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Shale Gas

An alternative to the alternative?

Shale gas has revolutionized the American energy market. In 2006, North Dakota’s Bakken region produced 6,000 barrels of oil per day. Thanks to technological advancements in horizontal drilling and hydraulic fracturing, the Bakken region was producing 600,000 barrels of oil a day by 2012 – a 100-fold increase. As a result, the price of gas has plummeted and America’s industry has found a second wind. As an added bonus, while still a fossil fuel, natural gas is the least carbon-intensive of the major energy sources, emitting 60% less CO2 than coal. By investing in so-called unconventional gases, the US has achieved a real coup, reducing its carbon footprint and increasing competitiveness all at once. So why hasn’t the ‘old continent’ ventured into shale gas, both as a way to secure the energy supply and to protect industrial competitiveness?

What is shale gas?

Shale gas and other types of unconventional gas, such as coalbed methane and tight gas, are found in rock formations deep underground and can be extracted under high pressure. This resource was previously considered too uneconomic to produce. However, recent technological developments have enabled their safe and relatively inexpensive extraction in the US. The process involves the combination of two technologies: horizontal drilling and hydraulic fracturing (or fracking).

Horizontal drilling allows a well to be drilled horizontally thousands of meters underground, providing greater access to reservoirs to enhance and maximize productivity and economic resource recovery. This drilling practice also reduces the environmental footprint by enabling the drilling of multiple wells from one site. Once the well has been created, the next step is to introduce hydraulic fracturing. This consists of injecting a solution, made up of water, sand and a small amount of chemicals, into the rock far underground at extremely high pressure. This opens small cracks in the shale rock and other tight rock formations, allowing trapped natural gas and oil to migrate into the well produced by horizontal drilling.

Improved geological understanding and technological innovations have unlocked the potential of shale gas, which now makes up 35% of US natural gas production. As a result, the US is producing more energy than it is importing for the first time since 1991, and prices have dropped to up to 80% lower than those in Europe. This competitive energy supply provides a strong foundation for increasing economic output in the United States, opening up valuable opportunities in many regions and sectors of the US economy, including industrial sectors such as chemicals, steel and car manufacturing.

EuropE's potential

While shale gas has turned the American energy market on its head, the production of shale gas has provoked much controversy in Europe, which has yet to tap into the latest energy boom. This is not for lack of resources, as according to the Energy Information Administration (EIA), an independent agency of the US Department of Energy, Europe has almost as much technically recoverable shale gas as the US. However, extraction costs are significantly higher in Europe primarily due to geological constraint. Shale formations in Europe tend to be deeper underground and harder to extract. Additionally, Europe faces other limitations due to its high population density, underdeveloped pipeline infrastructure and lack of skilled workers.

Shlale map

Source: US Energy Information Administration (April 2011)

European energy companies also face stricter regulations than those in the US, primarily for environmental reasons. At the extreme, France, which is potentially sitting on abundant shale reserves, will not validate any exploratory permits until the consequences of fracking are fully assessed. For other shale gas companies operating in Europe, the European Commission announced in October 2013 that they would have to account for the methane emissions (a by-product of fracking) at drill sites. This demonstrates the firm public and political opinion in Europe that energy resources must be valued in terms of their environmental impact as well as their economic benefits. Hydraulic fracturing is a relatively new technology and it remains true that its full environmental impact is yet to be fully understood, even though it has been confirmed as safe by several energy providers. Primary concerns include increased methane emissions, the high volumes of water and chemicals used in fracking, the risk of contaminating groundwater and the geological effects of fracking in terms of seismic activity.

Moreover, 60% of respondents to a Eurobarometer survey on air quality indicated that they would want to see a harmonized and consistent approach to unconventional fossil fuels in the EU. This demonstrates another EU-specific dilemma, as in general Member States must act under the same banner. They cannot commit to climate change goals, but change course when a new resource becomes economically attractive, and which may potentially cause more damage than conventional fossil fuels.

Europe’s energy challenges

The energy landscape in Europe is facing several challenges largely due to the decision of some EU Member States, including Belgium, to move away from nuclear power and switch to renewable resources. The focus has been on renewable energy sources, such as biomass, wind and solar photovoltaics, in order to reach their goal of reducing greenhouse gas emissions by 20% by 2020. Unfortunately, the costly subsidies system that accompanies these technologies has had a profound effect on domestic and industrial energy bills. Indeed, due to the shale gas revolution in the US, in World Energy Outlook 2013, the International Energy Agency (IEA) believes that, if competitiveness is not improved, it will cost both the EU and Japan one third of their current share of energy-intensive industries to the advantage of the US.

A shift toward unconventional gases, which emit less CO2 than oil and coal, could therefore be the happy medium between attaining cost competitiveness for their industry while simultaneously being able to reach the EU’s 20-20-20 targets. Furthermore, recent research demonstrates that investing in a shale future could have enormous socio-economic benefits for Europe. Commissioned by the International Association of Oil & Gas Producers (OPG) and carried out by the independent consultancies Poyry Management Consulting and Cambridge Econometrics, the report estimates that shale gas could add a total of €1.7-3.8 trillion to the economy between 2020 and 2050. Additionally, the study argues that shale gas could stimulate the creation of up to 1.1 million jobs by 2050.

What about Belgium?

“Belgium has potential shale reserves under Limburg, Liege and Campine.”

In early 2013, it was revealed that Belgium has potential shale reserves under Limburg, Liege and Campine. De Morgen reported that there may be up to 7 billion cubic meters of unconventional methane and coal gas beneath Limburg. If the unconventional gases are extractable, and the extraction can be done in a safe and cost-effective manner, shale gas would provide a more reliable source of energy than Belgium’s renewable resources, which naturally fluctuate with weather conditions and are accompanied by costly subsidies. Additionally, as Belgium is phasing out nuclear power by 2025, domestic production of shale gas would be a way of guaranteeing security of supply for the country’s industry.

While many petrochemical companies are eager to explore these reserves, they are faced with fierce local opposition, which, as previously mentioned, is not limited to Belgium. But while France and Bulgaria have banned fracking and Belgium hesitates, the UK is taking steps to promote the exploration of shale gas by providing tax incentives and Poland is leading the way, already having made significant exploratory investments. As history demonstrates that our actions can cause significant long-term damage, Belgium’s decision to wait may therefore be a wise one. On the other hand, this is a significant trade-off as the country continues to lose industrial competitiveness due to high energy bills and the high cost of labor.