March 4, 2011

Shale Gas in Europe

From Ben Schiller, at Yale Environment360:
Across Europe, a host of energy companies are exploring for unconventional deposits in what some are comparing to the great oil and gas rushes of the past. Exxon Mobil has bought up concessions in Germany and Poland. Shell is active in Sweden and Ukraine. Chevron is in Poland. Total is in Denmark and France. And Cuadrilla is also exploring in the Netherlands and the Czech Republic.

Though skeptical not long ago, the industry now is increasingly confident about the size of reserves in Europe, where shale deposits underlie most of the European Union’s 27 states. “It’s gone from people saying, ‘You’re crazy, why are you moving to Poland?’ to ‘Oh, that is the hottest play in Europe,’” says John Buggenhagen, head of exploration at Dublin-based San Leon Energy, which has several concessions in Poland.

According to the International Energy Agency, Europe could hold 35 trillion cubic meters (tcm) of so-called “unconventional gas,” which is dispersed in various rock formations rather than in reservoirs. Europe’s total current demand is roughly 580 billion cubic meters annually.

As the industry takes off, however, critics are raising flags about the environmental ramifications, especially at a time when Europe is supposed to be shifting to a more sustainable energy portfolio. The concerns center mainly on natural gas trapped in shale formations and a controversial technique widely used in the United States — hydraulic fracturing, or “fracking.” . . .

The question in Europe is whether the problems in the U.S. are a result of a particular regulatory regime (or lack of one) or whether large-scale shale gas development can be done safely given proper oversight. . . .
For now, the British government is allowing exploration to proceed. In its submission to the inquiry, the Department of Energy and Climate Change says the “safety risks and hazards associated with drilling for shale gas should be no more onerous than those associated with drilling for any other hydrocarbons by a borehole.” . . .
Chief executive Mark Miller says Cuadrilla is avoiding many of the chemicals used in U.S. production, some of which would undoubtedly be illegal on European soil. He blames Halliburton, which developed fracking in 1949 as a way of extending the life of conventional gas wells, for failing to disclose toxic substances in its fracking fluids, and thus giving the rest of the industry a bad name. As for evidence of water contamination, Miller says the cases are either unproven, or the result of poor drilling practices. . . .

Despite the efforts of firms like Cuadrilla to assure the public, however, the exploration boom is sparking protests in several countries, notably in France and Germany, foreshadowing what developers could be up against in coming years. Earlier this month, the French Ministry of Ecology called a halt to shale gas drilling throughout the country while it assesses the environmental issues. Its report is due in June.

Other governments are more supportive. Ahead of a EU Energy Summit this month, Poland inserted language into the official declaration calling for unconventional gas development. Poland is keen to reduce its dependence on Russian supplies, which currently account for two-thirds of its demand. And over the last three years, Poland has granted 79 concessions, becoming a magnet for energy executives and geologists from around the world.

Ewa Zalewska, director of geology at Poland’s Ministry of the Environment, says Polish shale gas is “the gold rush of the 21st century,” while other officials have spoken of Poland as the “next Norway” and a future “energy super-power.” Poland’s reserves are estimated at 1.4 trillion to 3 trillion cubic meters. And the government is working closely with the U.S., signing on to the U.S. State Department’s Global Shale Gas Initiative, which aims to “help countries seeking to utilize their unconventional natural gas resources.”

Several factors make Poland attractive to foreign energy firms, according to Grzegorz Pytel, energy expert at the Sobieski Institute, a think tank in Warsaw. Under current regulations, producers pay only a 1 percent tax on the volume of hydrocarbons produced, plus a 19-percent corporation tax— both low rates by international standards. Also, concession contracts are for longer periods of time than in other countries and cover larger geographical areas.

The largely unanswered question, though, is how producers are going to sell the gas once it is extracted, Pytel says. Polish demand is 14 billion cubic meters a year a year, with 10 billion of that coming from Russia’s Gazprom. To export excess natural gas produced in Poland, Pytel says Polish gas companies will probably have to strike a deal with Russia, which effectively controls pipelines running through Poland.

Andrzej Kassenberg, president of the Warsaw-based Institute for Sustainable Development, says shale gas could help reduce Poland’s need for coal-derived electricity (currently 92 percent of production) and serve as a “transition” energy source on the way to a more renewable future. But he is concerned that shale gas drilling could spoil the landscape and exacerbate water shortages in some areas. “There are going to be thousands of drilling towers and lots of new roads and pipelines, and that could cause social problems,” says Kassenberg.

The idea of shale gas as a transitional energy source is contentious, chiefly because of the time it takes to develop shale gas resources and build gas-fired power stations. A study by Florence Gény, a research fellow at the Oxford Institute for Energy Studies, finds that Europe will not see “significant” levels of shale gas production before 2020. In other words, if shale gas is to be transitional, it will be in the next decade rather than this one.

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