If Shale Gas Were Dangerous

In his speech at The European Unconventional Gas Summit in Krakow, Poland, Frank Umbach, Associate Director for the European Centre for Energy and Resource Security (Eucers) said he was one of the authors of a report published last spring, entitled Strategic Perspectives of Unconventional Gas. 

“We looked at some of the wider geopolitical aspects as well as some of the environmental risks and concerned. These are overstated,” he explained. “If you really put forward arguments against shale gas in Europe, you also need to give up conventional gas and oil.”

Umbach noted how different Europe’s stance was regarding the development of the new energy source. “In the US as well as in Asia they take it up as the beginning of a very positive debate and take up potential problems later; in Europe if there’s something new and strange we don’t take it on.”

“I think this is something that’s very typical, that there’s a lack of strategic planning.” 

In that context, Mr. Umbach’s talk was entitled “Unconventional Gas Development: Understanding the Wider Implications for European Energy Security.”

He noted what was happening with unconventional gas in his home country. “In Germany, if there is a discussion it is about environmental rules and the challenges, which need to be taken seriously.”

Umbach said that there was huge agreement that shale gas offered great positive impacts on energy security for member states as well as for the common EU policy, and presented the EU Gas Demand and Import Forecast.

“When you hear the figures from the industry, the figures go back to 2004 when we didn’t have a common energy policy, so you have to look at more to up to date estimates,” he explained.

He asked about the implications of phasing out nuclear power, for example, in Germany. “What does it mean for the environment? It was completely driven by elections not energy policy,” he said of the decision to quit nuclear.

“Two three years ago, gas was seen as a bridge to the longer term renewables that might take over the share of fossil fuels,” recalled Mr. Umbach.

He said an IEA study from November 2010 comprised three scenarios: ‘business as usual’; ‘new policies’; and the “450 scenario,” the IEA’s proposal to reduce greenhouse gases to 450 parts per million, which Umbach said was not seen as realistic although it was desirable.

“The new policies scenario takes into account the announced changes, such as Europe’s ‘20-20-20’ target, bringing the proportion of renewables and raising efficiency by 20% by the year 2020,” he explained.

According to him, the IEA had published a report before the annual Energy Outlook, which was set to come out in November, introducing a more optimistic scenario. He said it predicted that gas would overtake coal by 2030 and that global demand for natural gas would grow by 2% annually.

“If you look to the global dimensions of shale gas,” said Mr. Umbach, “recoverable conventionals comprise 404 TCM; unconventional doubles that size at 909 TCM. That’s 250 years of supply. Unconventional gas has already become a game changer.”

In terms of pricing, he said the situation was completely different: there was a global gas glut flowing on the market, and a decoupling from oil prices.

“The EU is already benefiting from the impact of lower prices,” he said, noting there were exceptions. 

“There are European gas companies that have a strategic alliance with Gazprom in the frame of long-term contracts for 25-30 years, that have to buy specific volumes at a specific price.

“They will definitely run into major problems in the years ahead,” Umbach said of Gasprom. “E.On Ruhrgas is going to an arbitration court. It will be necessary to rearrange the pricing mechanism.”

He continued, “We benefit from the discussion of unconventional gas because it helps the consumer. There’s still a gas glut if only some of the potential comes to fruition.”

Umbach said Europe would definitely have more suppliers and more competition. 

“Long term contracts are under heavy pressure and more suppliers means strengthening energy supply security.”

He showed regional distribution of tight and shale gas resources and mentioned the US initiative to assess them.

“After it’s completed we will definitely have a much more detailed assessment in Europe. Now the potential compared with other regions is still marginal,” he admitted.

Umbach noted that 84% of European gas imports were from just three companies. 

“In the years ahead we will become even more dependent upon gas from unstable countries.”

In terms of Europe’s natural gas pipeline projects, he asserted that Nabucco would be real diversification from Russia: “It’s also a much cheaper option because it would go on land. 

“We would also get more gas from North Africa, where the instability could be problematic for the years ahead.”

“If you look at breakdown of LNG supplies,” he continued, “we get it from many more countries and suppliers, that’s why the EU has favored a higher percentage of LNG supplies, which reflects global trends. The price has decreased compared to pipeline gas.”

He said the amount of LNG for Europe would more than double, from 10% (2009) to 24% in 2020.

Still, according to Mr. Umbach there were many uncertainties involving EU gas demand. 

He explained: “After Fukushima, some thought demand would go up drastically, but that has to be balanced with other policies and targets, like 20/20/20. Now other countries are taking similar decisions to Germany in phasing out nuclear: there will be no new plants in Switzerland or Italy.” 

Umbach noted discussion in the European Parliament over Member States’ energy policies and energy security. Regarding this, he said there was a “tri-lemma”:

economic competitiveness; supply security; and environmental/climate change mitigation.

“In terms of supply security, a domestically produced resource would reduce imports from unstable countries/regions and problematic exporters,” he explained. “We’re now facing the Arab revolutions, which is not the end of the story.”

He said that unconventional gas was diversifying and influencing national and EU energy mixes and gas imports, although none was yet being produced in Europe.

“Production costs will always go down with energy resources and further innovations of drilling technologies,” he added. “The available resources will go up as the prices will go down.”

Umbach contended that there was hardly any balanced discussion, nor energy policy that included unconventional gas at the moment. It takes a long term strategic

He noted that shale gas opponent Robert Howarth of Cornell University was being invited to the European Parliament. “You shouldn’t underestimate that kind of impact.”

In contrast to Howarth’s assertions about high GHG emissions from shale gas wells, Umbach said the carbon footprint of domestically produced unconventional gas was approximately 30% lower than long distance Russian pipeline gas. 

“Negating domestically produced unconventional gas means higher imports of pipeline gas and LNG with higher CO2 and methane emissions,” he explained. “Unconventional gas is environmentally less risky than the increased drilling of conventional gas resources in ever more deeper offshore seas or in the environmentally most sensitive arctic and Antarctic regions.”

Among his prescriptions for the EU and its member states were a comprehensive analysis and understanding of unconventional gas; and a longer-term strategic view of it as a new energy source and its global and regional impacts, among others.

 “It is a game changer,” concluded Mr. Umbach of shale gas. “It’s not just a scenario.”

“Regardless, it has changed the European market even before a single well has even been drilled.”