North American Players Looking at Shale Gas Opportunities in Europe
The same technology that unleashed a natural gas bonanza in North America over the past decade has the potential to transform the European energy industry.
"A year or two from now, the activity over in Europe is going to be absolutely frenetic, and so you've got to get in there early," said Craig Steinke, executive chairman of junior explorer Realm Energy International (TSXV:RLM). Realm, which has offices in Vancouver and London, is involved in eight different shale basins in seven European countries, though it doesn't disclose specifics for competitive reasons.
The likes of ExxonMobil Corp. (NYSE:XOM), Royal Dutch Shell PLC (NYSE:RDS), ConocoPhillips (NYSE:COP) and Chevron Corp. (NYSE:CVN) have begun to grab stakes in shale formations in Poland, Germany, Hungary, Ukraine and other European countries.
Some may wonder why North American companies would look for shale opportunities across the Atlantic when there are plenty of promising plays in their own backyard.
"In North America as a whole, the lands have been bid up to significantly high prices," said Steinke. "If you don't have the land, you're on the outside looking in." In Europe, energy companies can negotiate directly with government authorities to acquire large, contiguous tracts of land - though it may not be that way for long if activity picks up, said Steinke. "Realm's goal is to be an early mover on acquiring the lands. It's going to put the company in a very advantageous position as the momentum builds," he said. "The opportunity won't be there forever, that's for certain."
Shale is a ubiquitous type of sedimentary rock that is as tough as concrete. Freeing natural gas molecules from within the rock is no easy feat as it requires enormous amounts of water, chemicals, sand and, above all, technical know-how.
North America's shale gas industry has its roots in the Barnett formation in north-central Texas, where energy companies began honing their techniques about 10 years ago.
Since then, horizontal drilling and multi-stage fracturing have spread to the Marcellus play in New York and Pennsylvania, the Haynesville play in Texas and Louisiana and the Horn River and Montney plays in northeastern British Columbia.
Realm collaborates with U.S. energy services giant Halliburton Co. (NYSE:HAL), which has been active in virtually all of North America's shale gas plays. Halliburton has been helping Realm parlay expertise it garnered from North American shale gas plays into European ones, which share many of the same characteristics.
European shale gas is also on the radar of Talisman Energy Inc. (TSX:TLM), already a big landholder in the Marcellus and Montney formations. "We haven't done any deals yet, but we are looking hard and depending on how things go, we could see an entry into an international opportunity," Richard Herbert, Talisman's executive vice-president of exploration, said on a conference call with analysts and reporters earlier this month.
Another reason European shale gas could be attractive is pricing. North America is currently dealing with a glut situation, in which supply is outpacing demand. European countries are also eager to stop relying on natural gas imports from Russia, which has had a history of suddenly shutting off supplies amid disputes with its neighbours.
It's going to take several years of work before European shale gas is commercially viable, said Michael Dawson, president of the Canadian Society for Unconventional Natural Gas. Energy companies already know all the ins-and-outs of North America's geology because so much conventional oil and gas drilling has taken place there. That's not the case in Europe, he said.
There also isn't much there in the way of specialized equipment needed to drill the high-tech wells. So all of that has to be built or transported from elsewhere. "I think there has to be a realization that while everybody seems to be getting on the bandwagon with shale gas right now, it just doesn't happen overnight," said Dawson. "It's not a slam dunk that the shale gas potential in Europe is going to be successful."
Reported by Lauren Krugel in Calgary for THE CANADIAN PRESS