Ukraine Crisis Spurs Calls For Europe To Rethink Shale
The crisis in Ukraine has intensified calls from industry and political leaders—including senior U.S. officials—for Europe to develop its own shale industry.
Proponents hope doing so will help wean the Continent off gas imported from Russia, which currently exports around 30% of the region’s gas needs, and shield Europe’s energy supply from geopolitical disputes with its Eastern neighbor.
President Barack Obama, speaking at a news conference in Brussels on Wednesday, also urged European leaders to find ways to become less dependent on Russian energy and consider its own energy sources in the wake of the crisis.
“This entire event, I think, has pointed to the need for Europe to look at how it can further diversify its energy sources,” he said.
With 470 trillion cubic feet of potentially recoverable shale-gas reserves, Europe has around 80% of the resource available in the U.S., according to U.S. Energy Information Administration estimates. But some of its biggest potential gas producers, including France and Germany, have banned fracking, the technology used to extract gas, for fear of potential water contamination. Residents’ environmental worries have slowed exploration elsewhere.
Europe remains only in the early stage of shale exploration, while U.S. shale production has surged to such a level that it has lowered natural-gas prices in America and reduced its reliance on energy imports.
Major oil companies including Chevron, Exxon Mobil, Royal Dutch Shell, France’s Total and Italy’s Eni SpA have piled into European shale exploration in recent years to see if reserves can be developed for a profit. But the local opposition and an uneven patchwork of regulation could keep any meaningful development of a European shale-gas industry several years away.
Vice President Joe Biden discussed easing regulations to allow faster development of shale gas during a visit last week to Poland, according to a senior U.S. administration official. Former Soviet-bloc countries in the East remain especially dependent on Russian gas imports and have been more receptive to shale development than many of their Western counterparts.
Ukraine, which imports around 60% of its gas from Russia and has twice suffered cutoffs in the past decade, has the most incentive to develop its shale reserves—believed to be the third-largest in Europe. Earlier this month, Russian gas giant OAO Gazprom’s chief executive threatened to shut off the spigot to Ukraine again if it didn’t pay its roughly $2 billion overdue gas bill.
Last year, Ukraine stepped up efforts to find shale gas in its efforts to break free of its reliance on Russian gas, signing one deal with Shell to explore and develop prospects in the eastern part of the country and a second with Chevron to explore in the west.
Groups that represent some of Europe’s most energy-intensive sectors, such as steel plants and petrochemicals, have pressed governments to embrace shale gas, arguing that development would help improve Europe’s competitiveness. European wholesale gas prices are roughly twice as high as in the U.S.
Such lobbying has made some inroads. Earlier this year, the European Union’s executive arm backed away from imposing more stringent rules on shale-gas exploration.
But Europe lacks some of the U.S.’s natural advantages. Its higher population density limits the space available for large gas-production facilities, making it difficult for companies to obtain approvals to start drilling. Unlike their U.S. counterparts, European landowners aren’t entitled to reap profits from gas extracted beneath their property, giving them less incentive to invite in developers. Nor does Europe have enough of the drilling rigs and other equipment needed to extract shale gas, which could take time to source.
“It’s unlikely there’ll be significant volumes of shale-gas production [in Europe] before the 2020s,” said Richard Sarsfield-Hall of energy consultancy Poyry. “It will take time to get the infrastructure in place, sort out planning and get companies to where they are able to scale up.”
Even with political support for development, shale gas production in Europe may not reach 10 billion cubic meters annually before 2025, though it could rise to 60 billion cubic meters a decade after that, according to a report published by Poyry last November. Even at that level, the EU’s 28 countries would still likely need to import around three-quarters of its gas requirements in 2035.