Shale gas: Opportunities and challenges for Europe

17/11/2011

Since the shale gas boom changed the energy picture in the United States, several European countries with the support of the oil and gas industry have raised expectations that this unconventional natural gas production can also be a game-changer in their own quest to reconcile energy security and climate policies.

 

Shale gas is a natural gas which can be found in formations of porous rocks and consists mainly of methane. Before the gas can be extracted, the rocks need to be fractured by injecting huge amounts of water, sand and toxic chemicals creating certain environmental risks.

 

Shale gas is nothing new. The first commercial shale gas well was drilled in the 1820s but getting the gas out of the shale rocks was too expensive and posed huge technological challenges until new drilling techniques called “horizontal drilling” and “hydraulic fracturing” (“fracking”) became operational in the U.S. about a decade ago. Since the year 2000, shale gas production in the U.S. increased from 1% of total gas production to over 20% in 2009 and some analysts are now predicting that this shale gas boom and other unconventional sources of energy could make the U.S fully independent of Middle East oil in the long run.

 

The oil and gas industry claims that shale gas has several advantages. It increases energy security and also is beneficial for the climate as it is less carbon-polluting than coal or oil. Together with other natural gas sources such as conventional LNG, it could be the perfect and cleaner fossil fuel bridge towards a decarbonised economy as gas power plants can also be used to complement renewable electricity production.

 

So is this the “silver bullet” the world has been waiting for to tackle its twin challenges of reducing the negative climate impact of other fossil fuels and of providing us with enough cheap energy in times of rising oil prices and serious questions about peak oil?

 

The jury is still out as there are lots of uncertainties surrounding the real shale gas reserves, its economics, the environmental and climate risks, its effects on the LNG market and support for renewable energy and, last but not least, public acceptance.

 

The predictions of how much gas can be extracted from shale gas for the U.S. alone are spectacular but also controversial. Recently the United States Geological Survey (USGS) slashed its estimated volumes of recoverable shale gas in one of the main basins in operation leading to serious questioning of the industry’s long-term predictions.

 

There are also doubts about the real costs of shale gas exploration. Experts at Bernstein Research in New York believe that the full cost of finding the wells and developing and operating them would require a spot gas price of USD 7.50 to USD 8 a thousand cubic foot, quite a bit more than current prices.

 

As for the environmental risks, questions have been raised on the enormous use of water (millions of gallons) and the lack of serious water recycling, the toxicity of the chemicals used in the process and the possibility of methane leaks which would undermine the arguments about the positive impact of shale gas on the climate crisis. A recent UK report by one of the leading shale producers also admitted that the drilling of its wells might have caused minor earthquakes in the past.

 

All this has led an American Subcommittee of the Department of Energy to recommend in a recent report that the industry improve safety and reduce environmental threats posed by horizontal drilling and fracturing. It also called for full disclosure of chemicals used in the fracturing water. The Subcommittee warned that if these recommendations are not taken seriously it might lead to increasing public opposition which might undermine further expansion of the shale gas production.

 

Other issues which have received less attention are the impact of shale gas production on investments in the LNG market and the planned pipeline projects from the Caspian in Europe. Furthermore, there are signs that the renewed interest in natural gas as a result of the shale gas boom could lead to reduced governmental support for the necessary revolution of renewable energy especially in a climate of squeezed public budgets and harsh austerity. In that sense, the “Golden Age for Gas” could well become a “Dark Age for Renewables”.

 

To conclude: it is clear that shale gas has a lot of potential to secure long-term relatively cheap energy but as Fatih Birol, chief economist at the International Energy has said on several occasions, the Golden Age of Gas will need “golden standards” of operation for business and smart regulation by policymakers.

 

Willy De Backer
Head of the Greening Europe Forum

 

Further Reading:

 

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The issue of opportunities and risks of new natural gas in Europe will be discussed at Friends of Europe’s Energy Summit on 23 November. See programme and background information.