To Frack or Not to Frack, that is the Question

The EU 2020 vision for Europe to grow out of the economic crisis is built in large part on a revolution in the EU’s approach to energy, described by the European Commission as “the life blood of our society”. Developing a fully-integrated, secure and low-carbon internal energy market is now a mainstream objective of EU policy.

To help this process, at the end of 2011 the European Commission will adopt an Energy Roadmap setting-out different scenarios for the path forward for Europe to build low-carbon, secure and competitive energy systems up to 2050. Given that almost 80% of the EU’s greenhouse gas emissions are energy-related, effective decarbonisation of Europe’s energy systems will be necessary to deliver the objective of reducing overall greenhouse gas emissions by 80-95% by 2050 (compared to 1990 levels).

The pressure to get this right is considerable. Europe’s ability to meet the 2050 climate and energy targets will in large part depend on the policies and investment decisions of the next 5-10 years. The Commission’s own projections show that current energy policies – which stretch only to 2020 – will deliver barely half of the 2050 target.

Earlier this year the International Energy Agency (IEA) posed the question as to whether we are entering a “Golden Age of Gas”. This question is particularly relevant to Europe. Gas, as the lowest-emission fossil fuel, is certainly well-placed to be the short-term beneficiary of climate change mitigation policies. However the longer-term outlook to 2050 is more uncertain. Supply disruptions, dwindling domestic gas production and an increasing reliance on imports – the Commission has identified that under a business-as-usual scenario Europe’s import dependency for gas will rise to 73-79% of consumption by 2020 and to 81-89% by 2030 – have up to now conspired to create lukewarm political support for gas, and thus one of the main focuses of EU policy is on supply diversification in order to secure its energy supply.

Large-scale exploitation of unconventional gas resources such as shale gas in the US has had a dramatic impact on global energy markets, and there is strong interest in understanding its potential to play a similarly transformational role in Europe.

Poland is the Member State which has granted the most exploration licenses. Further explorations have been undertaken or are ongoing in Germany, Sweden and the United Kingdom, where shale gas resources have been found to be significantly larger than previously thought. And Spain has recently also revealed the existence of a gas reservoir capable of covering Spanish gas demand for five years.

Shale gas exploration has proven highly-controversial, and Member States have very different positions on the issue. While France has imposed a moratorium, Germany is divided and Poland is enthusiastically pressing ahead. Indeed Poland, the current EU President, has called for shale gas to be designated a “common European project” to be prioritised under the EU’s energy infrastructure development programme.

The European Commission has avoided taking a firm position on shale gas. However it has commissioned a legal study to assess the appropriateness of the existing EU legal framework for unconventional gas. The study, originally due in October 2011 but still not published, looks at experiences in four Member States (Poland, France, Germany and Sweden). The Commission has also instructed the European Chemicals Agency (ECHA) to identify which registered substances (under the REACH Regulation) are used in shale gas exploration. And DG Climate Action has recently launched a call for tender to conduct a study “Climate Impact of Potential Shale Gas Production in the EU”. The overall objective of this study, to be carried out in 2012, is to provide state of the art information to the Commission on climate implications of possible future shale gas production in Europe.

A number of MEPs – including Environment, Public Health and Food Safety (ENVI) Committee Chair Jo Leinen – have called for EU measures to restrict or even ban shale gas exploration. Both the ENVI and Industry, Research and Energy (ITRE) Committees will draft own-initiative reports on shale gas. It can be expected that they will quite differ. The ITRE Committee will look at all sorts of aspects of shale gas, presumably taking a more balanced view towards shale gas exploration, based on facts and figures.

And is that not exactly what Europe needs: An unprejudiced analysis of its resources, imported and indigenous ones, and their benefits? Shale gas cannot be ignored any longer. A scientific study commissioned by Polish think tank the Kosciuszko Institute comes to the conclusion that even if European shale gas exploration and production costs are 50% higher than in the US, gas prices may still be lower than with Russian gas, which currently accounts for a quarter of the EU’s supplies.

The decision whether to frack or not to frack should be made based on an objective assessment against certain criteria. Will it lead to decreased dependence on external energy suppliers? Will it lead to new markets, promoting competition and creating jobs? Will it help the EU to reach its low-carbon energy objectives?

Provided these questions can be answered positively on the basis of sound cost-benefit analysis and on the basis of environmentally-sound exploitation, and provided a single internal gas market will be finally completed, shale gas could become a significant alternative to Russian gas supplies in Europe.

Kerstin Duhme is Managing Director at FTI Consulting Brussels and heads the public affairs practice