Strategic Perspectives for Unconventional Gas in the EU

FRANk UmbACh 64 Strategic PerSPectiveS for Unconventional gaS in the eU frank Umbach aSSociate Director, eUroPean centre for energY anD reSoUrce SecUritY (eUcerS), king‘S college The expanded role for natural gas in the world economy has prompted the IEA to envisage a “Golden Age of Gas” era with unconventional gas being a “game changer.” IntroductIon The U.S. shale gas development is not a technical revolution, but rather an evolution of modern techniques and the combining of two key technologies – horizontal drilling and “slick water” hydraulic fracturing. Together these can crack shale rock, and have thus cracked the code with regard to opening up major North American shale gas resources. The combination of three factors (1) a drop in demand linked to the global economic recession, (2) a unexpected dramatic increase in incremental U.S. non-conventional shale gas production, and (3) the arrival of new LNG delivery capac- The development of unconventional gas in the U.S. since 2006 has not only triggered a revolution in U.S. energy markets, but has also laid the groundwork for an expanded role for natural gas in the world economy. This has prompted the IEA to envisage a “Golden Age of Gas” era with unconventional gas being a “game changer.” It has already transformed the global gas markets, which were in the past “sellers’ markets” rather than “buyers’ markets.” meanwhile, some countries in Europe (Poland, United kingdom, Romania, Lithuania, Spain and Ukraine) have become very interested at the 65 CASPIAN REPORT, SPRING 2014 The rapidly expanding production of shale gas has transformed the U.S. from the largest LNG import market to a self-sustaining gas producer and a net gas exporter. In 2009, the U.S. even overtook Russia as the world’s largest gas producer, and in 2010 it exceeded Qatar as the world’s largest LNG exporter by about 60%. In 2012, U.S. natural gas production increased to 681.4 billion cubic meters (bcm; 20.4% of the global production), whereas Russia’s was just 592.3 bcm (17.6% of global production). ity - have created a sudden “gas glut”. This stems from the overcapacity of LNG, which made LNG in Europe less expensive than pipeline gas (based on long-term contracts), and contributed to the de-linkage of the gas prices from the oil prices in at least Europe at present. This could become a permanent feature of the global energy market because the remaining global unconventional gas resources are considerably bigger than conventional ones. The U.S. could even overtake Russia as the world’s largest combined oil and gas producer by 2015. manY of the Shale gaS fielDS in eUroPe are SitUateD in areaS where the geologY makeS it mUch harDer to extract than in the U.S. FRANk UmbACh exploitation of their own unconventional gas resources. Others however have adopted a moratorium (bulgaria, Czech Republic) or even a ban on the fracking technology (France) and the production of shale gas due to perceived environmental risks. Against this background, the article analyses the different policies in regard to unconventional gas in the EU-member states, some of which are in favor of shale gas production (Poland, the United kingdom, Romania, Lithuania and Spain) and some of which have adopted (temporary) moratoriums (Germany, bulgaria) or even a ban (France). 66 EuropE’s unconvEntIonal Gas rEsourcEs and thE EnErGy polIcIEs of Its MEMbEr statEs While initial assessments of Europe’s unconventional gas potential were relatively skeptical and conservative, Europe has depositories of significant unconventional gas resources with estimated total recoverable reserves of 33-38 tcm. Reserves in some states are now thought to be much larger than previously estimated, and in others, there is growing concern over the market dominance of the U.S. Some are also keen to break their dependence on Russian conventional gas. In June 2013 the EIA published a new worldwide assessment of unconventional gas resources, which has added nine more countries to the total number of countries with technically recoverable shale gas resources. This number now stands at 41. For Europe, some country estimates have been increased, while others have been reduced. Worldwide, the EIA has estimated 10% more shale gas resources in comparison with its previous estimates of 2011. Many of the shale gas fields in Europe are situated in areas where the geology makes it much harder to extract than in the U.S. They are also in places with much higher population densities, and their service industries and infrastructure for the industry are much less developed. but the perceived risks are often overestimated, not very different to conventional gas drilling and often not related to the fracturing process itself. The IEA has remained cautious and has estimated that Europe’s unconventional gas production by 2035 may reach not more than 20 bcm by 2035 due to the unclear conditions, specifically, to what extent social and environmental concerns will lead to the