Europe Has All the Pieces for Unconventional Gas Success

Peter Cockroft describes himself as “an old gas guy from way back.”

The CEO of European Gas Ltd., an Australian company with operations in France, Belgium and Italy, he offered his exclusive insights on the development of unconventional gas to Natural Gas for Europe.

Mr. Cockroft explained that his company had some production in the northern part of France, mostly from coal mine methane. “It’s one of the few unconventional gas companies in Europe that’s actually producing,” he commented.

“We have drilled three exploration wells in eastern France – the target was coal bed methane, but with the shale that’s another option for our next wells.”

According to him, the characteristics of the European natural gas market makes for fertile ground to develop unconventionals.

“The beauty of course of Europe is the demand situation,” explained Cockroft. “We have a robust gas price, robust demand and infrastructure is in place on the gas side. I think that that’s going to be the driving force for any future activities.”

He said his company had three other as-yet unexplored areas in France: one in Provence, in an area towards Switzerland, which he described as very exciting.

“We’re re-negotiating a gas sales agreement for northern France and we’re anticipating a price somewhere between 22 and 25 euros per megawatt hour – so that is significant.”

Cockcroft also chairs a company in Australia, where he said the price of natural gas in the east of the country is around $3 per gigajoule, which he said was less than 50% of what it was in Europe.

“And the Australian coal bed methane business is booming,” he noted. “It’s the new epicenter of activity in that regard. All the big companies are involved: Total, BG, Shell – they’re all in that space with a lower gas price.”

He continued, “So I think eventually the demand will dictate the activity in Europe. We know the shale’s there, we know there’s gas in the shales; we don’t know how much and we don’t know what rates we can produce at, but we do know that we have an unfulfilled demand and that’s not going to change. Europe is a net importer, and that’s never going to change. LNG can’t support the demand and probably neither can the pipeline gas from all the different sources. So I think shale gas has got a future.”

Cockroft offered his assessment of France as a candidate for shale gas development.

“Technically, I think there’s potential. Unfortunately I think the non-technical issues are going to be very important, like all of the above-ground issues. In France, historically people have been very vocal and very strong and I think that’s going to be the case here now.

“Even our program in France which has been in production for 20 years,” he reported, “we still get negative press and that’s in a depressed economic area, an old coal mining area. So I think the above-ground elements will be a challenge.”

Aside from potential public opposition to unconventional drilling, Cockroft said governmental support for the industry is missing in places like France.

“What I don’t see in this country, nor in Europe in general we don’t see much top-down support for unconventional gas. In other countries, Germany for example, they’ve probably been a bit more forthright in that regard with certain subsidies, but France has not done that.

“Most countries – if we look at China and India and at other countries around the world that are looking for unconventional gas, the government has been an active and overt supporter. That hasn’t been the case here so far, and in Europe in general.”

He said he think it truly needed that support.

“In order to find shale gas, you’ve got to drill wells: big, expensive wells,” said Cockroft. “We probably have to drill hundreds of them and let’s say they’re over EUR 10 million each – that’s a lot of money, and that’s a lot of expenditure that goes into the country, a lot of activity, which I think is good. Without that government support, it’s going to be very difficult.”

Cockroft said he thought shale gas was also a challenge for small companies.

“Undercapitalized companies will find it very difficult. It needs the big companies to drive this in France and in Europe in general.”

Gas competition, he said, was always an issue. “You’ve got domestic gas, imports from LNG and imports from pipelines. They will influence the pricing mechanism, so I think that domestic gas, i.e. shale gas particularly is going to have to compete against these other alternatives, which I think is going to be again another challenge, because that infrastructure’s already in place. With shale gas, you’re going to have to develop, you’re in the greenfield business, whereas LNG import terminals are there, the pipelines are there, so the marginal economic expenditure for further LNG or pipeline gas is a lot less.

Cockroft concluded: “I think the ingredients are there. We have a good demand, a good gas price – probably the best in the world. We have pipeline infrastructure, which is especially underutilized in Western Europe. Below the ground, we have the resources. The challenge is to marry the two and to me that’s the easiest part if there’s the political will.”