Fracking Advances But Uncertain Outlook Endures
BMI View: Wintershall's estimate that Germany's unconventional gas resources could meet 100 years of domestic demand comes just as a politically contentious draft law that would allow fracking is under review. The outlook for Germany's sizable shale gas resources hinges on developments in the political arena , and despite support by the government and industry, the outlook for shale gas is still uncertain in spite of the latest news.
Wintershall , a division of BASF and Germany's largest oil and gas producer, discussed in its review of 2012 earnings the possibility that Germany could meet domestic gas demand for 100 years with production from unconventional resources. According to Wintershall, domestic production currently meets about 13% of demand, but unconventional resources including shale gas and tight gas, if unlocked, could alter the country's energy outlook dramatically , even under conservative estimates.
Wintershall is already assessing the potential of the Barnstorf play in Lower S axony, where up to 10bn cubic meters (bcm) of recoverable gas are present at depths of 4000m in a tight gas deposit. With approval for an appraisal well, Winterhsall hopes promising data will allow field development from 2014/15 .
However, tapping Germany's tight gas and even larger shale gas resources remains hampered by competing political interest. In order to tap tight gas despots, the use of hydraulic fracturing (fracking) will be necessary, which remains controversial in Germany both among the public and politicians. With estimates for recoverable shale gas resources ranging from 0.7 - 2.3 trn cubic meters (tcm) according to the country's Federal Institute for Geosciences and Natural Resources (BGR), tapping these significant deposits presents immense upside to Germany and its dependence on imported gas to meet demand.
Yet the politics of fracking remain the largest obstacle to the recovery of unconventional gas in Germany. Rising fortunes for political opponents of fracking saw the outlook for its near term prospects dim ahead of national elections in September 2013, however in late December 2012 a proposed ban on the practice was rejected in the Budestag ( see our online service, February 13 2013, 'Political Game Yields Mixed Signals For Fracking,'). Ahead of the election, and possibly in effort to appeal to fracking wary centrists, the ruling CDU Environment Minister, Peter Altmaier, warned pending rules on fracking would be as tight as possible and that he did not 'see in the foreseeable future that fracking will be employed anywhere in Germany.'
However political leaders have also faced pressure from industry, which has seen fracking unlock abundant, cheap sources of gas in the US, something that German industrial giants are eager duplicate domestically. Indeed, Germany industrial lobby BDI chief Ulrich Grillo said in reference to shale gas, 'if we immediately reject this, we will end up as international laggards.' At the end of February, Chancellor Angela Merkel's government released for public comment and review a draft law which would allow fracking under certain conditions:
Fracking would be banned in protected areas and in the vicinity of drinking wells which would exclude an estimated 14% of Germany
Mandatory environmental impact studies would be required before fracking could take place
The law is an attempt to balance standard s tough enough to satisfy fracking opponents from the Green Party and Social Democrats in order to reduce the political potency of the issue ahead of elections later in the year. Yet there is no certainty Merkel and her allies will succeed and fracking remains a contentious na tional and regional issue, indeed several regions have enacted their own bans. Yet with progress on legislation to allow fracking to go forward, Germany will benefit from strong interest expressed by majors such as ExxonMobil, who has previously conducted some exploratory drilling.
While this legislation will likely generate political controversy, its passage could dramatically alter the outlook for Germany's energy sector given the immense estimates of recoverable reserves. Germany's utilities are under pressure from the intense focus on the development of renewable energy, at high cost give n subsides, and the continued phase out of nuclear power. While the intricacies of current EU emission trading policy have made coal by far the most profitable source of power generation, BMI 's power and renewable analysts expect gas fired power generation in Germany to see growth as a source of backup power for renewable s . A change in policy within Germany or the EU-wide could pose further upside to the outlook for gas demand, which has fallen significantly in the face of cheap coal and a renewable push.
Given shale gas production would be years away even with the approval of the draft legislation, it may come online at convenient time given current trends for the power sector in Germany. The outlook for domestic gas production also makes the contribution of new sources of gas critical, although new investment has slowed the rate of decline of in recent years, we expect the fall in Germany's natural gas production to accelerate towards the end of our forecast period.
|Gas Demand Grows As Output Dwindles|
|Germany Natural Gas Production & Consumption (bcm)|