tightening of the regulatory framework at the EU level. New geological analyses in Germany and Great Britain have confirmed the historical experiences of fossil fuels, whereby at the beginning of their findings and exploration the estimates of reserves and resources go up for a longer time alongside of using new technologies for discovering and exploration of fossil fuels before they are decreasing after having received their peak estimates and production levels. EU Commissioner for Energy, Gunther Oettinger during a press conference on ofshore oil and gas on October 27, 2011 at the EU Headquarters in Brussels. gas projects as a means of enhancing energy supply security and economic competitiveness, the Environmental and Climate Protection Department is presently considering an EU-wide regulation on methane emissions, which may further complicate the EU shale gas projects at this critical stage. in JUne 2013, the britiSh geological SUrveY PUbliSheD a new rePort Showing that Uk Shale gaS reServeS, UP to 40 tcm in englanD alone. unItEd KInGdoM Parliament followed the European Commission’s cautious policies by adopting two resolutions of the environmental and the industry and energy committee (ITRE) that favour unconventional gas exploration, albeit calling for “robust regulatory regimes.” but the Commission itself is politically divided; while the energy department favours European shale Despite the spread of ‘Nimbyism’ in britain, the Uk government, its Department of Energy and Climate Change, a parliamentary commission and new government commissioned reports by the Universities of Durham and Aberdeen on the environmental risks all support shale gas exploration and development projects. In December 2012, the british government lifted a ban (in place since may 2012). In June 2013, the british Geological Survey published a new report showing that Uk shale gas reserves, up to 40 tcm in England alone, 67 CASPIAN REPORT, SPRING 2014 In the view of the European Commission, Europe should at least be able to produce sufficient volumes of domestic shale gas to replace its depleting conventional gas reserves, so as not to become more dependent on imports from unreliable suppliers or politically unstable countries. In November 2012, the European FRANk UmbACh 68 are considerably higher than previously estimated (in fact, almost 20 times higher). Around 10-20% is estimated as economically recoverable. These new figures were confirmed in a report by the Institute of Directors in September 2012 (a non-party political organization of british industry with approximately 38,000 members in the Uk and overseas). The report estimated that around 35,000 jobs can be created and that onshore shale gas production in britain could produce enough gas to meet 10% of the Uk’s gas needs for the next 103 years, while decreasing carbon emissions by 45 million tonnes of CO 2. Even if britain only gets 10% of this gas-in-place produced, it will supply the Uk for 25-50 years. The most optimistic scenario has estimated the future shale gas production at up to 122-255 bcm per year – more than twice the present annual consumption of almost 100 bcm. in november 2013, the new granD coalition government agreeD on a “temPorarilY fracking ban”, Until environmental iSSUeS like the USe of toxic chemicalS are reSolveD. Unconventional gas reserves provide the foundation for the government’s newly released “Gas Generation Strategy” in December 2012, which envisages the construction of 20 new gas-fired power plants, with 9 gigawatts (GW) by 2020 and 26 GW by 2030. The Royal Society and Royal Academy of Engineering reviewed the scientific and engineering as well as related environmental risks associated with hydrofracking. The report concluded that those environmental risks can be managed effectively and enforced through strong regulation. It also sees fracking as an unlikely cause of ground water contamination. Energy companies expect that it will take as long as five years for production to reach a commercial scale. Like in other EU countries, public fears in regard to potential environmental risks have also increased and thus slowed down the planning and permissions processes for shale gas projects at the local level. An engineering consultancy advising the Department of Energy and Climate Change (DECC) has reduced the figure of jobs that could be created by the shale gas industry from 74,000 (as Prime minister Cameron was speculating) to 15,900-24,300. but the Uk water and fossil-fuel industry lobbies have agreed to work together to minimize the environmental harm of the shale gas projects for the country’s water supply. The Uk government is currently seeking new ways to simplify the permissions process for british shale gas projects. This process has been widely criticized as too complex for prospective investors. In December 2013, the british government unveiled its plans to reduce the tax payable on a proportion of profits from 62% to 30% in order to encourage investment in the shale gas industry. but more