The history of shale gas extraction in Europe has turned out to be short-lived. It boils down to Europeans believing, with surprising credulity, that a new life was about to begin with the promise of energy security.
All these hopes were underpinned by an estimate, first appearing as a forecast by the International Energy Agency in 2009 and resurfacing in later editions, of Europe having as much as 16 trillion cubic meters of technically recoverable shale gas. Annual reviews by the US Energy Information Administration for 2011 and 2013 provided a similar picture. It is these three documents that were behind European shale gas fever.
These data are still frequently mentioned and often serve as a basis for new regulations. The European Commission’s March 2014 Communication on the Exploration and Production of Hydrocarbons (such as Shale Gas) Using High Volume Hydraulic Fracturing is a case in point. According to the document, commercial shale gas production in some countries of the EU could be possible as early as 2015-2017. Once again, it refers to the International Energy Agency’s 2012 forecast in which shale gas is expected to account for a half of Europe’s own gas output by 2035.
Russia’s attempts to question optimistic forecasts of this kind were underpinned by a simple industry-minded logic, in which geological exploration comes first, and only if it yields positive results can the energy strategy be revised. However, Europe moved in the opposite direction by pinning its hopes on chairborne expert appraisals before any concrete results were obtained. This hastiness has led, among other things, to a cooling in relations with the traditional suppliers, primarily Russia.
This unreserved commitment to generous expert evaluations was hardly justified. Calculations of this kind are usually based on an approximation of shale deposit volumes in a region multiplied by the mean gas recovery factor. Specialized geological exploration efforts are aimed precisely at clarifying the key parameters that are crucial for shale gas production to be efficient: formation thickness and depth, its gas content, shale porosity, and many other factors. Without such a survey any forecasts are mere arithmetic.
The best way to illustrate the shale gas revolution outside of the US is to look at Poland’s example. Shale gas exploration began pretty much at the same time as the first EIA evaluations were published, valuing the country’s reserves at over 5 trillion cubic meters. In March 2012, the Polish Geological Institute (PGI) and US Geological Survey revised the recoverable shale gas volumes down to 550 billion cubic meters. All in all, over 100 licenses have been granted since exploration entered into the active phase, and 70 exploration wells have been drilled as of April 2015. However, little is known about the results of these efforts. For instance, the commercial gas flow at one of the most successful wells came in at just 8,000 cubic meters per day. As a result, all major companies, including Exxon, Shell, Chevron and Talisman, have now wound down their operations in Poland. Only one well is expected to be drilled in 2015, down from 24 in 2012, when exploration was at its pinnacle. What this means is that the country lacks commercially attractive reserves despite the initial forecast of 5 trillion cubic meters.
It has to be said that from a geological perspective, Ukrainian shale is part of the same formation found in Poland. So Shell’s decision to back out of its Ukraine projects is due not so much to the strained situation in the country as to the unsatisfactory results at two wells that were drilled in the Kharkov Region. Judging by Polish experience, successful shale gas production in Ukraine is unlikely.
We believe geological fact to be the key to successful shale gas production. All other matters, including land ownership, regulations, production costs and environment, can be discussed only once there is certainty that the deposits are actually there. For Europe, this does not seem to be the case, at least for now.
In Europe, Great Britain has currently taken center stage in shale gas exploration. As of early 2015, seven exploration wells were drilled there, and another 11 are expected this year. All that is now known about the preliminary results is that they are “encouraging.” Some 40 wells must be drilled to make the first preliminary evaluations, which will take several years. Only after that can the issue of industrial extraction be raised based on geological data rather than model calculations. It is already evident that even if the results are positive, environment and nature protection will come to the forefront. It is hardly imaginable that 4,000 wells, according to Poyry experts, or as much as 10,000 wells, according to Bloomberg New Energy Finance, will be drilled across this island nation. The Albion’s green valleys will become a feeding ground for oversize moles.
The impact of shale gas production on environment is unclear. Hydraulic fracturing proponents believe that the oil and gas industry has extensively used this method for an extended period of time, making it quite safe, if the needed level of oversight is provided. This could be a valid point if not for the unprecedented scale of hydraulic fracturing needed for shale gas production. While the risks of a single operation of this kind are well known, the consequences of it being repeated many times within a limited territory have yet to be understood. That said, any environmental protection initiatives will lead to higher gas production costs. For instance, some German operators believe that complying with all environment regulations makes shale gas production unprofitable.
As for the future of shale gas output in Europe, we can refer to a single document, this time an official paper, the ENTSOG Ten-Year Network Development Plan. The 2015 edition outlines three possible scenarios. The first forecasts zero shale gas output in the EU due to poor exploration results, challenging geological conditions, and lack of personnel and technology. There is also a moderate scenario, under which shale gas production could begin after 2025, totaling 4.7 billion cubic meters by 2035. The third scenario predicts 16 billion cubic meters by 2035. It is obvious that the optimism over shale gas production in Europe is waning, and production is unlikely to impact gas supplies to the region.
The chances for a US shale gas revolution being replicated elsewhere are slim, if existing at all, which IEA’s Executive Director Maria van der Hoeven acknowledged in June 2013 in St Petersburg. China could be the second region where shale gas production on an industrial scale is possible in the medium term, although China is also revising down its ambitious projections in this respect.
The whole world keeps a watchful eye on the gigantic experiment, in which humanity is conquering yet another previously unavailable resource from nature. It has much to do with geology, the environment, technology, economics, politics, speculation and innovation. Maybe in a decade it will become clear whether it was worth it. But for now, the show must go on.