Unconventional Gas in Germany: No Game Changer

The German Advisory Council on Environment, an independent, scientific, multidisciplinary advisory council to the German Federal government, consisting of university professors who provide judgments and advice on policy issues, recently offered their assessment of unconventional gas.

The Advisory Council's Secretary General, Dr. Christian Hey, spoke to Natural Gas Europe about where the organization stands regarding unconventional gas, why it has reservations about hydraulic fracturing and its conclusion that exploration and production in Germany would likely not have any big effects on the price of natural gas.

Dr. Hey, how difficult is it to separate the facts from fiction when assessing unconventional gas? On the one hand, industry can be very dismissive of the environmental concerns; on the other, sometimes the risks seem to be blown out of proportion by activists.

Regarding the technologies used, we don't claim that we know the truth, but some of the pictures that we get in Europe from the EU are one sided. I think that's the difference.

And then one can look into a few facts, like why the price of natural gas has gone down in the US so much as it has in recent years. Is this a phenomenon which will continue, or is their indirect evidence that this might be some sort of gas bubble? We should consider at least the possibility that the bubble is a transitory phenomenon. We know that the gas price in the US is below the costs of extraction, so the industry is generating losses – more than $9 billion according to a recent report, so it's evident there will be some kind of market shake out in the forthcoming period and this will increase gas prices.

Then, we looked into the scenarios of the International Energy Agency (IEA), which has two for the US: one is an optimistic one, which we all hear, and the other one is more skeptical, saying 'okay, what might be happening is the decrease of conventional gas is being compensated by shale gas, so there's no boom, they're simply substituting one source in decline with another, which is growing.'

We know there's an ongoing debate on environmental legislation in the US with a report from the US Environmental Protection Agency (EPA) which will certainly show that the degree of the quality of environmental legislation, at least at the federal level, is insufficient. We know that in 2005 the administration of US President George W. Bush considerably reduced environmental requirements specifically for shale gas exploration, so there are a number of factors which indicate that this boom story could end in the coming years.

Then we have a European debate on the reindustrialization of the US. The conventional wisdom is reindustrialization is simply because of low energy prices due to shale gas, but when you look at the figures, gas is only part of the overall energy mix in the US; shale gas is only a part of the natural gas mix. Energy costs for most industries in the US are a lot higher than for Europe, meaning they are below 2% of the overall costs. How can you explain the reindustrialization of a country like the US on the basis of those figures? There may be other factors which explain the reindustrialization of the US much better than lower energy prices.

When was the Council asked to weigh in on shale gas?

We've been asked to look at it by the Environmental Ministry to look at the issue in November 2012, so we've had 6 months of preparation for the report.

Shale gas, as such, is a new issue for my Council.

What sorts of things have you been taking into consideration in this assessment?

In principle, available literature, but you can't be complete – we have been looking at whatever we could get hold of.

We see that in Europe, both the advocates of hydraulic fracturing and the critiques make reference to development in the US and we decided to have a closer look into the developments and check if the claims are accurate and if what we hear on the other side of the ocean is convincing.

We found a tendency of one-sided reporting as regards shale gas from the US to Europe: the good news is always eagerly reported, but the more skeptical views, uncertainties are not well communicated, and we thought it important to have a broader picture, including the uncertainties.

Do you think the Council can give a fair assessment of unconventional gas without a geologist or geophysicist in your group?

There is a fundamental difference between a Council and an expert study. A Council of 7 members cannot not have the specialized experts on all environmental issues within the Council. The expertise of the Council is the method of collecting and discussing the available evidence (or lack of) and of making comprehensive and integrated judgments from different perspectives and disciplines. Furthermore, the Council regularly invite experts in their respective fields to provide evidence.

How have your group's findings on shale gas been received in the German media?

In my opinion it was really impressive. A number of major newspapers put this on page one, like Suddeutsche Zeitung, and we got coverage in a number of regional papers and in TV news. We also got coverage on half a dozen radio stations. The reaction was quite impressive and much stronger than I expected.

In a green country like Germany, do you think the press are cheerleading against shale gas?

I think the mood is turning strongly against fracking; supporters are more and more isolated, which is the overall tone of the press.
European policy makers appear to be starting to entertain the prospect of developing unconventional gas. What's your impression?