than half of britain’s cabinet ministers may experience shale gas projects in their constituencies, which may further deepen the political conflict over fracking, and weaken political support due to the “fear of unknown” in rural communities. GErMany but the previous government in berlin and its ministry for Environment have tried to slow down the discussions and any governmental decisions. The Environment ministry has generally opposed fossil fuel resources and instead has always favoured heavily subsidised support for re¬new¬able energy projects. In July 2012, the German Federal Institute for Geosciences and Natural Resources (bGR) published its first estimate for domestic shale gas reserves and officially described them as “significant”. The estimates are considerably higher (up to three times) than those published by Exx- onmobil in January 2012, and much higher than Germany’s conventional gas reserves. The bGR also concluded that environmentally friendly [fracking] technology is possible from a geo-scientific point of view and that “fracking and drinking-water protection are fundamentally compatible.” It also confirmed - together with the comprehensive environmental study “hydrofracking Risk Assessment” that the fracking risks can be controlled and regulated. At present, a third of Germany’s domestic production already uses fracking technologies - some for more than 50 years. Germany’s energy-intensive and manufacturing industry (i.e. bayer, bASF at al.) has begun to voice its increasing concern about the implications of the U.S. unconventional gas revolution for its future economic competitiveness, as the reduced gas prices in the U.S. are an essential cost factor for petrochemical manufacturing, in particular ethane. These cheap feed stocks are reshaping the global competitive landscape for petrochemicals with a “quite phenomenal advantage” for the U.S. industry. “Cracking” ethane makes ethylene, which is the major building block for plastics such as polythene. In January 2013, the bGR criticised the lack of geo-scientific expertise on the deep underground and identified many instances of inconsistency 69 CASPIAN REPORT, SPRING 2014 With an annual gas consumption of around 100 bcm, Germany’s domestic production covers just 12% of the national gas demand. 40% of Germany’s gas consumption is supplied by Gazprom. Despite a moratorium adopted by the federal states of North Rhine-Westphalia and strong opposition to shale gas drilling on environmental grounds, several companies, including Exxonmobil, have acquired exploration licenses in six of the federal states: Nord Rhine Westphalia, Thuringia, Lower Saxony, Saxony-Anhalt, hessen and badenWuerttemberg. The state of hessen has called for uniform practice and legal rules across the country, fearing a competition between federal states. with an annUal gaS conSUmPtion of aroUnD 100 bcm, germanY’S DomeStic ProDUction coverS JUSt 12% of the national gaS DemanD 40% of germanY’S gaS conSUmPtion iS SUPPlieD bY gazProm. FRANk UmbACh the Uk government iS cUrrentlY Seeking new waYS to SimPlifY the PermiSSionS ProceSS for britiSh Shale gaS ProJectS. 70 and subjective argumentation as well as a trend of ignoring the broad knowledge base and modern methods of geo-scientific exploration. It also pointed out that this allegation of missing data on regional assessments is not supported by facts. The political debate moved away from an outright national ban of hydrofracking to the question how far to legislate environmental safeguards before the national parliamentary elections in September 2013. GErMan fEdEral InstItutE for GEoscIEncEs and natural rEsourcEs (bGr) July 2012 – GErMany’s shalE Gas rEsErvEs: • Total shale gas reserves: 6.8-22.6 tcm; • Technically recoverable reserves: 0.7-2.3 tcm (10% of total shale gas reserves) • ExxonMobil estimate of Germany’s exploitable reserves: 827 bcm • Conventional Gas reserves in comparison: 150 bcm In November 2013, the new grand coalition government agreed on a “temporarily fracking ban”, until environmental issues like the use of toxic chemicals are resolved. Until non-toxic fracking fluids are available, the agreement is not a strict ban but rather a temporary moratorium. The German EU Energy Commissioner Gunther Oettinger repeatedly warned the previous German government against fully rejecting the shale gas exploration through fracking technology. In the summer 2013, three geological research institutes, the bGR in hannover, the German Research Centre for Geosciences (GFZ) in Potsdam and helmholtz Centre for Environmental Research in halle launched a programme to support the exploration of the country’s shale gas potential by making the shale gas industry more environmentally friendly and the fracking technology “greener”, by developing biological alternatives to the chemicals being used for fracking, for instance. poland Poland itself still generates more than 90% of its power from coal, but is seeking to replace part of its coal consumption with gas. In 2012, Poland produced 