Chevron (NYSE: CVX) and Royal Dutch Shell (NYSE: RDS.A) are getting an early start on shale exploration campaigns in eastern European countries. With the United States fast emerging as a shale natural gas leader, European economies eager to bolster their own energy independence are working to follow suit. Shell plans to spend more than $400 million to tap into Ukrainian shale, while Chevron has similar ambitions in eastern Romania. While regional shale gas production isn't going to match that seen in the United States, it's expected to eventually weaken the Russian grip on the region's energy sector.
The U.S. Energy Department's Energy Information Administration estimates that, together, Bulgaria, Hungary and Romania may hold many trillion cubic feet of shale natural gas. That was enough to give U.S. supermajor Chevron the confidence to move ahead with an exploration campaign there. The company began taking on shale concessions in 2010 and has since announced plans to start exploration. If EIA estimates are close to accurate, there may be enough shale gas in Romania to cover its energy needs for the next 40 years. The company, however, still needs environmental permits to move forward with its campaign.
Royal Dutch Shell, meanwhile, announced in January it was spending $10 billion to develop the shale potential in neighboring Ukraine. Chief Executive Officer Peter Voser said on the sidelines of last month's economic summit in Davos, Switzerland, that his company sees "a lot of potential" in Ukraine, where the EIA puts the reserve estimate for shale natural gas at 42 trillion cubic feet. That's the third largest for shale of any of the Eastern European countries. Kiev says domestic natural gas productions should eventually eliminate the need for imports altogether.
Russian energy company Gazprom said Friday there was no way Ukraine could avoid paying the $7 billion it owes for unused natural gas last year covered under a "take-or-pay" scheme. Both sides have been at odds over gas contracts since at least 2006 and last year, the European Commission launched an anti-trust probe into the natural gas giant's business practices in the region.
For shale oil, PricewaterhouseCoopers reported that production could add another $2.7 trillion to the global economy per year by 2035. For shale, the picture could be just as bright. In the United States, shale natural gas could add another $118 billion to the country's gross domestic product by 2015 and triple to $231 billion by 2035. In parts of Europe, however, nearly 70 percent of the gas consumption is covered by imports and as much as 90 percent of that is from Russia. In terms of conventional reserves, however, few in Eastern Europe have enough conventional reserves to make a difference. Dutch company KPMG says that Romania and Ukraine are among the leading shale gas markets in the region, however. While the reserve potential is significant, it's no match for the United States. Nevertheless, KPMG, in a 2012 audit, found that shale gas production in Eastern Europe may eventually contain Russia.
"Shale gas production will not reach the same volumes as those of North America, it is expected to be a competitively-priced source of energy, as compared to that of imported Russian conventional gas," the audit states.
By. Daniel J. Graeber of Oilprice.com