Big shale gas deal may not spark EU energy revolution

  

A major UK energy firm has struck a deal hailed by Prime Minister David Cameron as a step towards energy security but as the European Commission launches discussions on 2030 climate and energy policies opinions are divided as to which direction the EU should take the unconventional fossil fuel.

Nearly two million British homes will be heated by shale gas from the United States within five years as a result of the deal between the UK-based energy company Centrica and Cheniere, a US liquified natural gas (LNG) provider, the first of its kind in Europe.

Centrica, the UK's largest gas company, will purchase the LNG from Cheniere, reconvert it into its original gaseous state and distribute it to British consumers.

The US has kept a tight lid on its shale gas exports, but the move raises the prospect of cheap and secure supplies of gas to Europe, as international conflict has disrupted conventional supply chains.

Cameron hailed the deal as a harbinger of energy security.“Future gas supplies from the US will help diversify our energy mix and provide British consumers with a new long-term, secure and affordable source of fuel”, he said.

The EU executive launched the green paper on Wednesday (27 March), setting out Europe's energy and climate aims for 2030, with Energy Commissioner Günther Oettinger taking up a favourable position on shale gas.  "I am in favour of producing shale gas, particularly for safety reasons, and to reduce gas prices", he said. "In the United States, which is a big producer of shale gas, the price of gas is four times less than in Europe."

But crippling production costs, exploration closures, and government-level environmental concerns have seen the industry’s expansion in Europe waver.

US example

David Neslin, a member of the US Interstate Oil and Gas Compact Commission, visited Brussels last week to tell EU policymakers how they could learn from the US shale gas rules, which permitted the large-scale exploitation of the fuel.

“We comprehensively updated the regulations to increase environmental protection, transparency and efficiency as oil and gas extraction expanded,” said Neslin, who oversaw fossil fuel regulation in Colorado State.

Neslin advocated shale as a stepping stone towards a low-carbon economy, showing evidence that gas produces fewer carbon emissions than other forms of fossil fuel, such as coal. “Natural gas can present a bridge to a cleaner energy future. Renewables can take some time”, he said.

But Antoine Simon, extractive industries campaigner at Friends of the Earth Europe, told EurActiv that the US shale boom will be short-lived and will not provide lasting energy security and cheap fuel despite the country’s underground reserves.

“It is cheap at the moment because shale companies are forced to drill and drill to maintain the same level of production”, he said. “Gas prices are three to four times lower than the simple cost of production.”

"There are figures disputing the US' hundred year energy security claims. They suggest there will be a production peak over the next two to three years and then a steep decline in one or two decades."

He added that the US had begun to seek markets for its shale gas abroad due to the failure to keep production costs within a manageable level.

Uncertainty

Last October, British Chancellor George Osbourne announced potential tax breaks for domestic shale. The same month Poland declared its push for the gas, saying it would invest some €12.5 million to develop exploration by 2020. But large-scale production has proved difficult, with European governments and major energy companies recently suspending or halting exploration.

On 12 March the director of Talisman Energy Poland, Tomasz Gryzewski, indicated that his company may withdraw from shale gas exploration in Poland. A year earlier US company ExxonMobil decided to end its own exploratory tests in the central European state, due to a lack of clarity over its shale potential.

ExxonMobil’s chief executive officer, Rex Tillerson, has said “we are losing our shirts” due to the low gas prices. “We’re making no money. It’s all in the red.”

Officials at Cuadrilla, a British energy company, also said this month it would postpone drilling in the UK for a year as it waits for environmental impact assessments.

France has a moratorium on shale gas drilling.

To Simon, a repeat in Europe of the US boom appears unlikely due to a number of factors, including a lack of equipment and pipeline infrastructure, stronger environmental regulation, geology and geography.

Geology

A recent KPMG study detailing the investments behind shale extraction has shown that production costs would be some 40% higher in Europe than in the US.

“European geology makes it more difficult to extract than in the US. Europe’s shale reserves are about 50% deeper, and so the temperatures are higher, which is a risk for equipment failure”, he said.

“This requires higher precautions which has a direct impact on the cost of extraction.” 

“Gasification factories have to be built and cost a lot”, Simon added.

These views are backed up by Climate Commissioner Connie Hedegaard, who does not believe that shale will be a game-changer for Europe like in the US. "We do not expect that it will be so easy in Europe: geological conditions are different, and so are environmental rules and the activity of soils", she told reporters at the launch of the Commissioner green paper.

Health concerns

A 2012 human health risk assessment of air emissions by the University of Colorado indicated that residents living less than a half a mile (0.8km) away from ‘fracking’ wells are at a greater risk of ill health effects than those living more than ½ mile away.

Regulators are therefore wary of advocating shale drilling, whose use of toxic chemicals has sparked fears of ill-health effects, in Europe due to its population density, which is many times higher than Colorado.

Poland - which has a relatively low population density by EU standards - has more than 10 times as many people per square kilometer as Colorado.

Colorado imposed strict regulation governing well casing and groundwater sampling, Neslin said, but leakage is difficult to avoid. A Colorado Oil and Gas Conservation Commission study has shown that 43% of spills end up in groundwater contamination.

Friends of the Earth's Simon said 20,000 new wells are drilled per year in the US. "This is clearly not possible in Europe", he said.

Positions: 

Sam Laidlaw, chief executive of Centrica, said of the deal: "In an increasingly global gas market, this landmark agreement represents a significant step forward in our strategy … helping to ensure the UK's future energy security."

Andrew Pendleton, head of campaigns at Friends of the Earth, said of the UK's current imports: "Emergency gas shipments to maintain Britain's energy security are yet further evidence of our shambolic energy strategy. It makes no sense for the UK to rely increasingly on overseas shipments of ever more expensive gas while ministers sideline the vast potential of homegrown energy from the wind, waves and sun. It's time to pull the plug on our fossil fuel dependency and switch to a 21st century energy policy based on clean power and slashing waste."

Connie Hedegaard, the commissioner for climate change, told the daily Guardian that shale gas would not be the game-changer that it has been in the US. "We should not fool ourselves," she said. "This is not going to be as cheap as in the US. We have different geology that makes it more tricky [to extract shale gas]. We don't have the same wide open spaces. We pay more attention to what local people think."

Timeline: 
  • 2013: European Commission to unveil results of public consultation on unconventional fossil fuels, including shale gas.
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