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As the communists insisted that they had found the ideal model for society and that capitalism was doomed, Russia today insists that shale gas is a harmful, temporary phenomenon that won’t affect its traditional gas business.

Shale gas has revolutionized the gas business in the U.S., and industry experts and executives say the same could happen in Europe and Asia.

Russia, however, has repeatedly downplayed the role of shale gas and insisted it won’t hurt its lucrative model of extracting gas at deposits in West Siberia and pumping it through huge pipelines to consumers in Russia and Europe.

But in a sign the phenomenon is in fact being taken seriously, the board of directors at the world’s biggest gas producer, state-owned OAO Gazprom, this week highlighted environmental risks and the high costs of production in Europe.

“The production of shale gas is associated with significant environmental risks, in particular the hazard of surface and underground water contamination with chemicals applied in the production process,” Gazprom said in the statement following the board meeting.

The board also said that “Europe presently lacks the equipment required for shale gas fields development. Thus, the prime cost of shale gas production in Europe will be twice as high as in the U.S.”

As usual, and in line with previous sporadic mentions of shale gas by Russian officials, Gazprom didn’t mention that shale gas could pose a threat to its gas business.

Gazprom is “making a big mistake,” said a senior executive at one of the world’s biggest oil service companies. While shale gas in Europe will take longer than in the U.S., the prospect of large-scale European shale gas production is real, the executive said.

Although the technology has yet to be applied on a commercial scale in Europe, companies like Chevron Corp., Exxon Mobil Corp. and ConocoPhillips are now drilling on the Continent, hoping to repeat what happened in the U.S.

European shale gas isn’t expected to find its way to the market for at least a decade. But the market has already been affected, as liquefied natural gas cargoes have been redirected from the oversupplied U.S. market to Europe, giving European importers an alternative to Russian gas.

The Wall Street Journal, 30 November 2011