Gulf of Mexico spill to affect EU shale gas projects?
The fledgling European shale gas industry will face project approval delays, as governments tighten regulation for all oil and gas drilling projects following BP's Gulf of Mexico oil spill, which has resulted in the deaths of 11 employees and 5,000 barrels of oil spewing into the ocean daily, say analysts.
Although only in its infancy with minimal production, European shale gas output is expected to rise exponentially in the coming years with global companies hoping to replicate the success seen in the US. According to the International Energy Agency (IEA), production of unconventional fuel, which includes shale gas, is set to rise 71% between 2007 and 2030. Any delays to project approvals at this stage could be a big blow to the nascent industry.
"Although the gas markets are ostensibly unrelated to the Gulf of Mexico oil spill, governments will now be ever more vigilant to the environmental effect of both oil and gas drilling, particularly in how they avoid potential environmental disasters," says Andrew Moorfield, head of oil and gas at Lloyd's Banking Group. "Therefore we are likely to see regulation tighten for all oil and gas drilling, including any impact on how shale gas in Europe is extracted. Governments and environmental regulation will be more critical to the economics of major energy discovery projects going forward. And those economics will worsen".
"There is the possibility that it [the oil spill off the Gulf of Mexico] may impact on new drilling projects, including European shale gas," says Malcolm Fraser, energy analyst at consultancy and utility management company McKinnon & Clarke. "Gas companies will have to take into account the likelihood of tighter regulation in the future, which may limit or change their priorities in terms of the specific areas they are looking to develop."
The explosion last month on board the Deepwater Horizon rig, operated by Transocean, but leased by BP to drill its Macondo exploration block, resulted in the rig sinking. According to sell-side research firm Sanford Bernstein, the whole clean up operation is expected to cost BP $8 billion before tax.
The environmental impact from the oil rig explosion has forced the market and governments to readdress safety measures needed to all types of oil and gas drilling projects.
Although natural gas is the cleanest burning fossil fuels in the energy complex, shale gas extraction has come under scrutiny over the years, following the environmental impact hydraulic-fracturing has on fresh supplies.
The process of shale gas extraction begins with the well casing being cracked open by explosive charges to create a series of perforations along a horizontal well bore drilled through the shale seam thousands of feet below the surface.
Analysts point out that the geographical difference between Europe and the US only heightens the governmental and public concerns for shale gas extraction.
"Shale gas in Europe will face more environmental concerns than the US, due to population density and land use," says Moorfield. "For instance, if you look at drilling for shale gas in Texas, the population is sparse and the land use is often for livestock, but if you were to drill similar projects in Western Europe, the population is more dense, the land use more orientated towards arable farming and thus European shale gas is far more likely to face opposition."
Source: China Oil Web