Shale Gas – the debate continues

A posting on The Economist Blog titled ‘Gas or hot air’, continues the debate on the prospects for shale gas development in Europe.

Katinka Barysch of London based think tank Centre for European Reform, advises caution on the role of shale gas in changing Europe’s energy outlook.

Ms. Barysch point to factors, including:

•    that estimates of European unconventional reserves are based on geological surveys that were not carried out with unconventional gas in mind and that only drilling holes in the ground will show whether the geology is indeed suitable for commercial production;
•    
Europe lacks resources in terms of knowledgeable personnel and equipment to allow for the proper execution of shale gas development;
•    Europe is highly densely populated and environmental and planning restrictions in Europe are tighter than those faced by shale gas operators in the United States; and
•    

The price and demand equation for gas has shifted in unfavorable terms.

Some of Ms. Barysch’s comments are quite simplistic.  Of course only drilling will prove whether significant, commercial shale resources exist in Europe.  As for a lack of expertise and resources, they can be obtained. Though ‘national’ or and domestic players will be involved, there is no question the major multinational with shale gas experience will be spearheading shale development.

Though she states that operators will face additional costs due to lack of existing infrastructure and expertise, Ms. Barysch fails to mention possible offsets in favorable land acquisition costs and in royalty structures.  She also fails to bring into consideration what many believe is the critical factor in the shale gas equation, strategic interests and the opportunity for energy security.

Ms. Barysch concludes that the real story should be the effect of shale gas in America.  Shale gas has propelled the U.S. to the top of the producer ranks.  This has helped to create a glut in the Liquefied Natural Gas market; sending the price tumbling and rendering Russia's costly and unreliable exports to Europe still less competitive.

Nick Grealy, aka ‘Gas Guru’ and the author of the excellent blog No Hot Air, provides the most relevant commentary in a comment to the article:

Whether or not European shale gas can compete with LNG is not the real issue. Shale gas can most likely compete with oil linked pipeline gas. Throw in concerns over energy security plus the rather obvious benefits of producing your own gas and having ones own workforce paying taxes and being employed by it and it's hard to see how it could not be competitive. Finally, the real beauty of shale gas is that it is so widely distributed that it is close to markets. Poland is not the only obvious case, but if there is substantial gas in Northern Germany, or Lancashire/Cheshire for example the fact that it is literally on top of millions of end users means that taking away the transportation fees of pipeline and LNG give it a significant advantage.

Read the Original Article Here

Read the Economist Blog  Here