Western Europe – Uncertain future
Greater competition, high production costs and low margins are curbing the appetite for investment shale gas production start-ups.
Compared to the United States and Australia (discussed in the next section), the regulatory regime in Europe is relatively undeveloped. Companies are forced to work without a predictable regulatory framework, and, even within the EU, there is no universal approach. Access to exploration permits and development licenses is uncertain, creating significant regulatory risks.
As reserves in France, Scandinavia and elsewhere in Western Europe tend to be close to populated areas and as European environmental laws tend to be quite strict, the potential for significant shale gas development there in the near future seems unlikely. Even though shale gas production is largely undeveloped, the US environmental debate has crossed over to Europe, and environmental groups have been publicizing concerns over the chemicals used in fracking techniques.
Environmental concerns aside, European countries also lack skilled resources and the infrastructure, creating questions over the long-term economic viability of shale gas ventures. While there is a hope that technological innovations could bring down the costs of shale gas production, this is not likely to happen in the short term.
In the United Kingdom, shale gas production has commenced however based on estimates of the UK’s onshore shale gas resources, there will not be a “shale gas revolution” in the UK based on domestic resources alone – nevertheless, developing shale gas reserves could make the country more self-sufficient by reducing its reliance on imported natural gas.
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Eastern Europe – Hedging bets
In eastern Europe, Poland’s shale gas development potential is high on radar screens, while Turkey and the Ukraine have some potential. Russia’s dominance of the conventional gas production could present obstacles for companies seeking to develop shale gas production capacity in the region. Ultimately, the future of shale gas production in Europe rests on whether US producers decide to develop their potential to export liquefied natural gas to European markets. Perhaps more than any other European country, Poland has sizable shale gas reserves that it is actively seeking to exploit.
Shale gas poses a significant threat to Russian interests in conventional gas production, and Russian politicians have become quite vocal in European debates over shale gas production’s environmental safety. Further, nearly 25 percent of the natural gas flowing into Europe via Ukraine is transported by Gazprom, the Russian national gas transmission company. In the past, Europe has often been held hostage to decreased gas supplies due to contract disputes between Russia and Ukraine.
Perhaps more than any other European country, Poland has sizable shale gas reserves that it is actively seeking to exploit. Seeking to diminish the country’s reliance on Russian imports, private companies in Poland are working to develop the industry in cooperation with scientists, private research and development, state labs and geological services and regulators. If Poland, Hungary, and other countries are able to develop commercial shale gas production capabilities, Russia’s influence on Europe could diminish.
In Russia itself, investors in the oil and gas industry are divided about shale gas’ long-term potential. Some Russian players do not think the opportunity for shale gas is significant, especially given the current price of natural gas. Other players are hedging their bets. Russia’s national oil and gas company, for example, has entered a strategic partnership agreement with Exxon that refers to the transfer of shale gas-related technological know-how and experience, an indication that Russia’s state oil producer is at least aware of shale gas’s future potential.
Potential eastern European investors in shale gas production are holding their cards in anticipation of US shale gas industry developments. Potential eastern European investors in shale gas production are holding their cards in anticipation of US shale gas industry developments. If US companies decide to produce shale gas for domestic use only, then the boom in US shale gas production will have little effect in Europe. But in the more likely scenario that US players decide to invest in the conversion and transportation facilities they need to enter the European natural gas market, Europe’s current reliance on supplies from Canada and Russia will diminish. In that event, Russia will likely turn its attention to serving the growing Asian markets.
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