The European scene is totally split: there are a number of countries who seem to be quite enthusiastic, like Poland or the UK, but Poland is presently facing a reality check in that regional figures have been downscaled, basically by a factor of 100, and big investors have withdrawn, so some of the enthusiasm is fading. Nonetheless, Poland is very favorable towards the industry.

On the other side, France is a totally skeptical country. The UK has switched from a critical position to a more favorable one. Germany is still very uncertain – most think shale gas has no big future in Germany, so the picture is quite mixed, even though we know that the EC is making plans for developing a legal framework for shale gas exploration in Europe.

There are already a few environmental directives which should be applied, but are not being properly applied. For instance, the environmental impact assessment directive, which is not being properly applied in Germany as regards shale gas.

So there are a number of legal issues and they come on the agenda in the forthcoming months. In total I would say the reserves - Europe's potential - are not big enough for it to be considered a game changer. It's totally different compared to the US, where it was a game changer. Europe remains energy poor. Even though there are some shale gas reserves in Europe, it is the economic region which is most dependent on fossil fuel imports, therefore the decision is different than for other regions – it's of key interest to substitute fossil fuel imports as much as possible via other sources of energy. The best source is saving and the second best is renewables, so perhaps this explains the European agenda on climate change, renewables and efficiency we developed in 2008 and is being revised in the next 2 years.

There's been, of course, a lot in the press about Germany burning a lot of coal as a result of the coal stocks hitting European shores as a result of the shale gas revolution. If hydraulic fracturing were deemed okay, might it not be better to burn such natural gas instead of coal?

We don't believe that domestic shale gas will change gas prices; it will not change the merit order between coal and gas. We would be happy to have less coal and more gas in Germany's energy mix – that's clear, because using gas powered electricity production is much more flexible and much more compatible with the renewable energy grid than coal is, so in theory it would be nice to have cheaper gas in the transition.

We are not optimistic that domestic sources will make a change because the quantity is not enough. If one is assuming strict environmental standards and zones of exclusion for fracking – all regions where you might potentially draw drinking water – these regions should be excluded, at least this is the consensus of most political parties: this is a minimal condition. So if these are excluded, that's quite a bit of territory and if you add all the other areas excluded from fracking, the potential in a very densely populated and intensively used landscape situation in Germany is certainly different from the US. So basically the potential is low, therefore it will not effect prices and won't be critical – in a positive or negative sense – for the energy mix.

If it can be shown that fracking is safe, there's no argument to not applying the technology, but we've suggested we need a longer time until we know all the risks and know how to prevent and avoid them.

What we suggest before starting to make large-scale commercial use of the technology, pilot projects should be developed and an assessment of results to have sound evidence based on the safety of the technology. In our view this does not yet exist.

What sorts of things do you envision would be monitored?

As the state of technology is quite high in Germany, under normal circumstances the risk can be well managed. The interesting question is what's happening under abnormal circumstances? What happens if there's an accident: Earthquakes or other seismic events? What happens if there are other pathways from earlier explorations? What kind of technology do we have for long-term monitoring/modeling?

Maybe in the short run little will happen, but what about in 10, 50 or 100 years? We know too little and have no robust modeling as regards the longer term.

There's this whole question of the flowback: How do we treat it? How do we dispose of it safely? There are few good ideas about what to do with it, what the risks are and whether or not there are treating technologies to clean it up.

And finally we need sound information: Does the impact of fracking differ from geological and regional formation to formation? We need a multi-shaded picture according to different situations and formations, therefore we suggest some kind of survey throughout Germany to know what the subsurface looks like and what has been done in earlier decades as regards other mining activities – a database.

If they tell us it's safe, then we formulate conditions which ensure that safety is maintained and we might have at least as low problems in principle against using this technology.

What's your gut feeling about whether or not exploration will take place in Germany?

It's a difficult question. We are prior to elections and at a local level members of parliament fear the fracking debate, so there's a lot of fear regarding pumping a toxic cocktail underground and most politicians are unable to defend the technology against popular skepticism.

Under that condition it's certainly risky for any mining company to start with major investments. So I have the feeling it will take at least a few years to come before this is of major commercial interest for companies because there's nobody there who can defend their actions.

They're in quite a difficult situation. Even though they practically have the law on their side it will be an extremely risky enterprise.