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 (see NGI, April 11). Poland, thought to hold the largest reserves, is moving ahead on pilot projects, while France, most likely a close second, recently banned hydraulic fracturing. 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 a better geologic 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 primarily 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.

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.

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