5.5 bcm of conventional gas in its own country. but that covered only 30% of its domestic gas consumption, 16 bcm in total. The shale gas reserve estimate from the Polish Geological Institute (PGI) in march 2012 revised downwards the estimates of national reserves to around 2 tcm, in contrast to EIA’s optimistic forecast of 5.3 tcm. Its technically recoverable gas reserves may amount to just 346-768 bcm. but these published figures included only archival data, predominantly from exploration testing in the 1960s and 1970s. The preliminary estimate will be upgraded and revised on an annual basis. but even the lowest estimate of 346 bcm of Global shale gas map. shale gas reserves would satisfy Poland’s domestic demand for 35 years. The government and Polish industry representatives still expect that domestic shale gas production will be significantly cheaper than Russian gas. In contrast to public opinion in Germany and France, the pro-shale gas policies are supported by more than 70%. The government has in contraSt to PUblic oPinion in germanY anD france, the Pro-Shale gaS PolicieS are SUPPorteD bY more than 70%. promised to change its shale gas regulations to speed up its exploration and announced last may that it will not collect taxes on the production of shale gas until 2020. 71 CASPIAN REPORT, SPRING 2014 The government’s proposed taxes exceeding 40%, for instance, have raised concerns among energy companies as they face exceptionally capital investments. Difficult geology, a non-competitive service sector, poor infrastructure, lengthy permissions processes, an uncertain regulatory and tax environment as well as lack of rigs have hindered development. In addition, preliminary costs per well have increased to US$15 million – nearly three times the cost in the U.S. As a result of the failure to provide an attractive investment climate, the uncertainties and bureaucratic constraints as well as unrealistic expectations for the short-term future, the pace of shale gas exploration in Poland has clearly slowed down in 2013. For the indus- try, 287 wells still remain open for exploration, but at the present rate, the exploration process may not end before 2037. FRANk UmbACh With Russia’s President Vladimir Putin watching, Rosneft CEO Igor Sechin and President of ExxonMobil Stephen Greenlee signing documents on February 13, 2013. 72 Exxonmobil’s withdrawal from shale gas exploration in Poland last June can be seen as a warning signal against the unrealistic hopes that Poland will become the “sheikh of Europe”. but the withdrawal - less than three months after the Polish government reduced its estimates of shale gas reserves - is not necessarily a confirmation of those more limited estimates. In fact, it came only few days after Exxonmobil agreed with Russia’s Rosneft to develop “tight oil” reserves in western Siberia, allowing it access to Russia’s vast oil reserves in its Artic region by replacing bP. however, two other energy companies, Talisman and marathon Oil Corp. have also left Poland after the exploration yielded disappointing results. In June 2013, the EU’s highest Court, the European Court of Justice, issued a ruling that Poland had violated European law by allowing licenses to be issued for the shale gas projects without fully open tenders. The Polish government’s promotion of its large unconventional gas resources is driven by its energy supply security concerns and its desire to reduce its gas imports from Russia and to build a diversification strategy for supply sources and imports. Poland’s Supreme Audit Office (NIK) has criticized unnecessarily high gas prices, allegedly because of poorly conducted negotiations with Gazprom. Poland’s gas prices rose from US$331 in 2010 to US$433 per thousand cubic meters in 2012. francE After France banned shale gas exploration in July 2011, the new socialist French government has opposed any lifting of the embargo since its inauguration in may 2012, despite having the third largest shale gas resources in Europe (after Russia and Poland) with technically recoverable shale reserves of 3.88 tcm. however, debates have intensified and have become more polarized – even within President hollande’s socialist party itself. Furthermore, though the “Jacob law” of 2011 banned hydraulic fracturing, other means of shale gas extractions are allowed, as well as fracking under certain restrictions in pursuit of “scientific experimentation”. PreSiDent hollanDe maDe it clear that UnDer hiS PreSiDencY no Shale gaS ProJectS will be alloweD in france. rather than by domestic developments in the coming years. Even the dismissal of minister of Ecology, Sustainable Development and Energy, Delphine batho, in July 2013 did not change the French government’s position; President hollande made it clear that under his presidency no shale gas projects will be allowed in France. Furthermore, the French Constitutional Council – the country’s highest constitutional authority – rejected a legal challenge concerning the government’s ban on fracking after