Remember January 2009? Southeastern Europe was plunged into freezing cold when Russia cut off natural gas flow to Ukraine in a dispute over unpaid energy bills. As 80% of Europe’s gas at the time flowed from Russia through Ukraine, the suspension denied Bulgaria, Croatia, Greece, Romania, and others their predominant source of heating. Whilst Moscow and Kiev sparred over blame for the crisis, householders reverted to wood burning fires to keep warm during a particularly chilling polar freeze.
The current Ukrainian deja vu reminds us just how vulnerable Europe remains to a Russia-dominated energy market. Russia still supplies 30% of Europe’s oil and gas. That is better than the 38% it supplied in 2009, but a third of Russia’s natural gas exports to Europe still have to transit Ukraine. Gazprom supplies more than half of the gas Ukraine uses each year, whilst Finland, Estonia, Lithuania, Slovenia and Bulgaria continue to rely on Russia for close to 100% of their gas imports.
Gazprom’s long-term contracts with Lithuania, Estonia, Hungary and Bosnia-Herzegovina will all expire next year. With a new pipeline through the Baltics and more interconnects between individual countries, Moscow’s hand is somewhat weaker today than in 2009. The ongoing instability in Ukraine, however, means Europe needs to strengthen its negotiating position on future gas prices by further diversifying its sources of supply. Shale gas could be the answer.
Look at the impact shale production has had on North America in just three short years: natural gas prices have plummeted, coal has been pushed aside as an electricity source, a rejuvenated manufacturing sector is humming along on the back of low energy costs, and now abundant natural gas looks to make the continent a net exporter of fuel in the next 5 - 6 years.
That does not mean that Europe can sit back and wait for America to turn on the export faucets. The US Congress has been slow to approve export licenses for natural gas and the new LNG terminals currently under construction in the US will be serving Asian as well as European customers.
Europe needs to grasp its own home-grown shale opportunity and take steps now toward greater energy independence. That will take some doing – between 2000 and 2010 the continent has sunk just 50 exploratory shale wells compared to 12 000+ in the US during the same period.
There are a number of factors holding shale back in Europe. Some are political, some are related to the structure and operational realities of Europe’s energy industry, and some are down to simple geology. Politics and green activism, however, may be the biggest hurdles to overcome if the continent is going to use it as a bargaining chip in future negotiations over Russian gas and oil.
From dependence to diversification
With the invention of reliable hydraulic fracturing technology in the 1990s, unconventional gas has gone on to utterly transform America’s energy outlook. By 2010, shale production in the US had soared to 10 billion ft3/d.
The geopolitical impact on the US has been profound. American imports of Middle East oil have been dramatically reduced, making political relationships with the Gulf states and OPEC less driven by energy dependency. There has been a notable reduction in domestic gas prices too, with a corresponding reduction in power costs for manufacturing and other energy-intensive industries.
Europe, of course, is different. Shale gas and oil resources in Europe are trapped in rock layers much deeper in the ground, substantially raising the difficulties of exploration and the costs of extracting viable shale deposits when they are found. Without drilling there is no sure way of knowing in advance how much gas can be physically extracted, or how easily it will flow.
The operational reality and structure of fossil fuel production in Europe is also very different from North America’s. Europe’s oil extraction happens mainly offshore. Population density and differing rules about mineral rights mean that there has never been a ‘wildcatting’ exploration culture here.
Europe does not have the wide open expanses that you find in Alberta or Texas. By way of comparison, the Marcellus Play in the US encompasses roughly 95 000 square miles - equivalent to the size of the whole UK. The UK’s Bowland Shale formation is 500 square miles (about 200 times smaller than the Marcellus).
According to the Energy Information Administration (EIA), Europe is sitting on ca. 470 trillion ft3 of recoverable shale gas resources – smaller than America’s holdings but not insignificant given that our demand for gas runs at around 18 trillion ft3/year.
Politics and energy policy, however, are serious hurdles shale advocates need to overcome if any of the benefits seen in North America are going to be replicated here.
Written by Steven Ferrigno, Managing Director, EMEA for Allegro Development Corporation. Edited by Callum O'Reilly
Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/08052014/europe_shale_rationale_part_one_035/