Attitudes Toward Fraccing Soften

BMI View : Hydraulic fracturing, the controversial practice used to extract shale gas and liquids, is safe from a Europe-wide ban - for now. Environmental opposition against it persists , but the reluctance of the European Parliament to bow to these pressures show s significant recognition of the cost savings and energy security that tapping into Europe's shale gas resources could bring about. We reiterate that the debate on shale gas has only just begun in Europe. Together with technological innovations and a risk management framework to govern fraccing, we could see further softening of attitudes towards it .

The European Parliament has rejected a proposal for a moratorium on h ydraulic fracturing (fraccing) across all member states of the European Union. However, fraccing is not likely to be more broadly embraced until a framework on risk management to address existing regulatory shortcomings is formulated in 2013. Environment Commissioner Janex Potonick hopes that this framework will 'close regulatory loopholes and provide maximum clarity and foreseeability' to market operators and gain public acceptance.

These are positive developments for Europe. Development of its shale gas resources has faced more opposition than in other regions of the w orld. Moratoria on fraccing are in place in France, Bulgaria, Ireland and the UK, while strict environmental regulations have put a de facto ban on shale gas activities in countries such as Austria - a complaint held by Gerhard Roiss , chief executive of OMV , Austria's largest oil and gas player.

Fraccing Splits Europe

Europe ' s strong environmental lobby has made its presence strongly felt in the political debate on fraccing. Within the European Parliament, the Greens and the European Free Alliance have rallied against the practice on environmental grounds:

  • Groundwater contamination from the huge volu me of chemicals pumped into the ground to extract gas from tight shale rock formations;

  • Ground tremors (or ' seismic events ' ) caused by the large pressure that fraccing exerts, as witnessed in Cuadrilla Resources ' Blackpool operations in 2011 in the UK;

  • Diverting resources away from greener energy sources such as wind and solar.

The impact of the first two environmental challenges is greater in Europe than in the US - the origin of the shale gas boom - because Europe's population density is comparatively higher. It has also been easier for states to restrict drilling activities, because the state has greater land ownership rights in Europe than in the US. These two factors combine to raise the visibility of the issue, while making the state more responsible to address it. The contrast in conditions for shale gas exploration in the UK and the US illustrates this point.

Table: UK vs US - Issues In Shale Gas Exploration
Source: BMI
Areas Bowland Basin, Lancashire Marcellus, Barnett, Haynesville, Eagle Ford, Bakken, etc
Population Established communities Relatively sparsely-populated
Land-holding rights A lot is owned by the Crown Estate A lot is privately-owned
Impact Reduces scope for speculative purchasing of land Allows E&P to take place at private level before state attention is brought to its environmental impact
Easier for wider public concerns to be taken into account in the licensing of land for exploration and production

However, support for f raccing in Europe is also increasing:

  • From the industry : The US Energy Information Administration (EIA) estimates Europe could have 16.8trn cubic metres (tcm) of recoverable shale gas resources - sufficient to supply the region for 40 years. Chevron, Halliburton, Total, Statoil, Cuadrilla, Vermilion Energy and Royal Dutch Shell have set up Shale Gas Europe to promote the resource, no doubt hoping to cash into the windfall this could bring about.

  • Environment : OMV's Roiss also said in an interview with the Wall Street Journal that 'we need shale gas because today's situation is worse'. He pointed out Europe has not been substituting gas with greener energy sources but with the more pollutive coal, which has 'twice the carbon dioxide emissions'. Europe's Energy Commissioner Gunther Oettinger also recognised that gas is an 'essential complementary energy source' to renewable energy. Domestic shale gas production could bring about the volumes necessary to support renewables while containing energy import costs.

  • Economic revival: Roiss points out that the petrochemical industry in Europe could benefit if fraccing allows for new and cheap hydrocarbon resources to be produced domestically and be used as feedstock for these plants. Politicians are also coming around to its economic benefits. French industry minister Arnaud Montebourg challenged President Francois Hollande's anti-fraccing stance when he said in early November 2012 that 'the merits of shale gas should be explored' to lower France's energy import bill and domestic prices by association.

  • National sovereignty : Polish representatives, unsurprisingly, were strongly opposed to a fraccing ban. They stressed that domestic shale gas production offers an opportunity for the country to break out of dependency on Russian gas. Prime Minister Donald Tusk is determined for the country - one of the trailblazers of shale gas E&P in the continent - to 'persistently ... show Europe that production of shale gas makes sense'.

And The Debate Rumbles On

Both sides present strong arguments, and what is certain is that this debate will continue. However, the decision of the European Parliament to dismiss a proposal to ban fraccing is indicative of a softening of attitudes towards it.

The 2013 schedule for a regulatory framework to come into being is also a promising development. Resistance against fraccing, particularly from the public, stems in part from an uncertainty about how European citizens will be protected from any negative consequences of shale gas E&P. Clarificatio n will ease public opposition against the practice.

We also believe that technology for shale gas E&P will improve in time. Pressure to address environmental effects of fraccing will push firms and governments alike towards this. There is ongoing research to improve the precision of fraccing operations. This could reduce the amount of liquids needed to extract shale gas, and possibly reduce the risks of groundwater contamination. Technological breakthroughs will further ease environmental concerns.

In the short term, European opinion on shale gas will remain split. However, the economic benefits of shale gas are hard to ignore , particularly as the continent seeks new ways to move a stalled economy forward. Cheap shale gas supplies could do just that.

This article is tagged to:
Sector: Oil & Gas
Geography: Europe, Europe, Austria, Bulgaria, Germany, Denmark, France, United Kingdom, Ireland, Poland, Sweden, Europe, Europe

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