America’s natural-gas stocks are at record highs and prices have
collapsed. The country, one authority proclaimed in July, suddenly has
100 years of supply. There is even talk of converting planned import
terminals for gas into export terminals.
The reason for this “quiet revolution”, as Tony Hayward, the boss of
BP, recently described it, is a drilling technique known as “hydraulic
fracturing”, in which a mix of water and chemicals is blasted
underground to create fissures in gas-bearing rocks. This has made it
much easier and cheaper to extract gas from shale, coal and other less
permeable geological formations (which yield so-called “tight gas”).
The extent of such “unconventional” gas reserves in Europe is
unknown. The International Energy Agency (IEA), which monitors the
energy business for rich countries, recently estimated it at 35
trillion cubic meters—far less than in North America or Russia, but
about six times the continent’s conventional reserves. That would be
enough, the IEA calculates, to displace 40 years of gas imports at
current levels. Almost half of it is thought to be in shale; the rest
comes from coal-bed methane and tight gas. The German Research Centre
for Geosciences is in the midst of a more detailed assessment, backed
by oil firms.
More will be revealed as firms start drilling in the coming months.
ConocoPhillips and 3 Legs Resources should have the results of their
first wells in the north of Poland late next year. They say the
prospect is “promising”. Rhodri Thomas, an analyst at Wood Mackenzie,
an energy consultancy, says the geology of the Polish shale is similar
to that of the Barnett Shale, a giant field in Texas that now supplies
about 7% of America’s gas.
But however promising the geology, there will be plenty of obstacles
above ground. Most countries in Europe lack both the small wildcat
exploration firms that spearheaded shale-gas exploitation in America,
and the myriad competing oilfield-services firms that support them,
thus driving down costs. Indeed, the rush for shale assets in Europe
has been led by many of the big firms that at first overlooked
unconventional gas in America.
Exploiting shale also requires drilling lots of wells—something that
might prove harder in densely populated Europe than in America’s
wide-open spaces. Even in America, concerns about what blasting
chemicals into the ground does to the water supply are hampering some
developers. Chesapeake Energy, one of the biggest shale-gas firms,
recently abandoned plans to drill in New York state after such worries
were raised there. European consumers are not likely to ignore such
matters, even if the industry says the practice is safe.
Yet strategic imperatives may prompt some countries to overlook such
concerns. By happy coincidence, many of the most promising shale-gas
deposits in Europe are in those countries most vexed by their
dependence on imports of Russian gas, such as Poland, Hungary and
Mr Thomas says production would be viable at a gas price of around
$9 per million British thermal units—far higher than spot prices during
the present global glut, but well within expectations for the years
ahead. Nonetheless, he does not expect shale gas to have a “material
effect” on European supply for a decade, since drilling will take some
time to ramp up. Even if shale gas does not live up to expectations in
Europe, the continent is already benefiting from it: as America imports
less gas than expected, that helps bolster supplies and reduce prices