Despite the transformative impact that shale gas has had on the outlook of US energy markets, the European landscape regarding shale gas is very mixed and markets should exercise caution as multiple issues may slow progress, according to a new report issued by EY today.
The report, Shale gas in Europe: revolution or evolution?, identifies a number of factors that will influence the pace and feasibility of shale gas development in Europe, including geology and resource potential, gas demand, energy prices, population density, environmental and social factors, fiscal and regulatory regimes, infrastructure and service capabilities.
On the future impact of shale gas on the European energy market, Dale Nijoka, EY’s Global Oil & Gas Sector Leader comments: “The US shale gas success story has heightened speculation over the potential for shale gas to transform energy markets in other regions. Energy-intensive industries in Europe and other developed economies are hoping that development of their shale gas resources will provide access to lower-cost supplies and energy security. There is no denying the economic benefit that the evolution of a shale gas industry could bring to individual countries in Europe, helping to reduce their dependence on imports.”
Pricing and resource uncertainty poses big questions for shale gas
Shale resources are believed to be present in at least 14 countries across Europe, including Ukraine, Germany, France, Poland and the UK, though no shale gas play has yet been brought into production. Three-quarters of estimated European shale gas reserves are concentrated in just four countries: Russia, Poland, Ukraine and France.
Estimates from a number of organizations suggest that while production costs for US shale gas range from $3/MBtu to $7/MBtu European production costs could be much higher between $8/MBtu and $12/MBtu.
Nijoka comments: “The price of natural gas was an important factor in the rapid increase in shale gas production in the US, but European prices are likely to be higher until an understanding of the geology improves and further advances in technology can help drive down costs.”
Predicted natural gas demand growth will also be critical for oil and gas companies when contemplating investment in shale gas projects in Europe, as it is not expected that shale gas production in Europe will reach commercial levels for at least another 10 years. The lack of oilfield service sector capacity, suitable equipment and a skilled labor force have been highlighted as potential bottlenecks preventing the faster development of shale gas in Europe. Shale gas will also need to compete with existing energy sources in Europe, where investments in infrastructure have already been made.
Mounting concern as production rises
The rapid growth in shale gas production in the US has resulted in concerns about the impact of the development processes on public health and the environment. Opinion on the environmental impact of shale gas and its role in the future energy supply mix has become increasingly polarized.
The physical footprint associated with shale gas exploration and production is larger than that for the exploitation of conventional hydrocarbons. Access to land and land usage are likely to be important issues in densely populated Europe. In addition to the environmental issues, there is the issue of social acceptance of the shale gas industry in Europe. Compared with the US, Europe has a higher population density and more stringent environmental regulations. Issues like noise pollution, which has so far been less of a concern in the US than some of the other issues, might be more of a problem in densely populated regions of Europe.
Looking ahead, Nijoka concludes: “Many hope that the experience in the US can be replicated in Europe, but this experience also needs to include learning the lessons from studies under way on the environmental and public health impacts of shale gas development in the US. In addition, these studies can help shape appropriate regulation where necessary in Europe.”
