Aftermath of Ukraine Crisis: What Shale Europe Do?
Britain took Russia’s annexation of Crimea as a serious sign. A report recently published by the House of Lords stated that exploration and development of the country’s shale gas and oil resources is “an urgent national priority.” Prime Minister David Cameron had announced earlier that it was Britain’s “duty” to embrace fracking—shale gas extraction by hydraulic fracturing—and noted a “wake-up” call for Europe to lessen its reliance on Russian gas.
The biggest pressure to diversify energy sources has been on the Central and Eastern European countries. Some, such as Estonia, Latvia, Lithuania, Bosnia and Herzegovina, and Macedonia, fully depend on imported Russian natural gas, so shale gas fracking might need to be an option.
The U.S. Energy Information Administration estimates that Europe has around 470 trillion cubic feet of potentially recoverable shale gas in total, which amounts to 80 percent of America’s reserves. Taking into account the successful development of the American shale gas industry, these estimates seem to be encouraging. The extraction of natural gas has led to lower gas prices, creation of hundreds of thousands of jobs and growth in gross domestic product, according to America’s Natural Gas Alliance.
Cameron promised to have wells in Britain “up and running” by the end of this year. However, the British Parliament recently expressed disappointment that exploratory drilling through hydraulic fracturing “has hardly begun.” Apparently, since a moratorium on hydraulic fracturing was lifted in 2012 the Environment Agency has not issued a single permit for such drilling. The debate has become increasingly polarized, with environmentalists warning about earthquakes and water contamination. This raises an important question: whether shale gas is suitable for Europe or is it just an American product, first and foremost.
Poland’s success story?
Having the largest estimated shale gas reserves, Poland has been considered Europe’s poster boy for shale gas. In early June, Warsaw received endorsement from U.S. President Barack Obama, who committed to helping Poland develop its shale gas industry. The Eastern European country has been learning from the U.S. since 2010, when it became the first country to participate in the U.S. Department of State’s Global Shale Gas Initiative. As a part of the initiative, Poland received funds for conferences and educational trips.
Polish Environment Minister Maciej Grabowski announced in June that over 60 exploratory shale gas wells have been drilled in Poland and that 40 more are expected to be drilled by the end of the year. The government seems to be decisive, and people are mostly supportive of shale gas development. Around 70 percent of the population living in shale gas exploration areas support gas extraction, according to a poll carried out by TNS Polska for the Ministry of the Environment. Energy security issues and economic impact are the main driving forces.
But even here there are problems. Four companies, Marathon Oil, Exxon Mobil, Talisman and Total, have pulled out, citing “lack of clarity in the law.” In March the Polish government finally drafted a belated law that would provide tax exemptions for six years for companies involved in shale gas exploration.
“It’s overall a bit of a mess,” said Michael LaBelle, an assistant professor at Central European University, which is based in Hungary. “The environmentalists there [in Poland] that I interviewed weren’t really concerned about shale gas development in the country because they thought the administration was inept … and nothing was going to happen very fast, and the scale of it would be really small.”
In addition to that, there is no exact information on the amount of shale gas available in Poland, apart from speculation that it might be the biggest resource in Europe. According to the EIA, the country has 148 trillion cubic feet of shale gas, which totals almost one-third of all European reserves. This would be enough for 300 years of consumption. However, in 2012 the Polish Geological Institute lowered the estimates by 90 percent.
Thomas Murphy, co-director of Penn State’s Marcellus Center for Outreach and Research, agrees that the progress of shale gas development in Poland is slow compared with the U.S.
“You can argue that here, in Pennsylvania, for instance, 7,500 wells have been drilled in the last five to six years. In Poland it took about three to four years for the first commercial well to come in line,” Murphy said.
Due to a lack of pipeline infrastructure, shale gas development in Poland can cost up to three times more than in the U.S., where drilling a 6,562-foot horizontal well costs around $4 million, according to estimates made a couple of years ago by leading oil services company Schlumberger. In Poland, drilling a similar well would cost around $11 million.
Another important concern is that American technology might not work in Europe because shale gas lies 1.5 times deeper than in the U.S., which means that more powerful rigs and pumps and more fracking fluids are needed. Also, water sourcing in Europe can be 10 times more expensive than in the U.S., and water shortages are likely to happen in certain regions of Central and Eastern Europe.
