If the EU continues to ignore the shale revolution, Europe will become the only big economic bloc without significant energy resources. The US, India, China and Latin America will all have access to shale, as well as offshore fossil fuels.
Amid the endless debates across the world on the safety of fracking, policy makers are missing the bigger picture. The ability to extract fossil fuels trapped in shale rock using advanced horizontal drilling, hydraulic fracturing and 3D seismic surveying is the most significant development in the energy industry for at least half a century. The shale revolution implodes the 80:10 resource ratio – that 80 per cent of oil and gas are to be found in the nations of the Opec oil producers’ cartel or Russia, and only 10 per cent in OECD countries and China. Energy can now be extracted from shale worldwide, most significantly in China and the US, but also in Europe.
However, even if they never extract one molecule of energy from shale, Europeans cannot ignore its consequences. It will reshape the continent’s geostrategic position. Positively, shale gas developed elsewhere will reinforce Europe’s supply security, either through excess conventional liquefied natural gas being diverted to its markets or by shale gas being shipped as LNG.
Far less positively, Europe will become the only big economic bloc without significant energy resources. The US, India, China and Latin America will all have access to shale, as well as offshore fossil fuels. As the US approaches energy independence, Washington will probably insist Europe invest in its own energy security by taking up part of the burden of protecting the flow of Gulf oil to the west currently provided by the US Navy.
The EU cannot avoid the impact of shale on its climate change policy, either. Brussels’ 2007 carbon emissions reduction targets were predicated on permanently rising fossil fuel prices, which would underpin the economic rationale for investment in a generation of renewable power. However, as shale development takes off across the planet, immense quantities of gas will become available, pushing prices downwards.
The US shale revolution is already distorting EU climate change policy. American gas prices are now so low that US coal producers are shipping their product to Europe. The surge in such exports seen in 2012 is likely to be a foretaste of a bigger problem for Brussels. The EU’s pro-renewable policies will act as a magnet for any coal producer forced from their home markets by shale gas development. Faced with expensive generation of renewables, European utilities will switch to polluting coal to reduce costs. The danger for the EU then is that, if it maintains existing climate change policies, it will become the global dumping ground for coal.
Aside from the geostrategic and climate change impact of shale, there is a considerable economic impact. High energy prices are not of themselves necessarily economically damaging. However, in a situation where all the other big economic blocs have, or soon will have, access to significant quantities of cheap resources, Europe faces a bleeding of energy-intensive manufacturing. This is likely to be made worse by the effect of cheap fossil fuels drawing such industries back to America. Many shale-producing states aside from the US will want to emulate that multiplier effect, either to keep manufacturing at home or to encourage its transfer to their economies – which will further reinforce European deindustrialisation.