Shale gas - A Happy New Year?
The 2050 Energy Roadmap published by the European Commission last month recognises shale gas as an energy source that could potentially lessen the EU’s import dependence and play an important part in the EU’s energy mix going forward. However, there is continuing uncertainty as to the role which unconventional gas resources, in particular shale gas, will play in the longer term in the EU’s energy mix. In addition, there are questions over whether the existing legislative framework across Member States is adequate to regulate the concerns raised by the exploration and exploitation of unconventional gas.
One of the main priorities of EU policy is supply diversification in order to secure its energy supply. So far as gas is concerned, there are issues around supply disruptions and increasing dependency on imports. At the same time, there is growing interest in the availability of shale gas resources within the EU, and the opportunities for new markets, energy security and job creation which shale gas (the lowest carbon fossil fuel) may present. A recent report by the European Centre for Energy and Resource Security reported that Europe as a whole could meet its energy demands for some 60 years if it were to use its unconventional gas resources, including shale gas.
In the US, over recent years, natural gas has boomed thanks to major discoveries of shale gas deposits. This has had a huge effect on energy markets world-wide and on the US’s own energy situation. Increased gas production has meant that the US has changed from a net importer of gas to a net exporter, and gas prices have been cut to half of European levels.
By contrast, last year, for the first time ever, the UK imported more gas, whether piped from Norway or shipped from Qatar, than was pumped from its own continental shelf, and world gas prices rose 40 per cent in a year.
In the EU, it is recognised that there are significant shale gas resources, in particular in Poland, Germany, France, Sweden and the United Kingdom. Spain has recently announced the existence of a substantial gas play in Northern Spain.
Across the EU however, Member States have taken very different positions on shale gas.
Poland recognises the enormous potential offered by shale gas and is keen to press ahead as quickly as possible, driven by a strong desire to be independent from Russia for gas supplies. More exploration licences have been granted in Poland than elsewhere, and under its recent Presidency of the EU, Poland called for shale gas to be designated a “common European project” under the EU’s infrastructure development programme.
In Germany, public and private opposition to shale gas (including from the influential Green Party), threatens the opportunities presented by shale gas. North Rhine-Westphalia imposed a moratorium on shale gas drilling last year following pressure from environmental activists, and changes to Germany’s mining laws have been proposed. Despite this however, exploration is ongoing, and a review commissioned by Angela Merkel after the Fukushima disaster emphasised that low carbon fossil fuels remain an important part of Germany’s energy mix. This suggests that subject to the right regulatory regime, there may yet be a future for shale gas in Germany.
In the UK, the only Member State to carry out a formal enquiry into shale gas to date, the report of a Government Select Committee in May 2011 concluded that “on balance a moratorium in the UK is not justified or necessary at present”. The UK Government clearly recognises the potential of shale gas, and is not opposing exploration. It sees shale gas as part of a diverse and balanced energy portfolio, whilst recognising that it is early days and there are still issues to be explored around the economic and environmental viability of extraction.
In France, the mood around hydraulic fracturing continues to be highly charged and politically volatile. Shale gas reserves in France are potentially significant, and could highly reduce France’s dependence on Algeria, Russia and Norway. Even so, the exploration and exploitation of hydrocarbons by hydraulic fracturing (the technology used to extract the shale gas) in France is currently prohibited and permits previously issued to two operators have been cancelled (one of them is already challenging this). President Sarkozy continues to state publicly his opposition to shale gas and the upcoming elections in France this year may well shape the agenda for shale gas in France.
The position in The Netherlands is also changeable. Whilst The Netherlands has been strongly pro-gas to date, the political environment has become less favourable recently, and public acceptance of shale gas will be a major issue.
Other Member States, such as Denmark, Finland and Ireland, have not taken any formal position but are keeping their options open.
So far, the European Commission has not taken a firm stance on shale gas. It is however clear that it is looking to understand the regulatory and environmental position on issues associated with shale gas, including the REACH registration regime, and assess whether EU-wide legislation on shale gas is required. The publication of a legal study commissioned by the European Commission is currently awaited (originally due October 2011) which will assess the adequacy of the existing EU legal framework for unconventional gas. The study looks at four Member States, Poland, France, Germany and Sweden.
Other reports have been commissioned, for example DG Climate Action is to conduct a study “Climate Impact of Potential Shale Gas Production in the EU” in 2012 to assess the climate implications of shale gas production in the EU.
Also at EU level, various MEPs have called for shale gas exploration to be restricted or banned. Two separate Committees, the Environment, Public Health and Food Safety (ENVI) Committee and the Industry, Research and Energy (ITRE) Committee are to prepare reports on shale gas. The ITRE Committee report is expected to take a more balanced view of shale gas exploration.
There is no doubt that any shale gas developments are complimentary to renewable technologies. The UK Government has made it clear that diversity of sources increases our energy security and makes our energy system more resilient. In fact, shale gas is an ideal complement to clean energy technology, as it is quickly adjustable to changing demand, as well as to the intermittent nature of production from renewable sources, for example during low wind or lack of sun. In any event, the production of shale gas in the EU is not likely to start at the earliest until 2014/2015.
Many incorrect statements have circulated on the risks of shale gas exploration and production, without an understanding of the technology which has been mastered over more than 60 years. For instance, hydraulic fracturing has been conducted since the late 1940s, and sound well construction and the installation of multiple layers of steel and cement ensure that the contents of a wellbore are completely contained. The technology has been safely applied so far to more than 1.2 million individual wells, mostly in North America, but also in thousands of wells (including geothermal energy wells) across the EU.
So where does this leave the future of shale gas in the EU? Clearly the EU cannot be compared on a like-for-like basis with the US, for example UK land ownership laws are different in that underground gas does not belong to the landowner, but to the Crown, and greater urbanisation in the EU presents different challenges. However, the advantages of shale gas are broadly the same; decreased dependence on external energy supplies, investment in new markets, job creation and reduced energy costs. In addition, shale gas will help the EU meet its ambitious carbon emissions targets.
At present, we do not know the full extent of shale gas reserves in the EU. Exploration work is required to assess those reserves better and determine the financial feasibility of production. Only then will we understand the contribution which shale gas can make to our energy mix, and ensure that we do not lose the opportunity to benefit from our untapped resources.
At the same time, public acceptance is key, and the focus needs to be on education of both policy makers and the public on the technology used in the exploration and exploitation of shale gas. The aim must be to demystify the process, so as to demonstrate that it can proceed on an environmentally sound basis, within the framework of a robust system of regulation.
About Elizabeth Shepherd
Elizabeth is a partner at international law firm Eversheds, specialising in environmental law. She and her team are experienced in advising on existing and incoming environmental legislation, often on a multi-jurisdictional basis, where an understanding of the legislative and political climate in the EU as well as individual Member States is key. She is frequently engaged to advise on highly complex and specialised environmental issues which can impact upon a client’s strategy and investment decisions. Elizabeth also works with clients to lobby at EU level in relation to proposed legislation, and examples include the Industrial Emissions Directive and the EU Emissions Trading Scheme, as well as her current work in relation to unconventional gas. Elizabeth can be reached at Tel: 0845 497 8215 (Intl: +44 121 232 8215) elizabethshepherd@eversheds.com.