the U.S. gas company Schuepbach Energy, which was originally granted two exploration licenses before the anti-shale legislation was introduced in 2011, issued complaint against the legal ban. but the debates are continuing. A report by the French bank Société Génerale warned at the end of October 2013 that European shale gas could be the only answer to the poorly-functioning EU gas market in which four foreign national oil companies (Gasprom from Russia, Statoil from Norway, Qatar Petro- 73 CASPIAN REPORT, SPRING 2014 The French Economy and Finance ministry want to lift the embargo. The French Commissioner for Investment, Louis Gallois, called for the government to revoke the ban on shale gas extraction in France in the November 2012 “Pact for the Competitiveness of French Industry”. GDF Suez SA (GSZ) and Total SA (FP) have been the most vocal industrial supporters of shale gas projects in France. Arnaud montebourg, the minister of Industrial Renewal, has also repeatedly supported a rethinking of shale gas exploration and seeks to circumvent the present ban by developing strict guidelines. The former French Prime minister, Francois Fillion, has also deplored plans to ban research into shale gas developments as “criminal” and indicative of a “medieval mind set”. The IEA expects a reversal of the moratorium and ban on hydrofracturing, and a subsequent rise in shale gas production after 2020 to around 8 bcm by 2035, exceeding its peak gas production back at the end of the 1970s. While the French energy giant Total has moved forward with shale gas exploration in the U.S. and has begun or declared its intention to invest in shale gas exploration projects in Uk, Poland, Denmark, China and Argentina, the French policies for shale gas explorations will be determined by the progress in other European countries like Poland and the Uk DUring the laSt three YearS, exPloration licenSeS for SPain’S conventional anD Unconventional hYDrocarbon reSoUrceS have almoSt DoUbleD. FRANk UmbACh leum and Sonatrach from Algeria) control around 50% of the European gas supply. France’s Académie des Sciences has recommended that further research into shale gas extraction be undertaken, and has also called for an “independent and multidisciplinary scientific authority” to assess the methods and operating practice. 74 spaIn The Spanish Energy ministry and the Autonomous Communities have granted numerous exploration permits in various autonomous regions (mainly in the northern part of the country) after recent discoveries of shale gas deposits. During the last three years, exploration licenses for Spain’s conventional and unconventional hydrocarbon resources have almost doubled in the Asturias/ Cantabria/basque Country onshore and offshore areas, as well as in the offshore regions of Fuertenventura, Lanzarote in the Canary Islands. In the latter region, shale gas deposits are reportedly much larger than in peninsular Spain. In the basque Country area, a “world-class-shalegas play” has been identified. With the strong support of regional governments and North American exploration companies, the Spanish unconventional gas industry hopes to expand exploration activities and go into the production of its shale gas reserves in the mid-term. In August 2013, the Spanish government prepared a project for the Law of Environmental Evaluation, which would require all projects using fracking technology to submit an “evaluation of impact” report. The government has advanced the use of fracking and given legal protection to the controversial technology. Due to the severity of Spain’s economic crisis, the concept of using cheap domestic energy resources has had greater resonance among the Spanish population than in most other European countries. The Superior College of mining Engineering has estimated that Spain’s shale gas resources can provide 39 years of domestic gas consumption. Spanish fracking companies have formed the lobby group “Shale Gas Espana” to promote shale gas projects and to dispel myths surrounding suspected environmental risks of the fracking technology. Despite its dependence on imports of hydrocarbons up to 99% - leading to an energy deficit worth 45 billion Euros (almost 4% of the national GDP) - environmental groups and dozens of Town halls and provincial governments as well as the Spanish Federation of municipalities and Provinces (FEmP) have presented 103 motions against fracking. At the end of last October, parliament passed an amendment to the country’s hydrocarbon law, which will speed up the development of unconventional gas projects in Spain. The law prevents regional governments from banning hydraulic fracturing projects. Com- panies are obliged to submit an environmental impact assessment to pass the highest environmental approvements. however, Spain’s history of excessive bureaucracy causes doubts about future shale gas projects. but despite the country’s heavy dependence on LNG imports, Spain is tied into relatively few long-term take-or-pay gas contracts for pipeline gas. This