Can shale gas fix the energy dilemma, or is it another problem?

The gas industry’s quiet revolution in shale gas could redetermine the key players in the global market. The US and Western Europe stand to benefit from huge untapped reserves, while Russia is quick to point out the potential negative environmental effects.

European capitals spent much of the Noughties fretting about energy security and the continent’s over-reliance on Russia, especially for its gas, which Moscow used to great effect as political leverage. Like a chess grandmaster, the Kremlin plotted two or three moves ahead of the Europeans, leading to worries that the EU could end up shivering in the dark if it didn’t offer the necessary obeisance to Moscow.

But now, with demand for gas falling and the use of renewables rising, the prospect of developing a huge unconventional gas source using new technology could render meaningless the decade-long fight for control over the gas pipelines from Russia to Europe.

The gas industry’s “quiet revolution”, as Tony Hayward, chief executive of BP, described it, began in North America, where new techniques, such as horizontal drilling and hydraulic fracturing, have allowed energy firms to access hard-to-get-at deposits of unconventional tight and shale gas, as well as coal-bed methane (CBM), at much lower costs than thought possible five years ago.

By some estimates, the US now has more than 57 trillion cubic metres of gas available, giving it over 100 years of supply, and transforming it in one fell stroke into a gas self-sufficient country. By comparison, Russia’s reserves of conventional gas, the largest in the world, are just over 43 trillion cubic metres, according to BP. Experts believe unconventional gas resources could add as much as another 250pc to world reserves. The International Energy Agency estimates Europe’s reserves of such unconventional gas at 35 trillion cubic metres – enough to replace 40 years of gas imports at current levels.

Those techniques pioneered in North America are spreading to Europe and other parts of the world. ExxonMobil, which in December shocked the markets by announcing a $41bn takeover of US independent gas producer XTO Energy, has already drilled for shale gas in Germany, and is looking at drilling more wells in Hungary and Poland. ConocoPhillips is also looking at Poland in a joint venture with Lane Energy. And Austria’s OMV is looking for shale-gas deposits in the Vienna basin.

Unsurprisingly, Russia has poured scorn on these “unconventional” dreams. Alexander Medvedev, Gazprom’s deputy chief executive, claims there are many myths surrounding shale production and that the environmental consequences – such as intensive water use – are often overlooked. Hydraulic fracturing does involve injecting a mix of water and chemicals at high pressure in order to create fractures in the rocks to get the gas out. Industry and environmental groups argue this process has a significant environmental impact – as well as using lots of water, the fracturing fluid could contaminate water supplies – and could even induce seismic events.

Such concerns prevented the US gas firm Chesapeake from drilling for shale gas in New York state. Luckily for European policymakers, who are worried more about energy’s security than its purity, many of the most promising reserves are to be found in European countries that are most worried about Russia’s influence on their energy supplies.

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