If Europe develops its shale gas resources, it will likely take its sweet time about it, according to a new report from Ernst and Young Global Ltd.
"The impact of shale gas is unlikely to be transformational for the European energy market as a whole, but it could prove to be significant for individual countries by helping reduce their dependence on imports," the major accounting firm said in a recent report on European shale.
As opposed to the "revolution" that has upended North American markets in recent years, Europe will likely experience an "evolution" slowed by uncertain geology, limited infrastructure, competing supply sources, public skepticism about the safety of shale and regulatory standards.
Europe holds 10% of the global shale gas reserves, according to U.S. Energy Information Administration estimates based on limited exploration to date, but attitudes about the resource vary across the continent (see Shale Daily, April 7). Poland, thought to hold the largest reserves, is moving ahead on pilot projects, while France, most likely a close second, recently banned hydraulic fracturing technology (see Shale Daily, Nov. 7).
Although Europe is not producing from shale yet, at least 16 countries are believed to hold reserves, and exploration is currently under way in Austria, England, Germany, Hungary, Ireland, Poland and Sweden.
Because regional geology is so central to development, that work cannot easily piggyback on North American efforts, meaning "a step change in exploration and appraisal drilling activity will be required to gain a better understanding of the resource potential in Europe," the report said.
Without that understanding, European shale could be twice as expensive to produce as U.S. shale, according to the International Energy Agency, but "even with the higher development costs, the relatively higher gas prices that can be realized in Europe mean that shale gas projects in Europe could still be economical," according to Ernst and Young.
That price gap comes largely from the oil-indexed pricing prevalent across the continent and with most supplies coming from those contracts, "any fall in gas prices resulting from the build-up of shale gas production in Europe would not be as dramatic as in the U.S.," the report predicted.
On the other hand, because some of the liquified natural gas shipments being diverted to Europe from gas-rich North America are trading below oil-indexed contracts, "the installation of additional LNG import capacity in Europe could reduce the need for significant volumes of additional gas from shale deposits in many countries," the report concluded.
As a major supplier of pipeline gas to Europe, "Russia stands to be particularly challenged by the shale gas boom," the report concluded, and Russian gas giant OAO Gazprom has been sowing skepticism about the environmental and economic viability of shale (see Shale Daily, Dec. 1).
Although shale could beat coal on emissions, "the reduction would not be sufficient on its own to meet the region's long-term emissions targets," the report said. But "the uncertainty over the future of nuclear energy, coupled with cost and investment issues with renewables, could lead to a situation where gas becomes the primary energy source in Europe in the next 20 years, rather than being a transition fuel to a low-carbon economy."
Perhaps the largest obstacle in Europe, as in the U.S., is public acceptance, according to the report. In addition to the subsurface environmental concerns common here, Europe could face surface challenges as operators attempt to find space to work in the densely populated continent.
"Governments need to promote public confidence in the regulation of shale gas activity, and operators need to demonstrate that their operation are properly managed and sustainable," the report concluded.
The idea that European shale could impact individual countries more than the region as a whole is evident in the variety of public opinions.
While some Bulgarians are currently protesting shale permits, a survey from the Polish Center for Public Opinion Research found that 74% of Poles supported shale exploration in their country (although respondents showed considerably less support for exploration near residential areas, and notable concerns about the environmental and healthy safety of shale).
"The European public will be waiting for the results of U.S. studies on the environmental impact of shale gas production to emerge before fully accepting its development in their own countries," the report found.
While much energy regulation in Europe is handled at the national level, the European Commission is currently studying whether existing European Unionenvironmental regulations might apply to shale.
The report suggests some companies may prefer pan-European regulations to ease cross-border development, but note that unanimity is likely impossible. "To get agreement on common standards, they may have to be watered down to such an extent that makes them less stringent than those already in place in some individual member states," the report concluded.
Those cross-border differences could also challenge the infrastructure buildout required for Europe to develop its shale, as different countries have different safety standards and regulatory standards for equipment.
But the long lead time expected for shale to reach commercial production, a decade by some counts, could give the service industry breathing room.