gives Spain much commercial flexibility for its shale gas projects. lIthuanIa For the baltic states (as with Poland), the exploration and development of shale gas projects represent an important strategy for diversifying gas supplies, to reduce their gas dependence on Russia and to access much cheaper gas than the expensive Gazprom imports. Lithuania was the first Baltic state to announce a shale gas tender in June 2012. In September 2013, Chevron won a tender for a license to explore shale gas resources. but few weeks afterwards, Chevron retreated. The investment and legal regulations adopted by the Lithu- anian government shortly after the tender included chaotic changes to the legal, fiscal and regulatory frameworks (due to a lack of governmental coordination, which made the tender increasingly less attractive and commercially viable. Chevron’s withdrawal considerably damaged Lithuanian’s pursuit of energy independence, or at least its aim for reducing gas imports from Russia. It has also damaged the national economy by deterring other foreign investors. but it did reveal that the government did not seek to obtain a broad base of public support. Nonetheless, the government remains optimistic that a new tender will attract serious investors. roManIa bulgaria, Romania and hungary have around 538 bcm of technically recoverable shale gas reserves. Romania’s annual gas consumption is 13-14 bcm, most of which it can cover with its own significant gas reserves – unlike many of the neighbouring balkan countries. In 2012, Romania imported 2.17 bcm of gas from Gazprom. Despite a temporary until the beginning of 2013, the Romanian government continued its negotiations with Chevron for a shale gas exploration project in Constanta County. In December 2012, the hungarian energy company mOL and Canada’s East West Petroleum also obtained exploration licenses 75 CASPIAN REPORT, SPRING 2014 After Poland, Romania, and Ukraine, Lithuania is considered as the fourth most attractive country for shale gas production in Central Eastern. Lithuania could hold 480 bcm of unconventional gas with around recoverable 120 bcm. If these unconventional gas reserve estimates are confirmed, Lithuania - consuming 3.4 bcm in 2011 (all supplied by Gazprom) - could supply its domestic gas demand for the next 30-40 years. after PolanD, romania, anD Ukraine, lithUania iS conSiDereD aS the foUrth moSt attractive coUntrY for Shale gaS ProDUction in central eaStern. FRANk UmbACh approved by the government. In the same month, a local referendum on the use of fracking technology for shale gas production was declared invalid because less than 50% of voters participated. 76 At the end of January 2013, the Romanian government awarded Chevron exploration licenses to pursue unconventional gas production, despite environmental concerns. Prime minister Victor Ponta has warned that Romania’s economic competitiveness vis-à-vis Poland and other countries will suffer if shale gas is not exploited. he also hopes to reduce the country’s dependence on Russia and Gazprom, with the further benefit of purchasing gas much more cheaply in comparison with Russia’s high prices of US$450 per 1,000 cubic meters. but he believes that the exploration and confirmation of existing or non-existing economically exploitable resources may take up to five years before a final decision to produce shale gas can be made by the government. Together with its newly discovered offshore conventional gas resources in the black Sea holding 42-84 bcm (which would cover its gas demand for nine years), Romania’s even higher shale gas resources could cover its net domestic demand and make the country self-sufficient in terms of gas. In November 2013, the European Centre for Excellence in the field of natural gas (CENTGAS) and part of the Romanian National Committee of the World Energy Council (RNCWEC) published a study concluding that Romania’s shale gas resources could represent a real alternative for strengthening Romania’s energy security and energy independence. Romania’s unconventional gas resources could transform the country into a gas exporter by the beginning of the next decade, contributing 1.5% to annual GDP, reducing gas prices by 12% in the short-term and by 33% in the long-term, creating jobs and generating more tax for the state budget with estimated annual revenues of US$176.2 million. New hydraulic fracturing technologies and a responsible water management can reduce the risks of technical accidents and environmental impacts, as responsible water management will eliminate potential sources of water pollution. bulGarIa bulgaria has an annual gas consumption of around 3 bcm and is almost completely dependent on imports from Gazprom. The bulgarian government adopted a moratorium on the exploration of shale gas and the fracking technology in January 2012 as a consequence of local opposition, months of protest and pro-Russian attitudes. Legislation was amended in may 2012 to allow the development of natural gas projects by conventional