Why Europe won’t exploit its huge gas reserves

As energy prices continue to soar across Europe, gas prices jumped 26% on Monday after Russia stopped pumping via Nord Stream 1, the hotly debated fracking debate is now resurfacing on the continent, led by a new British Prime Minister with fossil fuels in head. The European Union – which no longer includes the UK – plans to replace two-thirds of Russian gas imports by the end of the year, although analysts warn that the bloc’s best chance of replacing the Russian gas imports will be well below the target.

In 2021, the EU imported around 155 billion cubic meters (bcm) of natural gas from Russia. Unfortunately, the gas replacements offered by the bloc by the end of 2022 – which include LNG (liquefied natural gas) diversification, renewables, heating efficiency, pipeline diversification, biomethane, rooftops solar panels and heat pumps – account for only around 102 billion cubic meters per year, according to data from the European Commission’s REPowerEU.

Proponents of fracking argue that Europe’s shale gas potential is needed more than ever, although Germany, France, the Netherlands, Scotland and Bulgaria have all previously banned splitting. Now the debate is reignited by recent movements in the UK.

The new British Prime Minister Liz Truss announced that the UK is lifting a 2019 moratorium on shale gas fracking as the country seeks to boost domestic energy resources and help households and businesses struggling to pay rising energy bills.

The lifting of the ban on fracking comes just three years after the government ended its support for hydraulic fracturing after the oil and gas industry regulator determined that “it is not possible with current technology to accurately predict the likelihood of tremors associated with fracturing.”

Britain has only two shale gas wells in Lancashire operated by Resources Cuadrilla. Cuadrilla CEO Francis Egan welcomed the lifting of the ban saying: “This is an entirely sensible decision and recognizes that maximizing the UK’s domestic energy supply is vital if we are to overcome the current energy crisis and reduce the risk of it happening again in the future. coming. Without the strong measures set out today, the UK would have to import more than two-thirds of its gas by the end of the decade, exposing the UK public and businesses to further risk of supply shortages and rising prices all the way..”

Despite its desperation, the rest of Europe is unlikely to follow suit, although the renewed debate has revived discussions about the shale potential Europe has and why it is not being exploited.

Shale gas in Europe

Europe has more recoverable shale gas than the United States, says estimates. However, the only major fracking activity is in Ukraine, which successfully weaned itself off Russian gas years ago.

Hydraulic fracturing in Europe has long been a contentious issue due to population density, in large part. It’s not North America.

In 2016, Cuadrilla Resources won permission to fracture up to four wells in the UK, ending years of battles with local authorities. Five years earlier, the company was forced to stop drilling after the government imposed a year-long moratorium on fracking due to tremors from a Cuadrilla exploratory rig in north-west England. In 2013, the company’s drilling activity was halted again after hundreds of protesters camped in a small village south of London and forced it to abandon its wells.

Meanwhile, in 2012, protesters in Zurawlow, a town in eastern Poland, successfully blocked a fracking site while Greenpeace activists occupied a shale gas platform in Denmark.

Strong public opposition – along with tax concerns, regulatory delays and poor performance from a handful of test wells –hunted investors. Exxon Mobil (NYSE: XOM), Chevron (NYSE: CVX) and TotalEnergies (NYSE: TTE) were forced to abandon projects in Poland after exploration proved disappointing. Weak gas flows have also halted progress in Denmark, where Total has abandoned shale gas drilling.

The big problem with hydraulic fracturing in Europe is that some of the conditions that fueled the US shale boom do not exist in Europe. In most countries, it is the state, not private landowners, that owns the mineral rights to the oil and gas in the ground. Compare that with the United States, where the owner’s share can reach up to one-eighth of production revenue. This in effect means that fracking does not bring great financial rewards to European landowners.

Related: Record Gas Prices Could Be Bullish For Oil

To gain more public support for the technology, the UK government and some companies have already offered direct payments to those affected by fracking. However, environmental groups strongly opposed the move, calling the payments a bribe. The situation is not helped by the fact that the population density in Europe is more than 3 times that of the United States, fueling not-in-my-backyard protests. For example, many rural projects have been rejected in the past because they would bring trucks and equipment used for hydraulic fracturing on scenic roads dating back to Roman times. Indeed, Gazprom has previously said that the difficulty in finding unpopulated land in Europe and enough water to exploit shale wells will help Russian gas to remain competitive. Even better for Russia: it can produce gas for around a sixth of the breakeven cost of UK shale.

Even after decades of hydraulic fracturing in the United States, many Europeans still view the technique as untested.

It will be interesting to see if record high energy prices will finally convince Europeans to change their minds about fracking shale gas. Several European countries have already backed off and resumed burning coal at record levels to keep their power grids alive, reversing their climate targets.

But here’s why environmentalists could still win: Studies have shown that while natural gas burns cleaner than coal and has reduced greenhouse gas emissions, the the fracturing process can negate these benefits. Fracking is dirtier than burning coal, primarily due to the direct emission of harmful carbon dioxide and methane, two potent greenhouse gases.

By Alex Kimani for Oilprice.com

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