Shale’s slow but certain death

Why the fracking bonanza isn’t hitting Europe.

It’s a scene that has become synonymous with a movement that has spread across the world, from California, to Sussex, to Bulgaria, to Algeria, to Queensland. A Colorado man turns on his kitchen tap and strikes a match, lighting a quick and angry flame. “Whoa, Jesus Christ,” he proclaims, jumping back.

The Gasland film came out in the U.S. in 2010, when terms such as “shale” and “fracking” were still relatively obscure in Europe, and the industry was only just beginning to wonder whether the American shale revolution could be replicated across the Atlantic.

The documentary, and that specific scene, have since drawn severe criticism for their accuracy. Still, they helped spark a loud and well-organized protest that swiftly swayed policies against the drilling technique known as hydraulic fracturing before companies could even begin to test the grounds.

Some of the industry’s biggest players began picking up shale exploration licenses in 2010. Their bets were reassured by U.S. Energy Information Administration’s (EIA’s) landmark assessment of shale resources in 2011, which said Europe could have up to 18 trillion cubic meters of technically recoverable shale, well above its 5 tcm of proven conventional gas. The biggest chunks were in Poland, with 29 percent, and France, with 28 percent.

But since then, the prospects for appraising those reserves, let alone developing them, have grown slim and once high expectations slashed. There were even setbacks last month in the bloc’s remaining two outposts: Poland, where ConocoPhillips became the last international company to leave, and the U.K., where a local county council blocked a project despite Westminster’s backing.

“The fracking bonanza isn’t hitting Europe,” said Karl Falkenberg, head of the European Commission’s environment department last month in Brussels. “What was expected as a bonanza, is still being pursued here and there…In the vast majority of Europe and industry, if anything there’s a lot more realism, if not disillusionment with expected bonanza of three years ago.”

Here’s a look at seven things that went wrong for European shale.

The American campaign … and Russian?

The American anti-fracking campaign gained momentum once drilling spread from traditional fossil fuel producing areas (such as Texas) to New York, Pennsylvania and California — places with well-established environmental movements and larger urban areas, said Jonathan Wood, a global risk analyst at Control Risks, who has looked at the global anti-fracking movement.

“Gasland” helped to unite the campaign under one pithy message, which quickly crossed over into Europe in 2010 and 2011. “When the European anti-fracking movements were really getting going, much of their outreach was built around screenings of “Gasland” in France, in Poland, in the north of England, to introduce local communities to the issue and this particular viewpoint,” Wood said.

Then there are suggestions that Russia entered the fray. “I have met allies who can report that Russia, as part of their sophisticated information and disinformation operations, engages actively with so-called non-governmental organizations, environmental organizations working against shale gas, obviously to maintain European dependence on imported Russia gas,” NATO’s former Secretary General Anders Fogh Rasmussen said at Chatham House in June 2014, just before his term ended.

Others counter that it’s too simplistic to say “Gasland” or Russia were instrumental in instigating the fears of fracking, because much of the opposition was born out of local concerns about jobs, noise, water pollution and earthquakes, among other issues.

 

Local concerns

This feeling is echoed by Antoine Simon of Friends of the Earth Europe, who said it was the “different perspectives between central and local authorities” across Europe that has helped mobilize local opposition and slowed the industry’s development.

Last month’s decision in Lancashire County, northwest England, is a case in point, Simon said. National authorities focused on the potential energy and economic benefits, but not the environmental effects.

“It’s the local communities that will have to deal with the local consequences, and so they have much more doubt about fracking,” Simon said. “Politically, [the central governments] cannot move because they don’t have the support of the local authorities.”

The political factor

Regulatory uncertainty has also played its part in slowing shale gas prospects, according to Alessandro Torello of the International Association of Oil & Gas Producers.

No one country across the bloc has the same legislation, Simon said, adding that the European Commission’s recommendations to manage potential environmental risks associated with fracking aren’t binding and open the door to various interpretations at national level.

Bulgaria and France outright banned fracking in 2012 and 2013, while Germany is mulling rules that would set tough environmental standards.

But regulatory certainty in the end isn’t a make or break factor. “In Poland the rules were very burdensome and unhelpful, so certainly regulations matter, but then they tried to resolve it and that obviously wasn’t enough,” said an industry source.

Muddy waters

“In the end of the day, if you don’t have the geology [you leave]; as for the rules, you talk to the government, you find a way but most importantly, it’s the geology,” the source said.

Not all shale rocks are the same, and what little drilling has been done in Europe has found much less attractive geology. Conoco, Chevron and Eni all abandoned their exploration licenses in Poland after failing to find commercial amounts of gas.

European shale plays tend to be deeper, more clay-rich and muddier than U.S. ones, making it harder and more expensive to drill, said Tom Richards, from the intelligence group Drillinginfo.

The EIA also had to revise its overly-optimistic 2011 data in 2013, reducing its technically recoverable shale estimate for Poland from 5 to 4 tcm, and Norway’s from 2.3 tcm to zero.

Unappealing costs

The economies of scale have yet to take effect in Europe. In the U.S., drilling costs $3-10 million per well, according to Drillinginfo. In Poland, the government has put the cost of the 70 wells drilled so far at roughly $15 million (€13.6 million) each, although there are estimates that it could go high as $50 million.

Conoco’s costs fell in the middle, at around €28 million per well, according to Decock. That’s more than double the €13 million the Commission’s energy department (DG Energy) estimated in 2012.

This means shale producers would need an even higher gas price to justify their investment, Decock said. DG Energy put the break-even price at €74.79 per megawatt hour in 2012, which was already significantly higher than the €20-30/MWh average in Europe in 2014, he added.

While energy prices are low, there won’t be much pressure for major companies to look into exploring shale gas in Europe. “Many companies tend to give priority to other regions of the world,” said Torello.

And lacking rewards

The U.S. shale revolution has given rise to ‘shale-ionaires,’ or landowners who earned big from shale royalties. But in most European countries, everything below ground belongs to state or crown, giving landowners less reason to allow a drilling rig onto the parts they own.

“That obviously makes you less prone to accepting different kinds of activities on your land. That creates opposition; then there was a lot of misinformation on security practices fuelled by organizations that want to walk away from fossil fuels,” said an industry source. “And maybe industry wasn’t good enough at explaining benefits.

Simply not a priority

In short, shale gas isn’t a priority for Europe’s industry or Brussels. “From an EU perspective, fighting for cheap energy is not really the way Europe is going to regain or maintain competitiveness,” Falkenberg said.

This is echoed by industry. “Talking about shale gas in Europe is a bit of a waste of time,” one of the industry sources said, adding “we shouldn’t concentrate all our efforts on that when there’s so much that can be done to improve the competitiveness of gas in Europe by completing the internal markets.”

Click Here: cheap sydney roosters jersey