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Czech Republic nears fracking moratorium

The Czech Republic appears to be moving towards a moratorium on shale-gas exploration as ministers plan to meet in October to discuss a proposed two-year ban on hydraulic fracturing (fracking) while the country seeks to tighten environmental regulations on the controversial drilling practice

“It is necessary to analyse the current legal framework for exploration and production of unconventional natural gas resources and propose legislation in order to reflect current technologies and their environmental impact,” Tomáš Chalupa, the country’s environment minister, said in a statement. Chalupa has proposed putting a moratorium in place until at least June 2014.

Chalupa said that regulations need to more adequately cover issues specific to shale-gas exploration such as water use, wastewater disposal, risks to groundwater and the effect of widespread drilling on the landscape as some licences are located in protected areas. The current regulatory framework, Chalupa has said, is not fit for purpose.

The move points to a wait-and-see approach being adopted by the Czech government, analysts say. “We would not at all be surprised if a moratorium against fracking will be in place soon, at least for those plays located in protected areas. This does not mean that this will be a long-term measure, it could well be repealed in two to three years, as new US and EU studies on environmental impacts are published and regulatory models take shape,” Dragos Talvescu, a partner at consultancy Sund Energy, told PE.

Although a blow to the country’s nascent shale gas sector, Chalupa’s proposed moratorium is more moderate than the permanent ban that many local and regional authorities have sought. Although not a major national political issue, shale-gas exploration has been hotly debated in regions where companies are considering exploration programmes.

Earlier this year, an anti-fracking group Stop HF gathered 50,000 signatures for a petition to ban shale-gas exploration in a strong expression of local fears over the potential environmental risks posed by chemicals used in fracking. The issue of chemical use in fracking has been a particularly potent in the Czech Republic, which is still dealing with environmental damage wrought by decades of uranium mining.

Local opposition prompted Chalupa in April this year to revoke shale exploration licences previously issued to Hutton Energy and a local subsidiary of UK-based Cuadrilla Resources. Hutton had applied for two licences, one in the centre of the country and another in the north along the Polish border, which it had hoped would show the same resource potential as its acreage in southern Poland. Hutton, though, has said that it could pull out of the Czech Republic if a moratorium is put in place.

“I would not want to get into a situation where a private company in the Czech Republic will require arbitration for lost profits because the Czech legislation was not sufficient to cover this area. My ambition is to create legislation that sets out clear rules of the game. The current legislation does not do that," Chalupa said.

No comprehensive studies have been carried out to evaluate the Czech Republic’s shale potential, but companies hoped to gathering data on the country’s shale potential by shooting 2D and 3D seismic surveys, though that effort now looks likely to be delayed by at least a couple years.

A moratorium, though, would not necessarily mean the end of shale-gas exploration for good, though. Only a few licences have been issued, so the damage to investor confidence would likely be limited, Talvescu said. ”They might well be going for a wait-and-see approach for now, and the cost of doing that for a while is quite low.”

The Czech Republic would join a number of European countries and regions that have put the brakes on shale-gas exploration. France and Bulgaria have banned shale-gas exploration, while Romania, Austria and parts of Germany have put temporary moratoria in place. Exploration is also on hold in the UK, where the government continues to study the issue.

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