Europe will never beat US shale gas price, but vital for growth: Bock

04 October 2013 14:47  [Source: ICIS news]

By Tom Brown

MUNICH (ICIS)--Europe will never equal the cost lows of shale-derived gas seen in North America, but testing and development of the continent’s nascent shale sector is vital to mitigating the impact of high energy costs on the European chemicals industry, BASF CEO and European Chemical Industry Council (Cefic) president Kurt Bock said on Friday.

“We will never be able to achieve the shale gas price of North America, that would be completely unrealistic, but we don’t need to burden our industry with additional costs that are not necessary,” Bock said at Cefic’s general assembly in Munich, Germany.

“We see shale gas as an opportunity. There are many countries in Europe that have shale gas, our experience tells us that as soon as we start drilling you find even more,” he added.

According to Bock, the key step for European policymakers to take is to allow hydraulic fracturing, or “fracking”, to be tested in Europe, and for companies to be allowed to prove the potential viability of shale gas as an energy source on the continent.

“What it will take is the testing,” he said. “We have done vertical fracking for many decades in Germany without any environmental issue, so I don’t see a reason why horizontal fracking should be a fundamentally different story.

“The issues are the same: water, chemicals [and] land use. All of these issues at the end of the day can be resolved,” he added.

The development of a shale gas industry in North America has had a seismic effect on the region’s competitiveness, with the cost of natural gas in the US falling from an average wellhead price of nearly $11 per thousand cubic feet in July 2008 to around $3 in late 2012.

However, analysts have raised concerns over Europe’s capacity to replicate that success, citing population density, environmental concerns, local and political opposition as stumbling blocks for the sector.

Land rights have also been raised as an issue, as US citizens stand to benefit from mineral deposits found on their land, a situation that does not apply in many European countries.

The UK, which has displayed keen governmental appetite for shale, has seen many test wells beset by protests since exploration was allowed to resume in December 2012.

Bock dismissed concerns over the property rights issue, saying oil and gas extraction has proved possible in Europe without the US model of ownership.

“We have had oil and gas production in Europe for many decades, even under the current system of property rights, so I don’t think that is a reason not to be optimistic about it,” he said.

He added that energy accounted for over half of operating costs for some chemicals companies in Europe, and that these costs are proving difficult for producers to pass on as a result of lower-cost competitors.

The situation risks a vicious cycle where high prices lead to reduced competitiveness and falling investment levels, Bock said.

By: Tom Brown
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