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Maplecroft reports highlight rising importance of European shale gas, but concerns remain

09/06/2010

Two in-depth country reports, released by Maplecroft, reveal the growing significance being placed on the exploitation of untapped reserves of shale gas within Europe.

According to the reports, which focus on Germany and Poland, the successful development of the shale gas industry could present a major alternative source of supply to imports via pipeline or LNG and decrease reliance on less stable sources of energy.

Russia provides two-thirds of Poland's gas and in April 2010, prolonged talks on extending a gas supply contract by 15 years (to 2037) were concluded. The discussions revived debates on Polish dependency on Russian energy, following interruptions to gas supplies in recent years, caused by Russian disputes with transit states such as Belarus and Ukraine. Imports of pipelined natural gas into Germany, under long-term, oil-indexed supply contracts, have also been threatened. In early 2010, low prices at spot gas trading hubs were significantly below long-term contract prices, encouraging buyers to turn down volumes they take under long-term deals and possibly delay signing up to new long-term contracts.

"The potential of shale gas to increase energy security in Europe can be seen clearly with the case of the US, where advances in shale gas extraction technology have led to a revival of the gas industry," said Maplecroft Senior Analyst, Mandy Kirby. "In June 2009, the US Potential Gas Committee reported a 39% jump in potential US gas resources from its 2006 to its 2008 survey, a massive increase, helping to overturn fears of dwindling reserves and escalating import dependency."

Investors in Europe's energy sector believe that exploration activities will also prove to be successful. At present, exploitation of shale gas in Germany and Poland is at the assessment stage via the industry-led Gas Shales in Europe (GASH) project, but this has not prevented a raft of interest in securing rights to concessions. Some 30 exploratory licences have been granted in Poland in the last two years and oil majors are investing across Europe. Germany is seen as a particularly attractive proposition, as it possesses existing gas production facilities and sits on what may be the second largest shale gas play in Europe.

However, there are specific geological challenges to shale gas development in Europe compared to that in the US. There are broad international environmental concerns relating to toxic spills, pollution and waste-water disposal. Some local communities in the US have also claimed that drilling is polluting groundwater supplies. So far there have been no major objections to shale gas in Germany, but this may change if existing environmental policy is challenged or risks seen in the US are perceived to be developing in Germany. It is therefore possible that increased regulation could slow down shale gas expansion in the US and abroad - including in Germany and Poland.

For more information on the country reports for Germany and Poland contact info@maplecroft.com.

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