Case study 11.2: Shale gas - to frack or not to frack?
The potential commercial exploitation of shale gas has set off an intense debate throughout
Europe, the outcome of which will have major repercussions for the three pillars of Europe’s
energy policy – the environment; competitiveness and security of supply.
Shale gas is natural gas trapped in shale, fine-grained sedimentary rocks, deep underground.
Gas is extracted by hydraulic fracturing, commonly referred to as ‘fracking’, which involves
drilling long horizontal wells into the shale and pumping large quantities of water, sand and
chemicals into the well at high pressure. This creates fissures in the shale which are held open
by the sand, allowing the gas to escape to the ground for collection.
Opposition to fracking in Europe, where, unlike in the US, shale gas has yet to be
commercially exploited on any large scale, is growing and has resulted in moratoriums and
even outright bans on fracking in a number of countries (see Table 11.2).
Table 11.2: The status of fracking in Europe, 2014
Austria
Exploration underway (e.g. OMV in basin near Vienna) but some calls for
laws to ban drilling on environmental grounds.
Bulgaria
2012 nationwide protests lead to suspension of Chevron’s exploratory shale
gas licence. National Assembly passes law banning all forms of fracking.
Czech
Moratorium on fracking from 2012 to allow time to pass laws to take into
Republic
account the environmental impact of fracking.
Denmark
Government views fracking as part of strategy to ease reliance on fossil fuels.
Total’s Danish affiliate and state-owned Nordsøfonden have two licences for
onshore drilling which started in 2013
France
Europe’s second largest shale gas reserves but fracking is banned. In October
2013, French Constitutional Council upholds fracking ban following petition
by Schuepbach Energy for restoration of exploration permits revoked
following imposition of the ban.
Germany
February 2013, draft proposals allowing fracking which uses same technology
as in US but new coalition government and widespread opposition put
fracking on hold for the foreseeable future. July 2014, government proposes
seven year ban on fracking at depths shallower then 3,000 metres.
Hungary
2009 Exxon Mobil drill first shale gas wells
Ireland
2011 options and licences awarded to Energi Oil, Tamboran Resources and
Lough Allen Natural Gas Company. 2012 Energy Minister says no fracking to
take place in Ireland pending further scientific evidence and advice.
Italy
Bomba, small southern Italian city refuses a drilling project.
Luxembourg 2012 Drilling for shale gas suspended and moratorium imposed.
Netherlands
Several operators hold licences for exploratory shale gas drilling but
government is investigating the environmental impact of shale gas
exploration. Meanwhile southern city of Boxtel stops plans for exploratory
drilling.
Poland
Europe’s largest reserves of shale gas and much drilling underway. Shale gas
promises the possibility of reducing Poland’s high level of dependency on
coal and on Russian gas.
Romania
Reputedly Europe’s third largest shale gas reserves. Despite nationwide
protests, a moratorium on drilling for shale gas lifted in 2013. Government
supports fracking on grounds of energy independence and lower prices but
anti-fracking demonstrations continue.
Spain
2013 northern region of Cantabria bans fracking on environmental grounds –
goes against national government’s aspiration for jobs in a region rich in shale
gas.
Sweden
Exploratory drilling underway.
UK
Some drilling but no commercial production underway.
2011 Cuadrilla suspends drilling near Blackpool after two small earthquakes
reported. 2012 drilling re-started subject to stricter monitoring.
2012 Northern Ireland Assembly calls for moratorium on fracking pending
environmental assessment but moratorium not enacted by the minister.
The main objections to fracking are based on claims about potential environmental damage.
Several of these claims are contested but, inevitably, given the relative newness of large-scale
fracking, the exact environmental impact is unclear, leading some European countries to
impose a moratorium on fracking until its environmental implications are more firmly
established. The main environmental concerns surrounding fracking are:
-
water pollution from contamination with methane or drilling chemicals. This threat has
been confirmed by the US Environmental Protection Agency and a UK Select Committee
which also maintain that this pollution is no greater than that from conventional gas
extraction techniques and can be mitigated by best practice;
-
accidental release of hydraulic fracturing fluid (possibly containing hazardous chemicals)
resulting from spills, leaks and faulty well construction;
-
the amount of wastewater containing contaminants;
-
the huge amounts of water and chemicals needed and which may disrupt water supplies
for other uses;
-
potential damage to wildlife habitats;
-
the possible emission of climate warming and explosive methane;
-
tremors;
-
a continuing reliance on fossils fuels contrary to climate change objectives;
-
a diversion of effort away from the development of renewable and less carbon-intensive
resources.
