Europe abandons hopes of US-style shale gas revolution

  

SPECIAL REPORT / Shale gas has had a “minimal impact” on the US’s manufacturing industry, and will have even less significance for Europe, according to a new report by the Institute for Sustainable Development and International Relations (IDDRI). In Europe, industrialists are abandoning hopes of a similar revolution, at least in the short- to medium-term.

The IDDRI report’s findings echo a warning from the UK business minister, Vince Cable, earlier this month that shale gas will not be a reality for at least a decade.

"Shale is a possible long-term resource, but we do not yet know,” he told the Guardian newspaper. “I want to tell people to get realistic about it.”

According to the report by the Paris-based IDDRI think tank, the US shale boom has contributed to cheaper household energy prices and helped the competitiveness of gas-intensive manufacturing sectors such as plastics, petrochemicals and fertilisers.

But these sectors only account for about 1.2% of US GDP and 3.3% of all manufacturing, and IDDRI estimates the maximum long-term effect of shale gas on US GDP at around 0.84%.  

“There is thus no evidence that shale gas is driving an overall manufacturing renaissance in the US,” the study says.

Shale gas could play a positive short-term role in helping Eastern European countries to wean themselves off imported fuel from Russia, and develop their own infrastructure.

But in terms of revitalising Europe’s manufacturing sector and economy as a whole, the report’s authors conclude that the shale gas effect would be “negligible”. By 2035, shale gas is estimated to be meeting no more than between 3-10% of EU gas demand.

“It is unlikely that the EU will repeat the US experience in terms of the scale of unconventional oil and gas production,” the report warns, citing uncertainties about the size of Europe’s shale deposits.

In the US, around 130 shale wells were drilled a month in the decade up tp 2010, compared to an all-in total of 50 exploratory shale drills in the EU so far.

Compared to the US, Europe’s energy service industry and rig counts are much smaller; its geology – and land access – are less accommodating; public acceptance is less of a given; urban density is far higher; and environmental regulations are more stringent. This, IDDRI say, would have a knock-on effect on the industry’s profitability here.

Industrialists want facts about shale gas in Europe

Among industrialists too, there are doubts that the US shale gas revolution can be replicated in Europe. BASF, the German chemical giant, says it is too early to say whether shale gas exploitation is economically feasible on the old continent.

“We always say that we need to understand the geological situation here in Europe," said Claus Beckmann, head of BASF's energy and climate policy unit. "We are now in a situation where it is not even possible to start exploration, to start a pilot, and to get the facts and numbers in order to evaluate whether shale gas production is economically and environmentally feasible in Europe".

"So we are only asking for exploration at the moment.”

The US shale gas boom has been a game-changer in the chemicals industry, bringing prices down for US factories and driving a new wave of investments there. BASF has recently invested more than one billion euro in the US to take advantage of cheaper gas and electricity prices.

"The US becomes more attractive for investment than Europe,” Beckmann told journalists in Brussels.

For sure, chemical companies look with envy at the US, but the scale of the shale revolution seems out of reach for Europe where the population density makes exploitation more difficult and where environmental concerns are higher.

“We believe that shale gas is a success story, a game-changer currently in the US, leading to a massive industrial renaissance in this country with enormous impact on employment," said Peter Botschek of the European Chemical Industry Council (CEFIC).

"We would wish that we could realise a fraction of that in Europe,” he said.

Parliament votes against mandatory shale gas rules

Europeans are currently far from there, although some timid steps are being taken.

On 12 February, the European parliament’s environment committee voted against making Environmental Impact Assessments compulsory for new shale drills at the urging of states including Britain, Poland and Lithuania, in a bid to reduce ‘red tape’ for the industry. Member states would merely need to explain why these are not needed.

But the economic benefits of shale gas may not outweigh the risks of groundwater contamination, increased methane emissions and seismic activity, according to IDDRI.

“Even under the most optimistic scenarios for shale gas exploitation, the European Union would remain a significant importer of gas and oil and European Union prices would continue to depend on high international prices,” Thomas Spencer, the report’s author told a meeting in the European Parliament on 13 February.

Factors such as Russia’s index-linking of natural gas to oil prices would be more salient in determining European prices than shale gas expansion, Spencer added.

Current low gas prices of $4-$5 per mbtu are “ultimately unsustainable” and “short-term,” the paper says.

Industry reacts coolly

The International Association of Oil and Gas Producers (OGP) said they were still analysing the IDDRI study but noted that other studies had found that shale gas had brought about an ‘industrial renaissance’ in the US.

“As for Europe, even if the geological potential isn’t as promising as in the US, we believe shale gas could still bring some significant economic benefit,” Alessandro Torello a spokesman for OGP told EurActiv.

A recent study shows that shale gas development in Europe has the potential to create as many as 1.1 million jobs by 2050, and add as much as 3.8 trillion euros to the EU economy by then. Shale gas production in the EU could also reduce energy prices compared with a no-shale gas scenario.”

