Hurdles for European shale gas as great as the potential
Questions remain over whether Europe can effect a similar transformation to US
THERE is significant potential to develop unconventional gas in Europe, but there will be huge challenges to overcome and nothing will be as easy as it was across the pond in the US.
Anouk Honoré, a senior research fellow from the Oxford Institute for Energy Studies (OIES), said the unconventional gas revolution in North America had already provided a “paradigm shift” in world gas supplies, but questions whether Europe can effect a similar transformation.
Speaking at Petroleum Economist’s Unconventional Gas Roundtable at the end of May, Honoré echoed a recent report from the US Energy Information Administration (EIA) that touted shale gas as the most prospective of the unconventional energy forms now making their way onto the market. The EIA reckons there could be 639 trillion cubic feet (cf) of shale gas in Europe alone.
Shale-gas production in the US has soared in recent years, lending hope to other regions that they, too, will enjoy a new gas-supply bonanza. Just four years ago, production comprised only 6% – 1.2 trillion cf – of total US output (19 trillion cf). But its share rose to 10% (2 trillion cf) in 2008 and jumped to 17% last year. The growth will continue over the next couple of years. Consultancy Wood Mackenzie predicts shale-gas output will soar to 35% of total US production by 2020.
In Europe, where the OIES predicts a natural gas supply shortfall of 1.8 trillion cf/y by 2020, there is a huge incentive to develop the continent's resources.
And it’s the same elsewhere. The International Energy Agency (IEA) reckons global gas demand will soar to 159 trillion cf/y in 2035 – up from 109 trillion cf in 2008. According to the IEA gas is the only fossil fuel for which demand will be higher in 2035 than in 2008 – a legacy of its new abundance and cleaner-burning attributes. On average, gas releases around 50% less carbon dioxide than coal when it burns.
Ajay Shah, head of global LNG at Shell, said such potential growth left his company “excited” about global unconventional-gas development – but that Europe will still lag behind. “Every region will be producing more gas [in future] apart from Europe,” he said, “That means more dependence on one region or another.”
He, too, sees Europe facing bigger difficulties than the industry met in North America. “It has been a revolution in North America, there’s no doubt about that,” he said. “[But elsewhere] it’s different and there will be different challenges. We’re very excited but the timing and other non-technical risks will play a role.”
“Europe is not North America,” added Honoré. “We’re not sure of the timing or of environmental regulations.” The public’s perception of the unconventional gas industry has been affected by negative publicity, not least from Josh Fox’s film Gasland, which was released in Europe earlier this year after winning an Oscar nomination in the US.
The film claims hydraulic fracturing (fracking) has contaminated water supplies with methane gas and contains dramatic scenes of local communities being able to set their tap water on fire.
Honoré said the energy industry should have responded quicker to balance the negative perception of the shale-gas industry that Gasland created. “The controversy around Gasland has spread very quickly,” she said. “One side has been very vocal with no response from the industry.”
The industry, however, has to think harder about how it tackles its image problem.
“Drilling for shale gas is more intensive,” said Shah. “It’s not just about countering the facts. A much more complex, interactive dialogue [with the public] is needed.”
Other things will be different in Europe, too. Arthur Stoddart, UK managing director at GL Noble Denton, a consultancy, said regulations on drilling for shale gas in Europe would be “a lot more strict” – and will probably be a lot more costly, too.
Honoré even reckoned average outlays in Europe could be double those in the US, where efficiencies have brought costs down to about $3/million British thermal units. “Does unconventional gas mean cheap gas for Europe?” Honoré asked. “Probably not.”
The continent also faces a shortage of data, equipment and infrastructure.
Poland, which could have 187 trillion cf of shale gas, according to the EIA, a US government agency, lacks geological data, which could hinder its potential as an unconventional-gas producer. The Polish Geological Institute said recently many more studies are needed to determine the geological make-up of its basins to be able to fully exploit its potentially vast resources.
There’s also “significant” potential to develop unconventional gas across Russia, North Africa, China, Australia and India, said Honoré, but there are many economic and regulatory unknowns that will determine the pace of development.
Russia could have 600 trillion cf of recoverable coal-bed methane reserves, according to the OIES. But Honoré said there was “a significant question mark” over whether these resources will be fully explored. Russia is already home to the world’s largest conventional gas reserves, estimated at 1,553 trillion cf by Cedigaz, leaving the country less enthused than its European customers about the prospects for unconventional gas development.