Russia to Lose Political Leverage, China to Remain Dependent despite Shale
Natural Gas Europe had the pleasure to speak with Zhenbo Hou, co-author of the working paper “The development implications of the fracking revolution.” The report released by the UK think-thank Overseas Development Institute (ODI) present the ripple effect of shale gas developments. US and China stand to win the most. Russia, the Middle East and OPEC are presented as the main losers of decreased energy dependence of North America and China. In this interview, we try to understand the repercussions also on Algeria and Europe. According to Hou, “shale gas development has considerable potential in Europe, but regulatory and technological hurdles needs to be crossed within the EU first.”
During a recent conference, experts said that China’s reliance on gas imports would be more severe than any US dependence in the last decades. In your report, you write that Chinese imports of gas could be 30-40% lower in 2020 as a result of shale gas. To what extent the two viewpoints are contradictory?
Our report argues that Chinese imports of natural gas would be 20-40% lower in 2020 than its projected surge, had there been no fracking. The absolute amount of Chinese natural gas imports will continue to rise and the high dependency ratio is likely to remain, even if fracking is successful.
United Arab Emirates partially financed the anti-shale movie “Promised Land” with Matt Damon. Rumours say that Russia might have helped spreading an anti-shale rhetoric. To what extent Russia and OPEC are going to lose in political terms?
If fracking becomes successful, Russia might be likely to lose out its political leverage over its natural gas clients in Europe; whereas OPEC might lose some of its market share, as natural gas becomes a more viable option than oil. Please refer to Section 4 of my report for detail.
You describe the United States and Russia as the two main winners of the so-called fracking revolution, but you don’t include Algeria, which is the fourth country for technically recoverable shale gas reserves with 707 tcf according to the EIA. What is the reason for that? Why don’t you consider Algeria among the possible winners?
Clearly Algeria would be a future winner, but it wasn't a country we focused in the report.
In you report, you write that in the short-to-medium term, contractual obligations preclude any diversification for Europe. According to the GECF, long-term agreements for gas deliveries will remain the backbone for Europe and Asia. Do you personally agree that there will be not many differences between the long-term and the medium-term? In other words, do you think that oil-linkages and long-term agreements will remain also in the next 10-15 years?
Sorry, I don’t know the answer to this question.
In your report, you consider European Union as a single entity. Are there any countries that could take advantage of the situation? In other words, what could be the European losers and which the European winners of eventual shale gas production?
I haven't treated EU as a single entity. We clearly pointed out there is divided opinion on the future of shale gas in Europe.
In conclusion, what is your personal understanding of shale gas potentials in Europe? What about Ukraine? Can Kiev benefit from shale gas developments in Europe? Can Kiev benefit from shale gas developments within its borders?
Shale gas development has considerable potential in Europe, but regulatory and technological hurdles needs to be crossed within the EU first.
Sergio Matalucci