Shale gas

In recent years, shale gas is booming, especially in the US where it caused a major revolution: in 2000, shale gas accounted for less than 1% of its domestic gas production to over 20% in 2020. Shale gas production significantly reduced the country’s energy prices, energy import dependence, and carbon dioxide emissions. The many benefits resulting from this energy revolution in the US raised the question whether such a development could, should and will be repeated in Europe. This post will examine the current status of shale gas in Europe.

Widespread opinions about shale gas

Advocates of shale gas development in Europe argue that it can improve the region’s security of supply by increasing the diversification of sources and by offsetting the decline of conventional indigenous gas production. Developing it would benefit both the economy and the people of the region, by creating new jobs, economic growth and an increase in government revenues. The proponents even state that shale gas would benefit the environment and the climate, by pushing the more carbon dioxide emitting coal fired power plants out of the merit order. Moreover, shale gas development would support the development of renewable energy, because gas-fired power plants are better able to supplement the volatile electricity production of intermittent renewable energy sources such as wind and solar.

Critics of shale gas contradict the latter argument, stating that shale gas development would slow down the energy transition because it would reduce investments in truly sustainable energy technologies. Furthermore, large environmental concerns about hydraulic fracturing persist, relating to issues such as methane leakage, groundwater contamination and the large water consumption required for shale gas extraction.

In Europe, the countries take different positions regarding the above-mentioned arguments. Of course, these positions are influenced by their differences in matters such as the potential size of the shale gas reserves, geographical characteristics and the country’s political situation.

Negative positions towards shale gas in Europe

  • Bulgaria: In 2015, Prime Minister Borisov of the pro-shale gas GERB conservative party assured that there will be no shale gas extraction until a new eco-friendly method is invented after large public concerns on the possible environmental consequences. A moratorium has been imposed and maintained since January 2012.
  • France: The French government legally banned hydraulic fracturing in 2011 and cancelled exploration licences. In 2015, President Hollande reaffirmed the ban for the remainder of his presidential term.
  • Netherlands: In 2015, shale gas exploration in the Netherlands has been suspended for the upcoming five years. The three existing licenses for shale gas exploration are not renewed.
  • Russia: The board of directors of Russia’s gas monopoly Gazprom sees no immediate reason for developing shale gas production in Russia. Russia is even accused of aiming to slow down the shale gas revolution is Europe, as it might harm their natural gas exports.

Positive positions towards shale gas in Europe

  • Denmark: Denmark approved exploratory drilling in 2014 as the Danish government supports the development of shale gas.
  • Germany: Germany has proposed a draft law in the beginning of 2015 that would permit shale gas extraction at depths of over 3000 meters, overturning a de facto moratorium that had been in place before.
  • Lithuania: Lithuania is in the process of introducing ‘investor-friendly’ shale gas regulations. This has been a reaction to decision of the energy corporation Chevron to renounce shale gas explorations in Lithuania, citing an uncertain legal framework influencing the business decision.
  • Poland: The Polish government highly supports shale gas, considering that it can bring energy security and economic growth to the country. However, the first exploration wells have shown disappointing results, leading some operators to leave Poland. In order to encourage shale gas exploration, the government decided that the domestic shale gas extraction will be tax-free until the end of 2020, and taxes will not exceed 40% after that. Since 2014, Poland is also allowing drilling at depths of up to 5 000 metres, which leads the European Commission to open legal proceedings against the country for not having assessed the potential environmental impact of such a decision.
  • Romania: Romania lifted an earlier ban in 2013, and is supportive of shale gas. In May 2014, Chevron started exploratory drilling in Romania, but like for Poland and Lithuania, Chevron decided to renounce shale gas exploration in 2015.
  • Spain: The Spanish government supports shale gas development. While no permit for hydraulic fracturing as been issued yet, about 70 exploration permits have been issued, and a further 75 await authorisation, according to the Spanish Oil and Gas Association (ACIEP).
  • Sweden: Shell has drilled for shale gas in Sweden but found it uneconomic and stopped the operation in 2011. The Swedish Parliament has not taken any decisions to prohibit the exploration of shale gas, and at the moment there are no plans to introduce new legislation in this respect. A general comment is that the exploration of shale gas is controversial and that it is an issue that gives rise to public resistance in Sweden.
  • Turkey: Turkey seems to be in favour of shale gas development, as it would improve their lack of the country’s hydrocarbon resources. Shale gas explorations have recently started and are showing promising results.
  • Ukraine: Ukraine is supportive for shale gas development in order to decrease its energy dependence from Russia. In the end of 2014, Chevron decided declared that it is pulling out of Ukraine due to the government’s inability to successfully reform the taxation system. Furthermore, Shell decided to renounce its shale gas activities due to the political situation in Ukraine.
  • UK: The current government is in favour of shale gas development and has adopted regulations. Licences for shale gas exploration have been issued. According to industry, it will take five years and the drilling of 20 to 40 fracking wells to judge whether the UK has a viable shale gas industry. In 2014, Prime Minister David Cameron stated that, in light of the Ukraine crisis, Europe should pursue shale gas development.

Conclusion

It is expected that shale gas will not be produced commercially in the short term in Europe, due to the time needed for exploration and licensing. The decision of the energy corporation Chevron to renounce its shale gas activities in Poland, Ukraine and Lithuania show that reaching economic viability is difficult. It could take a decade or more before many of the reserves can be developed. In any case, shale gas would not make Europe self-sufficient in its gas supply, but it would definitely lead to lower gas prices.

Overall, it seems that countries have been, and still are, hesitant towards the environmental consequences and do not want to risk public resistance by taking a positive positioning towards this controversial issue. It could be expected that once a European country will show that shale gas extraction can be done safely, environmentally friendly, and profitably, other countries will soon follow its lead. Political developments might as well alter the positioning of countries towards shale gas. For example, events in Ukraine and the related Russian-Ukrainian dispute about gas prices and payments have given renewed prominence to concerns about the security of EU gas imports. This has urged Prime Minister of the UK David Cameron, to state that Europe should pursue shale gas development. Moreover, the sudden change in attitude of a big European force such as Germany might also catalyse shale gas development.

By Laure Jaffré, consultant