Shale Gas Development in Europe - Myth or Reality?

Europe continues to depend on imports for its energy needs, be it for oil or for gas, but no major developments for shale gas are expected in the coming years due to a number of factors. Nearly 35 percent of the regions’ present energy needs is satisfied by crude oil, with another 20 to 25 percent being supplied by natural gas. Coal and other solid fuels account for another 20 percent, nuclear energy accounts for 15 percent and the final 10 percent is satisfied by the use of renewables. Europe’s import dependence saw an increase over the past 2 decades and this trend is expected to continue over the next few decades.

The major factors that contribute to the development of shale gas in any region include the availability of sufficient gas reserves, favorable legislation, suitable infrastructure, technological prowess, political support and fiscal muscle. There are a number of reasons that led to the boom of shale gas development in the U.S., but the following can be considered the most important ones that resulted in a magic bullet:

• First of all, the geological conditions in the U.S. were more favorable because the bulk of shale gas was not very deeply trapped in the subsurface, allowing for cheaper and easier drilling operations.
• Technological innovation: Introduction of the hydraulic fracking process (its first test run was in 1947)
• Encouragement of private entrepreneurship and private land and mineral rights ownership (the role of Mitchell Energy)
• Suitable market structure: High natural gas prices and dependence on crude
• Abundant availability of water
• Infrastructure availability and expansion for natural gas transportation through pipelines
• Favorable governmental policies: The first real drive to explore unconventional gases began in the early 70s during a tremendous shortage of natural gas. Private firms lacked the infrastructure or any incentive to invest in R&D to tap into these unconventional resources. In response, the government funded various R&D programs, and established tax credits and incentive pricing that resulted in the development of shale gas in the Appalachian Basins along with technological innovations like micro seismic fracking.

As for whether or not shale gas development could be seen in the European region in the coming years, the following factors are seen as hindrances and roadblocks in the development of shale gas:

• Though sufficient reserves of shale gas have been identified in a number of countries across Europe (Austria, Bulgaria, Denmark and France lead the pack), resources in Europe are trapped in rock layers that are located much deeper in the subsurface than in the U.S., resulting in tougher operations and higher costs for extractions.
• Negative environmental implications: Hydraulic fracking is currently banned due to environmental implications and contamination of ground water.
• Lack of sufficient water availability: Relatively lower water table
• Continuation of dependence on imports of oil and gas even after shale gas developments: Severe competition from LNG and pipe line gas from Russia and the Caspian region
• Limited supply of equipment/technological capability and skilled man power

Taking all of these factors into consideration, shale gas development across Europe would take a while before it becomes a reality. This has resulted in major petrochemical producers in Europe striking deals with gas manufacturers in the U.S. for their feedstock needs. Borealis is leading this kind of model and is pushing ahead with U.S. ethane imports by signing a long term deal with Antero Resources with plans to reduce costs and Navigator holdings will be shipping ethane from the U.S.  Many uncertainties and roadblocks make it difficult to predict the future of unconventional energy in Europe and it is highly unlikely that the energy boom that took place in the U.S. is going to be replicated in Europe anytime soon.