As well as that paper, which was prepared for OGP by the Poyry consultancy, another study by the American Chemical Council concluded that shale gas expansion would generate new capital investment and production in the chemical industry and its supplier sectors, expand economic output and increase tax revenue.

That report did not consider the effects that such an expansion of shale gas would have on carbon emissions.

According to the IDDRI paper, “absent further policies, the US shale revolution will not lead to a significant, sustained decarbonisation of the US energy mix nor will it assure US energy security.”

“Coal fired generation has increased from 32.5% to 40% of the US power mix between mid 2012 and 2013 even with low natural gas prices,” Oliver Sartor, an IDDRI economist said. “Without additional policies, coal-fired generation will remain a large share of the US power mix for decades to come, despite shale gas.”

Positions: 

European industry sources are also becoming realistic about shale gas potential in Europe.

“We believe that shale gas is a success story, a game changer currently in the US, leading to a massive industrial renaissance in this country with enormous impact on employment. We would wish that we could realise a fraction of that in Europe,” he said.

Botschek said CEFIC was encouraging governments to "explore opportunities” for developing shale gas, adding that more should be done as well for bringing gas to the EU from other regions outside of Europe.

Timeline: 
  • 22 July 2014: Member states to be invited to inform Commission of measures they have taken under the recommendation’s remit
  • 22 July 2015: Commission to review implementation of recommendations and consider making them legally binding
External links: 
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Comments

an european's picture

"Shale gas has had a “minimal impact” on the US’s manufacturing industry, and will have even less significance for Europe"

Because of that Europe has to abandon !!??
Theoretically what happens in U.S. never has been practiced in Europe so we will never know if it's affordable if we abandon!

Belle Histoire's picture

No, Europe has to abandon because all the early signs of environmental effects are negative. We should wait until the method has evolved into a mechanism that can yield resources without depleting the environment.

This article justifies this move even more, because we aren't missing out on a big pot of gold, apparently.

Gerry's picture

Of shale gas can bring energy independence from Russia to east EU then it would still be worth pursuing just because of that. If shale gas can produce 10% of total EU gas demand by 2035 that is still a very large amount! If the EU wants to get somewhere with its energy production it will have to explore all avenues available instead of complaining that it just won't be enough to cover all bases!

an european's picture

I agree with Gerry

Why not at least give it a try ???!

Environmentally citizens are infesting more than half Europe by driving Die-sel cars !!
Proven by Frauenhofer Institut!! Americans don't do that Kill in- as Stink Diesel killer driver! They real know the danger of it !
And Europe is abandoning it claiming' it's environmental issues ! Oh dear!

@ my belle historiy

Really It doesn't en light me logically as environmentally ! why already we should swallow Macro contaminated stinkin'as well deadly die-sel in the air but instead abandonin' the shale gas ??

Oh man , some parliamentarians should grow pointy ears

Joe Thorpe's picture

What utter drivel! Shale oil/gas would vastly improve the UK's balance of payments by reducing dependence on Foreign oil & gas imports so although it wouldn't bring down prices it would vastly improve the countries current account & reduce dependency on the whims of the EU, the wind & the sun. I couldn't care less if shale improves the EU as a whole but it would certainly reduce our imports & allow us to reduce taxes which would benefit industry.

Mike Parr's picture

I agree with Mr Thorpe - shale gas in the UK would make a difference - starting with intensive drilling in the south east of England - where there is oil already and plenty of shale gas - the south east should lead by example - I have zero doubt the rest of the country would follow & even tory-led councils in the North west (such as those in Gidiot's constituency) would see the error of their ways (they have banned drilling) once the South east showed how the UK could benefit.

Xerxes's picture

While there are still concerns over shale gas extraction it isn't an energy avenue that can be ignored. There is a lot of resistance to the method in the EU, but I think it would be a completely different story if EU citizen's held mineral rights like their US counterparts and were likewise compensated, especially with the EU in such a fragile economic position. Plus gas is going to be an important fuel to work in tandem with renewables until they are efficient enough to provide 100% of our energy needs. and according to a US EIA map on known shale deposits they seem to be worldwide. If a safe method of extraction was developed which all nations could use then it would go someway to separating energy from foreign policy.

Dirk Knapen's picture

That is true if, as you mention, we would need fossil fuels, or nuclear for that matter, but we don't. Not anymore. In Germany and elsewhere in Europe the prices on the wholesale market have dropped for base load by 25 and for peak load by 40%, the latter proving the increasing influence of intermittent production, in 2013 compared to 2007. The partial exit out of "cheap" existing nuclear production in the country hardly had an impact on that drop. Here in Belgium a small, densily populated, very energy intensive country in north-western Europe at a latitude similar to that of the Canadian border, our total energy consumption represents only about 2% of the solar irradiation we get. Our GDP is 25% more energy intensive than the European average. So why go for potentially dangerous, environmentally damaging and more expensive intermediate solutions any longer? Why not go for renewables immediately and harvest not only the economical benefits, but also the other values renewables can bring for our communities: resilience, self-confidence, peace, solidarity, social cohesion, local employment, security of supply, price stability, energy autonomy, healthier environment, reduced climat impact,...