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No Shale Revolution For Europe

No Shale Revolution For Europe

It’s looking increasingly unlikely that Europe will be able to sever its reliance on Russian energy supplies by developing its own shale gas industry.

For years, Poland has been regarded as the European Union’s biggest hope for developing indigenous sources of natural gas because it sits on large reserves of natural gas trapped in shale. According to the U.S. Energy Information Administration, Poland has 148 tcf (trillion cubic feet of technically recoverable shale gas reserves and 1.8 billion barrels of shale oil. By comparison, Russia has an estimated 285 tcf of shale gas.

Poland represents the European Union’s best hope at breaking Russia’s grip over natural gas supplies, and its government has been highly supportive of shale gas development, which is rare in the green-tinged political circles of Europe.

Related: Should Europe Be Concerned About Russia’s Growing Energy Relationship with Asia

But things have not gone according to plan. Dozens of wells have been drilled since 2010, but almost none have been successful. In fact, Bloomberg reports, the most productive shale projects have returned gas flows that were just 30 percent of what is needed to be commercially viable.

Difficult geology has been a huge obstacle. ExxonMobil’s CEO Rex Tillerson said that the technology used to successfully extract enormous volumes of shale gas in the United States has not been successful in Poland. The geological conditions are simply not as favorable as they are in the U.S.

In 2012, in a sign of the country’s unmet expectations, ExxonMobil pulled out of Poland after drilling two wells that came up dry. Talisman, Marathon Oil, and Eni, three other relatively large oil companies, also gave up on Poland. Chevron is pushing forward with more plans to drill in Poland despite the setbacks. Active permits are now 43 percent below their peak in early 2013.

Complicating matters further is an array of “above the ground” problems in Poland. An effort by the Polish government to prematurely cash in on a shale revolution cast a cloud of uncertainty over the industry.

Several taxation proposals were circled in 2013, with tax schemes ranging from 40 percent to 80 percent tax on profits. Poland also wanted to require any international oil companies exploring in Poland to work with local Polish firms. One oil executive from Talisman described the moves as “dividing up the bear hide before you’ve shot the bear.”

Another problem is the fact that Poland’s population, as well as the rest of Europe’s, is much more densely located. In the United States, companies can drill wells far away from people’s homes (although that is certainly not always the case). But in Europe, the most promising plays are located much closer to local communities.

More importantly, local communities see much less of the benefit, since they do not own the mineral rights beneath their properties. In the U.S., landowners can get paid to lease their rights to drillers, but that is not true in most of Europe.

The laundry list of problems could be insurmountable for Poland, dashing hopes of replicating the shale gas revolution.

Related: Does This $1.5 Billion Shale Purchase Signal A Change?

But the dream is not over yet. The potential of European shale deposits became even more urgent this year, with Russia’s annexation of Crimea and intervention in the brewing civil war in Ukraine.

In September, Russia’s state-owned natural gas company Gazprom cut back on natural gas flows to Poland in response to Warsaw’s efforts to supply Ukraine with gas. The move was seen in European capitals as a warning not to come to Ukraine’s aid.

Poland is dependent on Russia for 60 percent of its natural gas needs. Along with other EU member nations, it is seeking a way to diversify away from Russian energy, with shale gas high up on the list. The EU’s most recent appointment of a former oil executive as its top energy commissioner is an indication of the bloc’s determination to keep at it. And in May 2014, the EU released an energy security strategy that called for greater development of shale gas in the coming years.

If Poland’s experience is any indication, however, that is easier said than done.

By Nick Cunningham of Oilprice.com

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  • Alex on October 14 2014 said:
    To make shale revolution true European countries would need a lot of money to be invested! The more you invest the more you drill the more you get shale oil and gas. CAPEX for one horizontal well is from $3.5 to 15 Mln. Extraction of the oil ang gas from the shale formations is the extensive method!
    Americans printed as many dollars as they needed. Europeans could not repeat American Shale Miracle: they can not construct financial pyramid as U.S. does from time to time!

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