On a more positive note, supporters of fracking argue that it reduces the need for
consumption of coal, the most carbon emitting of all fossil fuels and will facilitate the
transition to a less carbon-intensive environment. In the process, the development of this new
energy source will help keep energy prices down and improve Europe’s energy security
situation by reducing the need for imported gas.
Although not without its opponents and with fracking bans in place in several locations,
commercial exploitation of shale gas in the US is the most advanced in the world. Since
2005, when US gas production was at a long term low, total US gas production has increased
by over one third and the US has overtaken Russia as the world’s largest gas producer
(Russia’s proven gas reserves, however, are over three times greater than those of the US).
This boost to US gas output has transformed the US energy supply situation by massively
reducing its reliance on gas imports, freeing up coal for export and reducing energy prices. In
2013 helped by an increase in renewable energy production as well as by gas shale, US
dependence on primary energy imports had fallen to 13 per cent in 2013 from 30 per cent in
2005 whereas EU energy import dependency reached 53 per cent in 2013.
This improvement in US energy independence and related fall in US energy prices has been a
mixed blessing for European business. On the one hand, reduced US participation on world
energy markets contributed to the fall in energy prices in 2014. The US consumes most of its
gas production but, if current trends continue, it may start to export more gas. At the very
least, increased domestic gas production has freed up more US coal for export, particularly to
the Netherlands, Italy and Germany. In turn this has reduced the relative price of coal in
Europe with negative impacts on carbon dioxide emissions. On the other hand, the surge of
US shale gas output and related fall in US energy prices has raised questions about EU
industrial competitiveness. According to statistics from the International Energy Agency,
between 2005 and 2012, gas prices to industry increased by 35 per cent in the EU compared
to a fall of 66 per cent in the US. Industrial electricity prices were also affected, rising 38 per
cent in Europe and falling four per cent in the US over the same period. The impact of these
differential price changes clearly has the greatest impact on Europe’s most energy intensive
sectors but they have resulted in calls for less strict carbon policies in Europe and
strengthened the position of the shale gas lobby.
Assuming the environmental concerns about shale gas production are overcome in Europe ( a
development which is far from assured), it is still too early to forecast the full potential
impact of large-scale commercial production as estimates of total, recoverable shale gas
reserves not only in Europe but also in the US and elsewhere in the world are highly
contested and constantly revised. However, even the most conservative estimates imply
significant increases to natural gas reserves in Europe, albeit at a much lower level than in the
US. Moreover, European shale gas reserves are more dispersed than in the US where over
one third of its reserves are in the huge Marcellus Basin with the rest in other large fields.
European reserves are more scattered with the greatest concentration in France and Poland,
indicating potentially lower economies of scale in their exploitation.
The ultimate fate of fracking in Europe will depend on the decisions of individual member
states as decisions about energy mix are outside the competence of the European Union – a
factor which undermined Gazprom’s lobbying for a Europe-wide ban on fracking. However,
the EU can influence national decisions through the environmental objectives it sets. Overall,
the jury remains out on the desirability of gas fracking in Europe from an environmental
point of view, notwithstanding the potential for fracking to improve Europe’s supply security.
Whatever the merits of the case for and against fracking, there is a wider consensus that
scientific evidence is not yet sufficiently robust to support the case of either side.
CONCLUSION
Energy is crucial to Europe’s future and the three main pillars of European energy policy –
competitiveness, sustainability and energy security– run through all aspects of EU energy
activity. Each pillar is itself made up of many individual initiatives to contribute to achieving
overall energy policy objectives and it is clear that the pillars are closely integrated and,
ideally, work in concert with each other. As the above section on energy security
demonstrates, energy security depends on a variety of actions, including reducing demand
through increased energy efficiency and energy demand through greater use of renewable
which also serves the environmental pillar.
Case questions
1. What is the potential impact of the development of shale gas production in Europe on
the three pillars of European energy policy?
2. What is the potential impact of shale gas production on European business in the
following scenarios (in both cases, consider the impact both on energy producers and
on energy business consumers):
a. If the US and the rest of the world develop shale gas and Europe does not;
b. If the EU develops shale gas.
3. How does the shale gas controversy fit in with the principles of EU environmental
policy outlined in Chapter Twelve.