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Europe’s shale rationale (part two)

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Hydrocarbon Engineering,

Part one of this article is available here: 'Europe’s shale rationale (part one)'

Debate in Europe has been almost exclusively about the environmental worries around fracking, with very little discussion about the economic prospects for unconventional gas and oil.

That is a shame, because mineral rights in Europe belong to the state rather than individual landowners, conferring an advantage that the US and Canada do not have. There was an initial land grab phase in North America that diverted huge amounts of cash from drilling to acquiring real estate. Mineral concessions in Europe, whilst taking longer to negotiate with national governments, are also much larger, opening up millions of acres at a time for development. 

Bearing in mind that mineral rights are amongst the last communally held national resources, a national conversation surely needs to be had in each country about the potential benefits, lost inflows of cash to the public purse and the overall impact of exploiting shale reserves on society – not to mention the political and diplomatic advantages of not tying ourselves to any one dominant energy supplier.

The environmental arguments in favour of shale, meanwhile, are much more compelling than those against. Despite the hyperbole around fracking, shifting to a higher proportion of gas use in energy production will help curb our carbon dioxide emissions. Limiting gas consumption marches us inexorably towards coal.

In fact we are already seeing a ‘new golden age of coal’, with the amount of coal-generated electricity rising in some European countries at an annualised rate of 50%. The US shale boom has also made plentiful American coal cheaper to export overseas. The result? Despite decades of political and industrial effort to progress a renewables agenda, the International Energy Agency (IEA) estimates that coal will account for 25 – 30% of the global energy mix in 25 years’ time – exactly what it was 25 years ago.

Germany, with some of the highest household electricity bills in Europe, is even building new coal-fired power stations following the post-Fukushima decision to close its nuclear plants. In a farce of unintended consequences, some German farmers have recently started replacing crops with wind turbines, taking advantage of generous renewable subsidies under the Energiewende. The same policies have simultaneously made gas unprofitable for German utility companies by favouring renewables on the grid.

Fracking has proven to be such an emotive issue that very little discussion about shale’s economic benefits has been able to surface, with the potential for improved energy independence for Europe only recently moving to the foreground. Public outcry in the Netherlands and Germany has made those governments hesitant to exploit their potential reserves, whilst France and even vulnerable Bulgaria have banned fracking altogether. The overall response to shale opportunities from European industry, meanwhile, has been ambiguous at best. Perhaps it will take a resurgent former superpower to wake Europe up.

Is the tide beginning to turn?

Speaking in March at an EU-U.S. summit in Brussels, European Commission President Jose Manuel Barroso said that the growing tension with Russia over Crimea serves as a “very strong wake-up call for Europe”. UK Prime Minister David Cameron has said as much about the need to intensify shale exploration in the wake of the crisis.

Most important of all was Eni’s announcement in April that it would seek to re-negotiate all of its long-term natural gas contracts - the first major signal from the industry that Russian dominance of Europe’s energy supply needs to be challenged.

Shale gas has the potential to diversify Europe’s energy mix and minimise dependence on dominant suppliers. It also promises to boost employment, create investment opportunities and move Europe off the current path to more and more coal consumption.

Without concerted action by the EU that is supported by national governments, Russia will continue to have its way in future energy negotiations.

There must now be a concerted effort by the EU and member states to start drilling wells. Whether European shale gas production could ever replicate what has happened in North America and wean Europe off its Russian reliance is simply unknown. Exploration needs to happen now if we are going to find out.

Written by Steven Ferrigno, Managing Director, EMEA for Allegro Development Corporation. Edited by

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