"Shale gas has undoubtedly been a game-changer in the United States, where it has transformed the US gas market and contributed to a global gas glut. While its share of US gas production was still in single digits in 2000, now, a decade later, shale gas is responsible for about 20% of domestic production. But can this success story really be exported to other regions, such as the European Union?
Hanging on the coattails of this American dream, energy majors such as ExxonMobil and Shell have bought up prime shale acreage and first steps towards production are being taken. Cuadrilla Resources spudded the first well in the UK last August, while noteworthy drilling activities are also expected to take place this year in Germany, France and Poland.
In this context, it is unsurprising that Europe's enthusiasm for shale gas has grown apace over the past year. However, the fact of the matter is that it is unlikely that the domestic production of shale gas will become a true game-changer for the EU any time soon.
First, the EU lacks an experienced drilling workforce and equipment. The US itself is actually now starting to face such bottlenecks. According to US industry players, it is becoming increasingly difficult to find a fracturing crew, especially one at a decent price, at the Eagle Ford shale play, for example, as pressure pumping equipment has not kept up with demand.
If the US is already confronted with such constraints, how will Europe fare, where shale gas developments are still in their infancy?
Second, the economics of shale gas in the European Union are still highly uncertain, particularly in the current context of significantly depressed prices as a result of the gas glut. Reservations have already been expressed by some major energy companies in this respect.
Third, Europe is more densely populated than the United States, which makes local opposition that much more likely. Citizens' initiatives opposing the development of shale gas are already starting to mushroom. This is particularly the case in Sweden, France and Germany's most populous state of North Rhine-Westphalia.
Last, but perhaps most importantly, are the environmental challenges associated with the process of tapping shale gas, namely hydraulic fracturing, a process of blasting a mixture of chemicals, sand and water to break up shale rock formations, which is believed to be responsible for contaminating drinking water.
This issue is gaining increasing attention in the US, with a documentary movie entitled 'Gasland' having recently received an Oscar nomination. While the hype surrounding shale gas continues to grow in the EU, lawmakers in the US are already adjusting their legislation, becoming aware that, for some, shale gas has been a poisoned chalice.
The New York State Assembly, for example, has voted to put in place a temporary moratorium on hydraulic fracturing due to water contamination fears until more information on the safety and environmental concerns is available, while in West Virginia a new bill has been advanced strictly regulating the drilling activities.
Attempts at the federal level to revive the FRAC Act, which would regulate the practice under the existing Safe Drinking Water Act, can also not be excluded.
In the EU, the Commission, which has been behind the curve on this issue, is at last undertaking a study to determine whether the regulatory framework is indeed sufficient to deal with these challenges.
In the meantime, a report by the Tyndall Centre in the UK has, similar to actions in the US, actually advocated putting in place a ban on shale drilling until more information is available.
Seen in this context, it is unlikely that shale gas will revolutionise the European energy landscape – but, with domestic efforts taking shape, neither will it leave Europe untouched.
In its haste to replicate initial US shale gas successes, Europe would be well advised to also take note of American efforts to deal with the challenges associated with this controversial new resource."
