Mineral Rights Perhaps the biggest problem for the
development of the shale industry in Europe relates to land and mineral rights. In Europe these are not vested in the same people as the land rights. In America, mineral rights belong to the landowner. In Europe, they usually belong to the state (or local government). The Economist recently described it thus: “When American property owners see drills, they see dollar signs. European landowners just see big, ugly drills.” “The rights to all oil and gas in the UK have belonged to the government
62 March 2012
since the Petroleum Production Act 1934. We note that this is the case in most countries around the world, to which the US is an exception.” say Deutsche.[In the US, both surface rights and mineral rights belong to the landowner]. This fact results in two important differences with regard to
the development of shale deposits. In the US, up-front bonus payments and production royalties accrue directly to the landowner. And since the landowner stands to benefit directly, the licensing process can proceed more quickly. In Europe licensing rounds for exploration and production involve central and local government approval, lengthening development times and adding to costs. This point has not been lost on producers, including Cuadrilla which stressed the possible tax revenues of £120m to local councils and £5-6bn to the government, according to Reuters.
Conclusions While drilling to explore for shale oil and gas continues in
Europe, its extraction potential remains uncertain. Technology expertise is being transferred eastwards from the US and who knows the possible potential China has to offer as it rapidly ramps-up shale development. Although European shale development could make a
difference, it’s only a transitionary phenomenon at best for environmentalists. And it could also become a long and costly exercise for developers. In Eastern Europe shale presents a tremendous opportunity in
terms of energy security, improved industrial competitiveness, and emission reductions. “With support from both the United States and some of the EU Member States with oil and gas production experience, this opportunity will be realised,” says Riley. Europeans care passionately about the environment which
suggests that, at least for now, shale remains a North American phenomenon .. which will be quickly followed by developments in China. “Whilst we think that EU shale gas deposits certainly have the
potential to contribute meaningfully to indigenous production over the next 10-20 years, we do not expect the impact of shale gas production on EU gas prices to be anywhere near as great as has been the case with US shale gas production on Henry Hub prices,” insist Deutsche. Shale development takes time, and that will certainly be the
case in the EU. It is one thing finding likely sources of shale deposits and another ensuring that they are technically and economically viable for production (or are allowed to be produced at all), especially in the costly and complex arena of European energy policy. As Shepherd suggests, the best we can hope for is, “continued exploration, along with industry engagement with the public to satisfy them regarding the technology around shale gas exploration, is key to advancing the opportunity in the UK and elsewhere.” •
Guy Isherwood is Publisher and Editor of Commodities Now.
www.commodities-now.com
Footnotes:
1. Shale Gas in Europe: Revolution or Evolution?, Ernst & Young. 2. European Gas: A First Look At EU Shale-Gas Prospects, Deutsche Bank.
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