European shale gas prospects remain bleak
Against the backdrop of soaring gas prices, war in Ukraine and Europe’s determined push to sever energy ties with Russia, there have been renewed calls to exploit the continent’s shale gas resources. But even in the current circumstances, it is questionable whether projects will be able to overcome opposition from authorities on a local and national level, and whether the general public can be convinced that perceived environmental risks associated with hydraulic fracturing are a price worth paying for cheaper energy. And in any case, shale gas exploration to date has largely failed to live up to expectations.
Europe boasts some 14 trillion m3 in unproved, technically recoverable shale gas reserves, according to a 2013 study by Germany’s Federal Institute for Geosciences and Natural Resources (BGR), far exceeding the 5.3 trillion m3 of conventional gas it has. To date, however, only a handful of exploration wells have been drilled to assess this resource, making it hard to determine how much gas could actually be recovered, and at what cost.
The US shale gas revolution that began in the early 2000s led many European countries to look seriously at their own shale reserves as a means of achieving energy independence. But pressure from NGOs and concerns among the public about water use, water pollution and the risk of seismic tremors, prompted many of those same countries to ban fracking and revoke shale gas exploration licences in the early 2010s.
Compared to a decade ago, though, conditions on the European energy market are now unrecognisable. Wholesale gas prices have been sustained over the past six months at heights not previously thought imaginable, making energy security and affordability an immediate priority for governments. The EU is also striving to end Russian gas imports by the end of the decade.
Polish potential
Poland is estimated to hold the largest shale gas reserves in Europe – estimated by BGR at 4.2 trillion m3. And this helps explain why the country initially looked more favourably at shale gas extraction than many other EU states. Poland’s shale gas deposits are divided between the Baltic and Lublin basins, and they are understood to have similar structures to fields found in Texas, where the US shale revolution began.
A number of international oil companies joined in the search for shale gas in Poland in the late 2000s and early 2010s. But most have since left citing exploration failures. Among them were ExxonMobil, which exited in 2012 after failing to achieve commercial flow at a pair of wells, and Chevron, which pulled out three years later, saying it no longer viewed its Polish gas shale business favourably compared with the rest of its portfolio.
Wholesale gas prices are currently more than 10 times higher than they were when Poland’s initial hopes for a US-style shale revolution were dashed. But because of those previous drilling disappointments, the Polish government no longer places much faith in the resource. To end its reliance on Russian gas, it has instead turned to alternative imports. It is expanding the capacity of its Swinoujscie LNG terminal and plans to add a second terminal in Gdansk, and is due to start receiving Norway via the new Baltic Pipe later this year.
Prospects elsewhere
Prospects for shale gas development do not look much better elsewhere in Europe. France has the second-largest reserves of 3.9 trillion m3, situated mainly in the Paris basin and in the country’s southeast. But the government banned fracking in 2011 and cancelled all shale gas exploration licences two years later. President Emmanuel Macron’s administration has vowed to keep this ban in place, and has instead embraced nuclear energy as France’s answer to energy security.
Perhaps the most encouraging signals for shale gas development in Europe are coming from the UK government, which has said it will reconsider its moratorium on fracking that has been in place for two years as part of a strategy to bolster energy security. In April, it commissioned a study from the British Geological Study that will evaluate the latest scientific evidence concerning shale gas extraction, including on safety and its environmental impact. The study is due to be published in June, and could pave the way for the ban to be lifted.
Cuadrilla Resources, which is developing the Preston New Road shale gas site in Lancashire, in north England, has welcomed the potential U-turn in government policy.
“The government is clearly aware of the huge potential of shale gas,” CEO Francis Egan said in response. “Fracking can create tens of thousands of jobs and strengthen energy security.”
Support from the national government is one thing. But in the past, shale gas projects in the UK have also been held up by opposition from local councils that have refused to permit activity citing environmental risks. The UK’s shale gas reserves are also much smaller than that of Poland and France, estimated by BGR at only 0.7 trillion m3. And while some well tests so far have been encouraging, more drilling is needed to determine whether a UK shale gas industry is really feasible.
In Germany, which is understood to have 0.5 trillion m3 of shale gas, Bavarian premier Markus Zeder urged the federal government in April to keep an “open mind” about shale gas exploration. A ban on most fracking was introduced there in 2017.
Berlin too is looking to end Russian gas imports in the coming years. But in line with EU policy, it sees LNG supply as the primary way of achieving this. Earlier this month, the finance ministry announced plans to spend as much as €3bn ($3.2bn) on the construction of four LNG import terminals. It is true that the German moratorium on unconventional fracking only applies to shale deposits at depths of less than 3,000 metres, although in practice, this rules out development of much of the country’s reserves.
Other European countries with sizeable shale gas reserves include Romania, with 1.4 trillion m3, Denmark, with 0.9 trillion m3, the Netherlands, with 0.7 trillion m3, and Bulgaria, with 0.5 trillion m3. Romania’s government remains supportive of shale gas, although developers have complained that high taxation and excessive regulation have created a poor investment climate, which has held back various gas projects – both conventional and unconventional. Both Denmark and the Netherlands have pursued policies that have stifled investment in domestic gas production. The former declared a ban on oil and gas exploration last year, while the latter’s strict rules on nitrogen oxide emissions has brought project permitting to a standstill. As much, neither is likely to lend any support to shale gas. Bulgaria, meanwhile, banned fracking in 2012.
Looking forward
Taking all this into account, the prospects for a large-scale European shale gas sector emerging do not look promising. With drilling, many deposits have been discovered to be more difficult to exploit than initially thought, making production either unfeasible or further increasing the cost, which is already higher than conventional production. The International Energy Agency (IEA) estimated in 2014 that the cost of shale gas extraction in Europe could be up to twice as high as in the US, because of geological differences, higher population density, insufficient infrastructure in some places and the lack of technical capabilities that the US has built up over time. The scarcity of more recent data highlights how little attention the Paris-based agency and other organisations now pay to European shale gas.
And even if some projects move forward, in places like the UK, shale gas is not an answer to European energy security in the near to mid-term, as it will take years for supply to be brought on stream. Besides reductions in gas use through increased efficiency and the accelerated development of renewables and other low-carbon energy sources, Europe’s best options for bolstering its energy security appear to be expanded LNG imports and putting the right policies in place to ramp up domestic supply of conventional gas resources.