Nuclear Crisis Boosts Search for European Shale Gas

Exxon Mobil Corp. is among energy companies accelerating unconventional gas exploration in Europe as the region seeks to offset declining North Sea production and meet increased demand after nuclear generation was reduced.

Exxon drilled four wells in shale deposits and two in coal seams in Germany as well as its second well in Polish shale. Royal Dutch Shell Plc said it had “mixed” results from recent exploration in Sweden. Chevron Corp. is looking for gas in Poland’s Lublin province while Austria, Hungary, Romania and Ukraine are also attracting interest.

Europe may hold as much as 4 trillion cubic meters of unconventional gas, trapped in shale, coal seams and impermeable sandstone, Wood Mackenzie said yesterday. That’s almost twice the conventional reserves of Norway, the region’s second-biggest gas supplier.

“Europe is just starting down the path of unconventional production but we have some activities in the U.S. we’d like to leverage in order to move Europe forward on a more accelerated path,” Linda DuCharme, director of Europe, Russia and the Caspian at Exxon Mobil International Ltd. said March 22 at the Gastech conference in Amsterdam. “We expect Europe to be a significant part of future activity,” she said.

The risk of a nuclear meltdown in Japan after a March 11 earthquake and tsunami triggered public protests in Europe against atomic power and prompted Germany to order a temporary halt to the country’s seven oldest reactors, boosting gas use in power generation.

Shale gas made up 15 percent of U.S. gas production in 2010, and may rise to 45 percent by 2030, according to Doug Bentley, unconventional resources manager for Europe at Schlumberger Inc.

There’s very little shale gas production outside the U.S., Bentley said. “Most of it’s in exploration mode right now.”

Poland will be the region’s biggest shale-gas producer, Wood Mackenzie said yesterday, with production of as much as 30 billion cubic meters by 2030, according to Ben Hollins, the consultant’s head of gas research.

Europe may be 10 years away from major shale gas output, Peter Hagen, general manager of gas commercialization at Chevron, told the conference, with only 25 rigs drilling for gas backed by three services companies. There are more than 1,000 drilling rigs in the U.S., he said.

“The European gas business environment is probably not as conducive right now to a shale boom as the U.S. was 10 years ago,” he said. Most people believe there’s less shale gas in Europe and there’s less spare pipeline capacity and too few drilling rigs and service companies, Hagen said.

Assuming high production costs in Europe, due to the underdeveloped supply chain, Chevron said 10 billion cubic meters of shale gas production won’t be reached for as many as eight years, if production begins in 2016.

U.S. shale production shows little sign of slowing down, even as drilling rigs decline, as producers are getting better at extracting the gas more cheaply, said Porter Bennett, chief executive officer of Bentek Energy LLC.

“If you’re drilling wells twice as fast, you can drill twice as many with the same rig,” said Bennett. Much of the U.S. drilling is in areas where the shale is rich in oil, so the associated gas will keep flowing, he said.

Companies operating in Europe must work together to reduce costs if the EU is to emulate the North American shale gas boom, Chevron’s Hagen said. While this seems unlikely at the moment, no-one predicted the U.S. shale revolution, he said.

“As they say in the States: ‘Stay tuned.’”

Source: Bloomberg