The board of directors of Russian natural gas giant OAO Gazprom sounded another blast on its shale gas alarm last Tuesday, questioning the environmental and economic viability of the process that is overhauling North American markets and promising to do the same in Europe.
“The production of shale gas is associated with significant environmental risks, in particular, the hazard of land surface and underground water contamination with chemicals applied in the production process,” the board said in a statement, noting a French ban on shale development, and moratoria in Germany and South Africa and in New York and New Jersey.
Although environmental in content, the statement continues Gazprom’s economic skepticism of shale. Pointing out that development is focused in North America, the board said land ownership, water rights, population density and equipment shortages could challenge European shale.
The world’s largest natural gas producer formed Gazprom Marketing & Trading USA (GM&T) in late 2009 to compete for North American LNG imports, aiming to supply 10% of the market by 2020, but shale upended that goal (see NGI, June 15, 2009). “Shale gas is everywhere; there are gigantic reserves wherever there is conventional gas,” John Hattenberger, president of GM&T said at a conference in early November (see NGI, Nov. 14). “But will we see the same kind of impact elsewhere as in the United States? I don’t know but I think the answer is no,” because of environmental concerns, political pressure and a lack of infrastructure.
But even that weak endorsement is limited.
Alexander Medvedev, deputy chairman of the Gazprom Management Committee, told Gazprom Magazine in April 2011 that U.S. shale production would ease because operators weren’t recovering their costs.
“This can’t last forever and matching of supply and demand in the U.S. gas market is inevitable,” he said. “Then the gas price will get back to normal, [and] that will make the U.S. market appealing to the LNG imports again. That’s why we consider the present situation temporal. With its present prices the U.S. market is not interesting, but things will change soon.”
The march of shale is approaching Gazprom’s home turf. Western Europe gets nearly a quarter of its gas supplies from Russia, something that could change if shale pilot projects in Poland and Ukraine pan out. Gazprom doesn’t believe they will, but the European Union is already pressuring Russia to abandon long-term oil-backed contracts, which Gazprom argues reflect the true cost of production, in favor of the spot market.
The shale revolution is not a foregone conclusion in Europe. By one account, it could take 10 years for Europe to realistically measure its resources (see NGI, July 18).
Russian gas exports to all countries declined by 19% from nearly 8.6 Tcf in 2008 to 6.9 Tcf in 2010, while European gas imports from all countries increased 5% from 16.2 Tcf in 2008 to 16.9 Tcf in 2010, according to Energy Information Administration data.
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