Janez Potočnik, EU Commissioner for Environment, Speaks about Shale Gas

Janez Potočnik, European Commissioner for Environment, addressed the European Economic Congress in Katowice, Poland on 14 May 2013

"Shale Gas in Europe – Being Consistent with a Low Carbon Economy, Managing Health and Environmental Risks"

Mr Chair,

Distinguished guests,

Since the first industrial revolution, our economies have grown and expanded on the basis of abundant and cheap energy.

With a fairly low hourly wage in Belgium, we can today buy enough gasoline to run a car for 100 km. Had we not the engine and the petrol, we would need days to transport ourselves on that distance. Energy has substituted labour and boosted human productivity. So when energy prices rise, we get worried.

In times of economic crisis, it is therefore not surprising that we hear some voices blaming the high price of energy for slow growth. In such a situation, people search for solutions. Some people believe that if we had access to cheap energy, we would soon be out of trouble: the economy would grow, we would create jobs.

Yet there are some worrying signals out there, which indicate that there is more to this storyline. We are running out of steam

1. We need to dig more or deeper to get the same amount of energy. This costs us more than before.

2. In the European Union, domestic gas production has been steadily declining over the past decade.¹

3. The world demand for energy is set to continue growing rapidly. The largely populated emerging economies need an increasing volume of energy to satisfy the needs of their growing and wealthier population.

4. As resources become less easily accessible and more costly to extract, there is a need to use often more complex and intensive techniques.

5. And the competition to access energy becomes fiercer. We, Europeans, are at a disadvantage as we heavily depend on external sources².

There are also the unintended and undesired side effects of our energy use – emissions that we breathe and those that warm our planet.

Climate change is an inconvenient reality. We need to cut our greenhouse gas emissions if we are to remain within the 2°C limits. There is no simple solution to this global challenge. This implies a radical energy transition worldwide: we need to progressively get rid of fuels such as coal or oil, and move to cleaner, renewable ones such as hydro, wind or solar energy. We also need to cut our energy consumption, to promote energy efficiency and resource efficiency. Investments in these fields can actually help the EU cut energy costs and be more competitive.

Against this background, it is critical how we approach to energy investments being made now, as they will have implications for the next 40 years or even more. The current generation of policy-makers and investors has a strong responsibility in making the energy transition possible. Most of you will, I am sure, share this diagnosis.

In this context, new sources of gas, such as from shale, seem attractive: a possible substitute for more polluting fossil fuels, such as coal and lignite, a better security of supply with less dependence on dominant energy suppliers from abroad, as well as a source of public revenues.

The experience in the US has undoubtedly been a game changer. Prices have come down very significantly until last year³ (although the latter start rising again this year). According to the US Energy Information administration, the US could become a net exporter of gas by 2020⁴.

This has already had significant impacts on the rest of the world. It has led to greater supplies of Liquefied Natural Gas (LNG) becoming available at global level, indirectly influencing EU gas prices as well as stimulating cheaper exports of coal to the EU. And we just heard from the American President days ago that we can expect more LNG exports in the future.

In this light, I think we need answers to two key questions:

1. Are these developments there to stay? In other words, for how long abundant and cheap gas will be available?

2. Can it be replicated in other parts of the world, and in particular in Europe?

As regards the first point, some recent analysis by the US Energy Information administration⁵ indicates that natural gas prices are actually projected to rise with an expected increase in production costs after 2015, due to the progressive depletion of resources in inexpensive areas.

On the second issue, the jury is still out, as there are large uncertainties about recoverable volumes in the EU. But most analysts recognise that, even in the most optimistic case, European shale gas development can only compensate for the decline in conventional gas production. This would basically help maintaining the current level of EU import dependency to 60 %. This would certainly help to bring some downward pressure on prices of gas, but it would not make Europe self-sufficient in gas⁶.

The conditions in Europe are rather different from those in the US. Unconventional gas production cost is expected by the International Energy Agency⁷ to be about twice as high in the EU compared to the US. The population density and the technical environment are different. There has been some important downscaling of early estimates of reserves in certain Member States⁸. Some countries would also need to invest heavily to upgrade their gas infrastructure⁹. And private operators are seeking reassurance that the legal and regulatory environment is predictable and coherent, providing a level playing field in the European Union.

