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European Shale Gas: Huge Potential, Huge Challenges

Dan Sharp, Bismarck Tribune

Analysts agree that a European shale gas revolution will take time. Unlike the Bakken play, Europe’s resource underlies more than a dozen countries with myriad regulations. Western Europe and Russia could be in each other’s pockets for some time to come.

The West’s threat to levy sanctions on the Russian Federation for its March 2014 annexation of Ukraine’s Crimean Peninsula could come at calamitous consequences – on the other hand it might encourage some European countries to develop their tight shale gas resources by using Bakken-bred technology. Russia’s export of oil and natural gas supplies to the European Union constitutes a large share of its economic lifeblood – likewise, its European neighbors can ill risk an energy supply disruption.

Russia and the European Union: Joined at the hip

The 28-member European Union’s (EU) gross domestic product (GDP) is essentially equal to that of the United States – about $17 trillion. The European Union is the world’s second largest energy consumer, using about 75 percent as much as the United States. However, the EU harbors only about 2 percent of the globe’s proven crude oil resources and just 4 percent of its conventional natural gas.

The EU imports more than 50 percent of its annual energy requirements. About one-fourth of its combined oil and gas supplies come from Russia – including 40 percent of its natural gas. While the EU’s easternmost countries (e.g. Poland, Finland, Bulgaria, the Baltic States) are most vulnerable to Russian mischief, strong economies are at risk too. Germany, the world’s fourth largest economy, depends on Russia for one-third of its natural gas needs.

Russia has a recent history of using energy as a big stick. In 2008, it threatened to cut off gas exports to the Czech Republic when the Prague government agreed to base a U.S. missile defense system on Czech soil (the Czechs subsequently bowed to Russian demands). In 2008 and 2009, Russia cut off natural gas deliveries to Ukraine over prices and alleged Ukrainian corruption.

But, an energy shutdown to Western Europe is clearly not in Russia’s best interest. Oil and natural gas sales are Russia’s cash cow. (Russia’s $2 trillion+ GDP ranks eighth, behind Brazil and ahead of Italy.) According to the U.S. Energy Information Administration (EIA), those exports account for more than 50 percent of the country’s federal budget. The EU buys almost 80 percent of Russia’s oil exports and more than 60 percent of its natural gas. Using energy to hold Europe hostage could be a bad idea.

Bakken-like reserves

At a March 2014 EU-US summit, Jose Manuel Barrosa, president of the European Commission said that Russia’s annexation of the Crimean Peninsula could be a “very strong wake-up call for Europe” concerning its dependence on Russian energy. (The European Commission is the EU’s executive body.) Some industry analysts view this as a sign that European countries will become more serious about developing their Bakken-like energy resources. In January 2014, the International Association of Oil & Gas Producers said its studies show that, by so doing, Europe could seriously reduce dependence on Russian energy and create 1.1 million jobs by 2050.

Unlike the Bakken formation, Europe’s tight shale layers contain little oil. However, recoverable reserves of shale gas are huge. In 2013, EIA estimated that 500-600 trillion cubic feet (Tcf) of natural gas are recoverable (excluding Russian sources) using horizontal drilling and hydraulic fracturing technology. This represents roughly 8-10 percent of global shale gas reserves. Europe, whose annual natural gas demand is about 18 Tcf, currently has no tight shale gas production.

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