Ascertaining the future of shale gas in the European market is no mean feat. Louise Smyth asks the sector's experts to separate fact from fiction in the debate surrounding shale and to reveal their short- and medium-term plans.
When the CEO of a large oil and gas company goes on record saying "we do not think that shale will play a part in the short- and medium-term in Europe," the scale of the hurdles surrounding shale gas exploration is evident.
While giving his rather controversial recent speech, Helge Lund of Statoil did point out that some of his opinions are at odds with the executives of other major oil and gas producers. However, the reasoning behind Lund's negative outlook is sound logic: he believes that the lack of public and political support for shale gas, coupled with the population density in Europe, will hamper efforts in the near future. And with BP ruling itself out of shale gas drilling in the UK (in February 2014), the Swede is in good company - for that particular market anyway.
Unlike the notable and continuing success of shale in the USA (a region that's far bigger and less well populated than Europe), the story in Europe can thus far be summed up as 'complicated'. Just contrasting two individual countries' approaches illustrates the diversity of the situation. In the UK, 'fracking' has been surrounded by extreme amounts of controversy and drama; but against that backdrop there are government ministers proclaiming that the UK economy could benefit from shale gas to the tune of £33billion. Meanwhile, over in the Netherlands (which has traditionally been a big producer of natural gas), things have effectively been put on the backburner for the time being, as the government won't even decide whether or not to allow drilling until 2015. It's clear that mentioning 'Europe' as if it were all one cohesive market for shale is not particularly helpful, as conditions vary wildly between the countries that comprise Europe. This issue of isolated markets is also emphasised by the fact that the gas pipeline network in the EU is a long way off being complete - in many cases the infrastructure between countries is almost non-existent.
Wading through the geographic and political mire and trying to make sense of the current situation in Europe without scaremongering, is Marcus Pepperell from Shale Gas Europe, a platform run by FTI Consulting for all players in the European market. Pepperell is cautiously optimistic that things are not as bleak as Helge Lund and others may think. "The European Commission estimates that Europe could see the start of commercial drilling as early as 2015 in member states where trials are most advanced. Exact reserves are unknown and further exploration needs to take place. However, current activity is well ahead in the UK, Poland and Romania. In many other parts of Europe, such as the Netherlands and Denmark, the authorities are undertaking extensive studies to estimate shale gas potential."
Indeed, the UK and Poland have gone so far as to join forces in this arena, declaring themselves 'natural allies' and agreeing to produce joint research to detail how "the potential of shale gas can be realised."
Pepperell is all in favour of such research projects. "Until we know the size of any reserves and whether they are commercially viable, we will not be able to determine what this potential will be," he says matter-of-factly.
Yet Pepperell does believe there is a compelling business case evident already. He explains: "Industry is an important part of the European economy but Europe has higher energy prices than in other parts of the world. The recent Commission study on energy costs shows that European gas prices are much higher than in Latin America or continental Asia and more than three times higher than in the USA. This has an impact on the competitiveness of European industry, especially for high-intensive energy industries such as the chemical, paper or metal sectors. It means European business is at a disadvantage when competing in the global market.
"In Germany, for example, the phasing out of nuclear energy and support for renewables, energy taxation and carbon licenses, has led to much higher energy costs than elsewhere in Europe. Other member states, such as Poland and Bulgaria, are very dependent on a single external energy supplier that imposes high costs. Industry in these countries is therefore at a disadvantage. The development of new potential domestic energy sources, for example shale gas in the UK, is also dependent on the creation of a reliable regulatory and enforcement process to achieve policy support."
And it's the politicians that could prove key to improving the situation with regard to energy costs. Pepperell and his colleagues at Shale Gas Europe recently issued a press release calling for political leaders to step up and address the future competitiveness of energy-intensive industries. Pepperell says simply: "Politicians are an important part of the policy-making process and energy policy has a direct impact on energy costs."
Putting the business case and legislative issues to one side for a moment, there still remains one consideration that Helge Lund also highlighted in his speech, which will inevitably play a part in the success - or otherwise - of shale gas; and that's the thorny issue of public support.
Contrary to the hysteria whipped up by the tabloid media, Pepperell reveals that this situation is not as negative as some quarters would have us believe. He says: "A survey by FTI Consulting conducted in April 2014 shows that in the UK, 47% agree that in light of the crisis in Ukraine, the need for the UK to consider fracking for its own gas supplies increases, while only 21% disagree." He adds that, "securing public support is very important. We all need and use energy. It is a key part of our modern way of living and working. Higher energy costs and the need for an affordable, secure and environmentally sustainable energy policy are important policy considerations. But it is imperative that policymakers understand and appreciate the broader context to ensure they make the right decisions for the longer term benefit of the society we live in."
When it comes to the more technical side of things, Shale Gas Europe believes wholeheartedly that technology is not a barrier to success here. In response to the recent UK Queen's speech that outlined a bill that will transform access rights to land where shale gas exists, Pepperell issued a press release stating: "We are only able to consider shale gas as a commercially viable energy source because of important advances in modern technology. Horizontal drilling is an efficient and effective way of sourcing this important fuel whilst minimising any potential impact by reducing the need for surface facilities. Shale gas drilling will be deep underground and far less intrusive than many other energy sources. Utility facilities are far closer to the surface and their facilities can be much larger."