Special care would need to be taken to secure the climate integrity, tackling issues such as preventing fugitive methane emissions from extraction. This is quite possible as techniques or best practices exist, but they would need to be widely adopted and rigorously implemented.

To secure the longer term climate integrity, efforts to explore and exploit shale gas also need to be matched by efforts to promote energy savings, reduce coal and accelerate the uptake of renewables.

So shale gas may bring about important benefits but only as part of a package to secure the long term benefits of a transition to a more sustainable energy model in the future.

And for this to happen, the issue of the public acceptance of shale gas extraction needs to be tackled. This is largely a question of making sure that environmental risks can be managed so as to assure the general public that exploitation is safe. We have to recognize that the public opinion does perceive environmental risks from the "fracking" technology. Our American friends have told us this very clearly. People do not believe claims that there are no risks at all. The International Energy Agency in its “Golden Rules” report recognises that unconventional gas generally imposes a larger environmental footprint than conventional gas development. And the US have recently tightened rules that govern shale gas extraction, notably with regard to air emissions, while Canada has also modernised its regulation.

The main challenges that have been pointed to concern notably water use¹⁰, water pollution, air emissions¹¹, and the management of waste water. To reassure the public, all of these risks should be prevented, managed and reduced. As I already said, techniques and good practices exist; important parts of the necessary regulatory framework are in place. But our duty is to ensure that these techniques and practices are effectively used and that the regulatory framework provides adequate and effective safeguards of the environment and human health.

Prospection or exploration licenses have been granted or are in process of being granted in a number of Member States from Poland to the UK, Spain or Hungary. Romania has lifted recently its temporary moratorium. Production is expected as of 2015 in some Member States. At the same time, a number have reviewed or start revisiting their applicable framework, so as to facilitate shale gas production and ensure that specific risks are duly covered.

This is the case for instance of the UK which has introduced specific rules as regard the monitoring of induced seismicity. Several countries¹² have decided or envisage to impose a mandatory Environmental Impact Assessment for both exploration and exploitation activities. Other Member States introduced temporary moratoria or enacted legal bans on the use of hydraulic fracturing.

These various national initiatives that flourish may ultimately lead to a mosaic of different legal frameworks/interpretations. All of this can affect what companies and investors need most, i.e. a level playing field and a clear and predictable framework.

Indeed, the oil and gas industry naturally wishes to continue exploring for shale gas and to start exploiting it. But it faces significant public acceptability issues in a number of countries, issues which have been taken up at EU level by the European Parliament. Public and private actors are therefore looking into ways to increase public trust. Ensuring public participation and transparency in the process will be essential to that end.

It is not for the Commission to decide whether shale gas should be exploited or not. The Treaty is quite clear: Member States are responsible for deciding on their energy mix¹³. But they have to ensure that this is done in line with the environmental rules that apply, so as to ensure protection of the environment and human health.

The Commission's role is to ensure that the rules of the game are clear and predictable for operators and authorities across Europe, while providing reassurance to the general public that appropriate climate and environmental safeguards are in place.

These are the reasons why the Commission undertakes this year an EU level assessment of the environmental, climate and energy aspects of shale gas with a view to enable its safe and secure extraction. I am working closely with Gunther Oettinger and Connie Hedegaard on the details. This assessment is on-going and, if all goes well, is due to be released by the end of this year.

All options are being carefully examined as part of this exercise, in an open consultation with all stakeholders. Where good practices need to be encouraged, the Commission will foster those. Where interpretations need to be clarified, specific guidance will be issued. Should legal gaps be identified, the Commission will take its responsibility, building on the existing framework at both EU and national level.

To summarise: our energy strategy must have a long term horizon. Decoupling our demand for energy from our economic growth and building a competitive, highly resource and energy efficient low carbon economy should be the ultimate goal. Shale gas may contribute to these goals, provided its potential in Europe is confirmed and that risks associated with its exploration and exploitation are managed. Addressing health and environmental risks will be of paramount importance for the shale gas industry to gain public acceptance. The Commission is working towards delivering a framework that should provide reassurance to the general public and enable the industry to operate under clear and predictable rules.

I am not for or against shale gas. I am for using the potential of shale gas, if confirmed, in an environmentally responsible way while keeping in mind our long term objectives and supporting the policies which are leading us towards those objectives.

I also hope for your support in achieving that.

Thank you for your attention.