drilling technologies, for instance for the newly discovered offshore gas fields on bulgaria’s black Sea coast. however, fracking technology for shale gas exploration is still not permitted. Since then, there has been a push to lift or at least review the ban by the movement for Energy Independence (DEN), parts of the government and the bulgarian President Rosen Plevneliev. Even bulgaria’s Environment minister stated that the moratorium on hydraulic fracturing is rather a temporary measure until a review of potential environmental and health risks have been conducted and prove that those environmental risks can be controlled and managed. Romania’s issuance of exploration licenses for its shale gas reserves and early successful lighthouse projects will shape the future trajectory of bulgarian discussions and decisions in regard to the current moratorium on hydrofracking. however, many energy experts believe that this decision is likely to be reversed once environmental studies are completed. EstIMatEd EuropEan shalE Gas rEsErvEs: conclusIons and pErspEctIvEs Notwithstanding its own unconventional gas prospects, the EU-28 stands to benefit from the expanding worldwide unconventional gas production in various ways. This emerging global trend will open up new sources of LNG imports, includ- The U.S. shale gas revolution cannot be replicated in Europe with the same low costs of shale gas production; nor will it reach the same volumes. It will take place in an evolutionary (rather than ‘revolutionary’) way. Nonetheless, it is expected to become an economically competitive source of energy, in particular compared to imported Russian conventional gas from its new and very expensive gas fields in the remote regions of Yamal and Siberia, transported via long distance pipelines. With the growing use of LNG on the global gas market, traditional oilindexed gas contracts will gradually decrease as the global gas market becomes increasingly integrated, whereas spot markets for gas will expand both in number and importance. Embracing unconventional gas will keep costs lower than any future conventional production from new gas fields in remote regions, including the Arctic in Russia, as well as the hugely expensive new (underwater) gas pipelines. Cheaper European shale gas will help break Europe’s overdependence on very costly future Russian gas supplies. The short and mid-term consequences of ignoring or denying the positive strategic dimensions of Europe’s domestic unconventional gas reserves are increased gas imports from Russia, plus higher volumes of LNG from often politically unstable producer countries outside of Europe. In 2012, the EU-27 spent 77 CASPIAN REPORT, SPRING 2014 • UK: Up to 1,700 trillion cubic metres. Original estimates were as high as 5.3 tcm. • Germany: 6.8-22.6 tcm, with technically recoverable reserves of 0.7-2.3 tcm (10% of total shale gas reserves). • ExxonMobil estimate of Germany’s exploitable reserves: 827 bcm. • German conventional gas reserves in comparison: 150 bcm. • Bulgaria, Romania and Hungary: 538 bcm of technically recoverable shale gas reserves. ing from the U.S. and countries for which exporting gas is an entirely new industry. FRANk UmbACh Shale gas drilling rig. 78 €408 billion on energy imports – six times more than in 1999, and equal to 3.9% of GDP. This “alternative” not only threatens Europe’s energy supply security and economic competitiveness, but also creates a much bigger CO 2 -footprint. If lifecycle analyses are calculated based on emissions not only from the production process, but also from the long distance transport via thousands of kilometres of pipelines from Russia, CO2 emissions from domestic shale gas resources would be around 30% lower. The alternatives to domestically-produced shale gas would therefore lead to higher gas prices, reduced supply security and higher CO2 emissions. In other words: the use of domestically-produced unconventional gas serves all three major objectives of the “energy triangle”: supply security, economic competitiveness and environmental/climate protection. With the increasingly wide price gap between the North American and the European oil and gas market (gas: US$4.5 per million british thermal units in the U.S. in comparison with US$9 in Europe and US$18 in Asia), a “re-industrialization” of energy intensive and other industries is already underway on the U.S. side. The future economic competitiveness of Europe and Asia towards the U.S. faces increasing challenges with much higher gas and other energy prices. Confronted with rising oil and import dependency (in contrast to the U.S.) from politically unstable or other problematic suppliers, EU energy security faces even more severe risks, vulnerabilities, and uncertainties in the future. Increased European efforts to maximise the potential of its own unconventional oil and gas resources could also help the EU to retain or create industrial sector jobs, contributing to its overall future economic competitiveness. 79 CASPIAN REPORT, SPRING 2014