Shale Gas Will Go Global Despite Slow Developments in Europe, Says Eni CEO

The shale gas revolution is destined to go global, with countries like Ukraine, China and Pakistan joining North America in the exploration of shale formations in the near future. This is the message delivered by Paolo Scaroni, Chief Executive Officer of Italy-based Eni, during the FT Global Shale Energy Summit in London. 

“Shale gas is going to be global, in every country which has the same geological situation than in the United States,” Scaroni said on Monday. 

At the same time, he casts some doubts on the potential European developments, seeing two sets of problems. Firstly, some European shale formations could be not economically viable. Scaroni mentioned Poland as an example.

“In Poland, … oil companies including us are kind of doubtful about the future of shale. There is shale gas. The question is: is it exploitable?” explained Scaroni. first panellist of the conference organized by the Financial Times.

The second set of problem has to do with slow decision making processes. 

“In Continental Europe, before you really can start any kind of exploration of shale gas, you have to spend months and years talking, discussing, explaining,” said Scaroni. 

EUROPE IS LAGGING BEHIND 

As things stand at the moment, Europe is losing ground with respect to North America. According to Scaroni, the American shale gas revolution implied energy and gas prices significantly lower than in Europe. And this does not come without consequences. 

He reckoned that the Old Continent is running the risk of seeing significant deindustrialization in the coming years. In this framework, Scaroni argues that there are just two viable alternatives for Europe to push down energy prices.

One option is to clinch favourable agreements with suppliers like Algeria, Libya, Norway and Russia. But, in order to be a viable solution, agreements have to be more than commercial deals – they have to open the doors to a broader cooperation. European countries and companies should develop and produce together with extra-EU countries.

The second option is to explore shale gas locally. However, this does not seem the case at the moment. And currently Scaroni’s hopes are confined to the UK. 

“The UK should show the way to the other European countries in order to exploit shale gas. This is my best hope,” commented Eni’s CEO.

WHAT CAN EUROPE DO?

For the moment, Europe cannot do much. European companies will suffer the consequences of high energy prices, as the differences in the gas markets pose a long-term structural challenge for European economies. In this sense, investors in energy-intensive industries have an incentive to leave Europe and relocate in North America.

“Why would anyone invest in anything energy intensive rather than go to Texas, where the cost of electricity is half and gas a third, on top of all the other favourable factors,” Scaroni commented, adding that ““when Europeans dream about an industrial renaissance, they really dream it.”

European energy prices could slightly decrease in the next future, as consequence of shale gas from the US and other global supplies coming on stream. But this would have a limited effect. According to Eni’s estimate, prices could go from $10-$11 per million British Thermal Unit (mBTU) to $8 in the coming years.

EUROPE AND RENEWABLES

Eni’s CEO sees in the subsidies to renewables the main European problem. He considers European energy policies a burden not only for the companies, but also for individuals and societies as a whole. 

Taking Italy as an example, he underlined that 17% of the electricity bills paid by households are subsidies to renewables. At the same time, subsidies are considered distortive for the market. But worse, it does not even result in positive environmental changes. 

“We are living a paradox,” said Scaroni, referring to the European greenhouse emissions that increased in the last year despite the subsidies.

ENI BETS ON UKRAINE, PAKISTAN AND CHINA 

Eni’s CEO bets on Ukraine, Pakistan and China, arguing that those countries are promoting shale gas developments given geopolitical, historical and financial reasons.  

“Ukraine, in which we have nine blocks of shale gas, … really needs gas. They are helping everyone to exploit shale gas,” commented Scaroni. 

He also sees good opportunities in Pakistan, where the Italian company is the largest oil company, and in central China. 

“China needs to find more gas. I personally think that China will substantially replace the use of coal for electricity production only if a large part of the gas was domestically produced,” said Scaroni.

Sergio Matalucci