Shale Gas Pilot Project Necessary Condition for European Shale Gas Exploitation
Jonas Teusch, research assistant at the Centre for European Policy Studies (CEPS) in Brussels, has made a study about the significance of shale gas exploration and exploitation for the EU internal natural gas market. His conclusion is that only a step-by-step approach can be successful. A possibility is the conduct of a pilot transparent and participatory pilot project. "If such a project, under the close supervision of trustworthy and disinterested expert organizations could prove the risks for European citizens are manageable, shale gas developers may be able to (re)gain the confidence of citizens and investors," he says.
The most likely country to host such a project would be Poland, which has been described as the EU's shale gas lab. "As the success of the pilot project would also depend on the geological conditions and other characteristics of the selected site, the extent to which one can derive general conclusions from only one case is questionable. Transparency and the involvement of affected citizens early on should not be limited to pilot projects, but need to become general practice."
Functioning market is priority
Teusch's key conclusions goes beyond the shale gas theme. "The strategic priority is the realization of a fully functioning European gas market. Making the internal gas market work may also increase the prospects of shale gas development in Europe. Only when companies believe in the existence of a stable and sufficiently large European market, they will invest in the technology that could make shale gas exploitation both economically and environmentally viable in Europe. A well functioning internal gas market can contribute much more to Europe's security of supply than domestic shale gas exploitation. And is internal market is a precondition to enable shale gas exploitation, even in countries where political support for shale gas extraction is present. As it would be difficult to justify subsidies or exemptions from environmental legislation, shale gas development in Europe will only go ahead if it proves to be both economically and environmentally sustainable."
Uncertain
In 2010, the EU's dependence from natural gas import came to 63%. Teusch estimates that this amount would rise to 74% in 2035. "The exploitation of domestical unconventional gas –included in this scenario– would not reduce the dependency, but it can compensate the decline of conventional natural gas production in the EU." While unconventional gas resources are thought to exist in many EU-countries, the International Energy Agency expects only Polandto become one of the global top ten unconventional gas producers. "Projections are very uncertain. More drilling is needed to get more reliable estimates. Actual production might turn out to be less promising than in the optimistic scenario's I analysed."
Next to Poland, Teusch also sees possibilities in Ukraine. Both countries share the wish to make their dependency from Russia as limited as possible. "In the 'Golden Rules' scenario, Ukraine could produce 3 bcm of unconventional gas in 2020 and approximately 20 bcm in 2035. This is about 3% of the projected EU demand. It would not turn Ukraine into an exporter, but would decrease its import dependency from Russia." In Russia itself, shale gas isn't a theme yet. "Given Russia's ample conventional gas resources, eventual unconventional resources are less important."
Even if domestical shale gas won't become a game-changer in the EU gas import dependency, it may spur investment in European gas infrastructure. "It can create additional pressure from the unconventional gas producers to ensure third party access to gas infrastructures and increase competition in the European energy market, where incumbents still have a very favorable position." While the majority of LNG still is traded under long-term contracts just as pipeline gas is, Teusch already sees a shift towards more flexible arrangements, partly as a result of market liquidity.
Gas infrastructure can influence market
Teusch thinks the US won't export significant amounts of gas to the EU. "However, the EU gas market has already benefited and will probably continue to benefit indirectly from unconventional gas developments in the US and other parts of the world." Shale gas development in many different parts of the world can lead to less interregional gas trade than in a 'conventional' scenario, because of the larger geographical distribution of the resources. "This doesn’t imply that it won't have a positive effect on the establishment and functioning of international gas markets. As locations with shale gas are dispersed and most of them can't be connected to Europe by pipeline, LNG infrastructure will play a determining role in the effect of shale gas on the EU gas market. LNG-regasification terminals are more flexible than pipelines and offer suppliers less leverage. Yet, LNG-liquefaction facilities are also destination-flexible."
By Koen Mortelmans