In terms of how things will pan out in coming years, Pepperell believes it is "very likely that shale gas will be a part of Europe's future energy mix" - and that this future is not too far away.
A big-name player that concurs with this is Cuadrilla Resources, which has recently gone one step further and put a - hesitant - starting date on it. The company has stated that by the end of 2015 it is hoping to fuel British homes with shale gas. Despite a backlash of negative publicity in the UK - particularly surrounding its exploration efforts in Sussex - Cuadrilla spokesman Neil Cameron says the firm's own research into public opinion is in line with FTI Consulting's findings. "From the opinion polls we've conducted in Lancashire during the past two years, we've found that most people have open minds when it comes to shale gas exploration. It's crucial that we provide local communities with as much information as possible concerning our plans, so they can make decisions based on facts instead of rumours."
Cameron explains that the potential benefits to these communities are compelling and ought to be more widely disseminated. "We need to continue busting the myths and unhelpful scaremongering about hydraulic fracturing, by working alongside UKOOG, academics and the government. There is now widespread acceptance that the development of a British shale gas industry has the potential to bring significant investment, community benefits and opportunities for local people, as well as the north-west and national economies.
"For example, local communities will receive £100,000 for every exploration well site that is hydraulically fractured in addition to 1% of revenues from future shale gas production. This could equate to over £1 billion over a 20 to 30 year production timescale in Cuadrilla's Bowland Basin licence area alone."
Impact on carbon emissions
Cameron also says that the major selling point - from a business and political point of view - is the example that can be seen in the USA, where the increased use of shale gas has contributed to a significant fall in carbon emissions. And he believes UK politicians are, on the whole, in favour of shale exploration and keen to encourage it. He comments: "For example, a recent report by the cross-party House of Lords Economic Affairs Committee stated the appraisal and development of the UK's shale gas and oil resources is a national priority. We would like to see ongoing political support to streamline the regulations that companies such as Cuadrilla must follow before commencing exploratory work. The UK's regulatory environment for oil and gas exploration and production is highly regarded internationally. However, we agree with the House of Lords Economic Affairs Committee that there is scope for making this system more efficient."
Regardless of this desire to improve the situation in which Cuadrilla operates, Cameron explains that the firm remains extremely active in the shale arena: "We are currently focusing on the Bowland Basin and our license area in Lancashire. In February 2014, we announced our intention to apply for planning permission to drill, hydraulically fracture and test the flow of gas from up to four exploration wells on two sites - one at Preston New Road and the other at Roseacre Wood. Since then we have been focusing our efforts on community engagement as well as preparing an Environmental Impact Assessment for both sites." The Preston New Road planning application has now been submitted and the Roseacre one was due to be submitted at time of press.
Despite Cuadrilla's optimism, the likes of Helge Lund at Statoil remain unconvinced that any real progress will occur, at least not in the short-term. Lund's spokesman, Morten Eek, suggests that Europe is lagging well behind other markets. "Although the European shale resources are large, the preconditions are not as supportive as in the USA, implying that shale gas development in Europe will take more time and that production costs will be higher." Eek believes that "the US shale gas revolution (in which Satoil played a key role) is unlikely to be replicated in the same manner in Europe." He adds: "However, in our opinion, Europe has a clear incentive to develop indigenous shale resources. It could provide the basis to create jobs and strengthen competitiveness. Also, in a carbon-constrained world, European shale gas can cater for the increased use of natural gas, replacing coal in power generation. In the USA this has contributed to reducing CO2 emissions."
Eek concludes by agreeing that - as detailed above - it's not really useful to consider 'Europe' as one cohesive market. "We believe that shale gas will be developed in Europe, but also that the development will greatly vary from country to country. This is exemplified by the French ban on hydraulic fracturing and the UK and Polish governments' active support of it."
UK's biggest shale gas explorer created
In May 2014 IGas acquired its rival Dart Energy to create the UK's largest shale gas explorer. The deal was worth almost £120m and the combined portfolio covers 1 million acres of potential fracking land.
Commenting on the deal, Andrew Austin, IGas's chief executive said: "The transaction further strengthens our position financially and operationally, and also significantly increases our licensed acreage as we seek to unlock the untapped energy resource that exists in Britain."
John McGoldrick from Dart said he thought the deal would enable Dart shareholders "to participate in the long-term value creation potential of the UK shale industry, which we consider will be one of the defining energy market stories of this century."
Both players are going into the venture with their eyes wide open - and one of them at least is well versed in the controversy surrounding shale gas exploration in the UK. IGas was at the centre of protests at its Barton Moss drilling site near Manchester. Such experience ought to stand the new venture in good stead as the political issues surrounding shale are not going anywhere fast.
IGas produces around 3,000 barrels of oil and gas a day from 110 sites in the UK while Dart holds licences to produce gas from coal seams in Scotland.
The new business will also harness the power of two joint venture partners in Total and GDF of France. The overall venture will be far larger than Cuadrilla Resources, which has been the most well known name in the UK market thus far.