According to David Buchan, a senior research fellow at the Oxford Institute for Energy Studies, all the other EU countries lie between Poland and France on the shale gas spectrum. Poland’s doubtful prospects put it on the spectrum’s “successful side” and France’s ban on fracking place it on the other end, so it seems that no nation in Europe has yet found the golden key to a new gas industry.
From a slow process to a ban
Lithuania, one of the countries importing all of its natural gas from Russia, has been struggling to embrace shale gas development. America’s Chevron backed out in October 2013, blaming a lack of administrative rules and some unidentified politicians’ “malicious activities.” Last year Lithuanian politicians were discussing a 40 percent tax on shale gas, which would be the highest in the world. As a result of the failed shale gas exploration deal with Chevron, the government has changed its rhetoric and is aiming for a more welcoming environment for foreign investment. Recently it announced a tax break for the first three or four years of shale gas exploration, which would be followed by 15 percent of tax later. New tender has not been announced yet. However, some analysts claim that significant resistance from the local community has played an important role as well.
Lithuania is not the only European country dealing with these issues. Chevron had to suspend its work in Romania twice last year because of harsh opposition and protests. The company started its first drilling activities in May in a “special security zone,” which is guarded by police who check passers-by’s identity papers.
The reason for opposition to fracking in Germany has its own twist. The country’s brewers called on Chancellor Angela Merkel’s government to block shale gas exploration and development through hydraulic fracturing. The industry’s members claimed that fracking could damage the purity of German beer. Notwithstanding the brewers’ concerns, Germany has recently announced new rules on fracking, which after a two-year moratorium would allow this technology for gas extraction. However, Environment Minister Barbara Hendricks said it has nothing to do with shale gas exploration, which, in her opinion, poses dangers to drinking water and people’s health.
“Bulgaria has not and will not in any way change its national legislation on shale gas,” said the country’s minister of environment and waters, Iskra Mihaylova, according to Bulgarian news agency. Chevron received permission to extract shale gas in Bulgaria in 2011, but because of widespread anti-fracking opposition, the parliament imposed a moratorium on shale gas drilling. After three years of limited activities, Chevron decided to leave the country. France ruled out fracking in 2012 and is looking into a new technique for extracting shale gas with nonflammable propane. This new technology has yet to be proven safe and efficient.
Evolution vs. revolution
A number of other factors are holding back the European shale gas industry, including but not limited to the continent’s density and a lack of infrastructure and pipelines. Property rights are also important. While in the U.S. minerals under the land usually belong to a homeowner who is willing to negotiate, in Europe it’s usually the state that owns underground resources.
“There are these typical arguments and those I don’t believe in,” LaBelle said. “Those issues are not big enough to stop shale gas development if countries were serious about it. I think if a country does want to adapt something, like renewable energy in Germany, it will go for it.”
The biggest hurdle now for the shale gas industry is Europe is social rejection, according to LaBelle. “In the U.S., everything [shale gas development] began and just went on before there was real public input into it. Because from the industry point of view, it was much more evolution of technology rather than revolution, whereas Europeans see this as dramatically different technology.”
According to Murphy, Europeans are concerned because they are dealing with an “unknown.”
“There is no question that there is environmental pushback because of concerns that people have about the development of shale gas, which they are not accustomed to,” he said. “So [Europe is] working with an unconventional gas resource that they have no legacy knowledge of, as we do in many places in the U.S. and Canada.”
That is why Europe needs to decide whether it wants shale gas or not. The process is slow, and while Europe will not beat the U.S. on gas prices, greater independence from Russian gas imports is at stake. Even that is not assured; in 2012 the European Commission claimed that shale gas production would not make Europe self-sufficient in natural gas, as has happened in the U.S. The best scenario supposedly is to maintain imports from Russia at the 60 percent level and not let it grow.
Some researchers tend to look positively at the future. “Ultimately, a resource will be developed where it is,” Murphy said. “I think the technology will keep changing. Certainly it will become more environmentally friendly over time. When those things happen, those changes in technology will likely propel this forward fast in time in countries where it didn’t initially start.”
By comparison, LaBelle assesses the development of shale gas in Europe pragmatically and sees it as an investment. “The more shale gas we extract, the more gas we use—even from Russia or [liquefied natural gas terminals]—the more structure we build,” he said. “And that infrastructure will be around for more than a hundred years, and it’s not going anywhere.”