INSIGHT: On a fact finding mission for shale in Europe

25 April 2012 17:21  [Source: ICIS news]

By Nigel Davis

A Cuadrilla drilling rig in Lancashire, UKLONDON (ICIS)--Europe’s chemical trade groups sit on the sidelines of the great fracking debate, supporting the potential availability of new sources of methane, cheaper energy and petrochemical feedstocks it brings, but acknowledging environmental concerns.

Opposition to fracking is widespread and seemingly growing in some parts of the world. In Europe, on a country-by-country basis, opposition appears strongest in France, and surprisingly perhaps in Bulgaria and Romania. It is mounting in the UK but not so obvious in Poland.

A report into earthquakes associated with fracking in the northwest of the UK, released on 17 April, suggested that such tremors are acceptable. The fracking process has been linked to minor earthquakes in some geological formations. Other environmental impacts include possible groundwater contamination; the volume of water used in the fracking process; fracking chemicals; and the presence of large volumes of contaminated water at the well head following the fracking process itself.

The wider debate concerns the climate warming potential of burning more methane to produce electricity and the potential displacement of investment in renewables. Some studies have suggested that the exploitation of shale gas might be more damaging to the environment than the exploitation of coal; some the opposite. In a lengthy report in the UK’s Financial Times this week, it has been suggested that investors are already moving away from renewables towards gas.

So which way is the tide flowing? The UK’s department of Energy and Climate Change (DECC) has put out to consultation a suggestion that a traffic light system be adopted by drilling companies to monitor gas drilling and seismic activity.

The UK government has not come out against fracking, although the rate at which new drilling activity might be licensed remains to be seen.

A NIMBY (not in my back yard) attitude in a densely populated country could severely hamper shale gas development and the exploitation of this acknowledged valuable energy and feedstock source.

“Shale developments offer the UK an opportunity to exploit a relatively clean resource and fill the energy gap that is opening up once again as nuclear projects come under threat,” Jim Pearce, a partner with management consultants A T Kearney, said last week.

“If the UK is going to use gas we should look for the best available source, which is arguably shale gas. Moreover, shale developments may also provide the UK’s chemical industry with a much needed boost if ethane and other NGLs (natural gas liquids) are also found.”

The shale gas debate in Europe revolves very much around energy security as well as competitiveness and the environment. Experts believe that the arguments, currently, are finely balanced.

For its part, the European chemical trade group, Cefic, is waiting for a lead from Europe’s oil and gas manufacturers before it heralds shale gas too loudly. The UK’s Chemical Industries Association (CIA), currently, is very much following the Cefic approach.

The situation contrasts sharply with that in the US where trade groups have welcomed increased shale gas and shale gas liquids production with abandon and talked widely about a manufacturing renaissance driven by ready natural gas and NGLs availability.

In what it called a “readiness statement” issued in January, Cefic said that shale gas would make a valuable contribution to energy security in Europe and offer lower energy costs. It said shale gas would help the transition to a low carbon economy.

“The challenge, it added, “is to ensure the safe production of shale gas – optimising the benefits while minimising the risk to the environment”.

Shale gas will be developed in Europe at different rates depending on national attitudes and politics. But the benefit to European consumers and industry will also be constrained by costs.

Poland’s geological institute, for instance, has suggested that the cost of drilling a shale gas well in the country is $10-15m (€7.6m-11.4m) compared with $3-10m in the US.

Given different geologies and, possibly, a more stringent environmental protection regime, shale gas exploitation in Poland will not work to drive domestic gas and NGLs prices down as far as they have in the US.

Europe today is in fact-finding mode as regards shale.

The EU executive branch, the European Commission, is expected to issue as many as five separate reports on fracking over the next few months.

Europe will learn from the experience of others but shale gas exploitation will not proceed as fast and possibly not as far as in the US.

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By: Nigel Davis
+44 20 8652 3214

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