US ‘Shale Boom’ Provokes EU Fears And Indecision
A US industrial boost following its ability to tap abundant shale gas reserves is provoking fears that imperilled energy-intensive European businesses will find it harder than ever to compete.
But calls for the EU to deliver a ‘silver bullet’ and emulate the US by tapping shale gas through ‘fracking’ (see background) remain controversial because of environmental and logistical concerns.
Partly due to its shale reserves, the United States is expected to become almost self-sufficient in oil and gas by 2035 and will overtake Russia in gas production by 2015 and Saudi Arabia in oil production by 2017, a recent International Energy Agency forecast shows.
Advances in drilling and fracturing techniques enabling easier access to gas supplies have led to significant falls in US gas prices since the start of 2010, whilst European prices remain stubbornly high.
Industrial manufacturers have announced investments of more than $90 billion (€68 billion) in the United States to take advantage of its cheap natural gas, according to calculations that underline the revolutionary impact of shale gas on US industrial growth.
Astonishing impact on the US economy
Petrochemicals, fuel, fertiliser and steel companies, attracted by cheap energy are amongst those committed to multi-billion dollar investments, according to Dow Chemical, which has announced a €3 billion investment in Texas and Louisiana and calculated the total value of US industrial investments at $90 billion or more, theFinancial Times reported in December.
The development has spurred fear amongst concerned European manufacturers that they will be unable to compete in energy intensive sectors. It is clear that industry such as steelmaking, currently slumping in the EU, is shifting towards the United States after decades of decline.
Nomura analyst Neil Sampat pointed out that steel giant ArcelorMittal has almost no further capital spending planned in Europe for either steel production or iron-ore mining, explaining: “Gradually, the company is changing its geographical exposure to North America from Europe.”
Gordon Moffat, the director-general of Eurofer, the European Steel Association, said: “It’s quite astonishing the impact that shale has had, I think we’re going to see the re-industrialisation of the United States. We’re already seeing transfers of production from Europe to the United States: it’s already clear in the petrochemical sector. And it’s also happening in the steel industry.”
A wake-up call for Europe
“Shale gas is leading to a situation where the US has a much higher level of energy security than in the past, as well as lower energy costs,” said the European Policy Centre’s chief economist, Fabian Zuleeg.
This is clearly encouraging American manufacturing, said Zuleeg, and represents “a wake-up call to Europe that we also need to get our act together on energy policy”.
“We need to assure an affordable, secure energy supply across Europe, with a single market for electricity,” Zuleeg added.
If analysts agree with the diagnosis, they are unsure of the remedy, especially relating to any plans for Europe to follow the US example on shale, with the continent constrained by different geography and attitudes.
Although he believes that shale gas represents a silver bullet against crisis-hit industries in America, and that it could perform the same role in Europe, Eurofer’s Moffat acknowledged the difficulties.
“The US is perhaps better placed to exploit shale gas because of where it is located, outside population centres, whereas in Europe, which does have shale gas, it’s more complicated because it is closer to populated areas and we are more concentrated with our population,” Moffat explained.
Caution surrounds shale in Europe
Europe has taken a far more cautious approach partly because of the difficulties posed by population density, but also in response to environmental risks and fears, which have led to countries such as France and Bulgaria banning shale exploration.