A revolution in shale gas extraction has taken place in the United States which has had a dramatic effect on US energy prices, energy security and job creation. Shale gas has risen from 1.6% of the US gas market in 2000 to 23% in 2010 and is projected to increase to 49% by 2035. Unsurprisingly, many other countries are looking on with interest at the prospect of accessing their own shale gas reserves. Argentina, China and Mexico have awarded exploration licences. Total EU shale gas reserves are estimated to be in excess of 56 thousand billion cubic metres (BCM), of which 14 thousand BCM could be technically recoverable. Europe’s annual consumption of natural gas is 515 BCM.
Shale gas exploration typically involves hydraulic fracturing (“fracking”) a technique which involves injecting, under high pressure, a mixture of water, sand, and chemicals into the deep shale rock formations to crack open the rock and release the gas.
The prospect of extensive shale gas production in Europe similar to that in the US is complicated by a number of factors, including: different land ownership rights, higher population density, infrastructural challenges, geological factors and more focused environmental opposition. These factors will delay and increase the cost of exploiting EU shale gas, making a repetition in Europe of a US styled shale gas revolution unlikely.
Among the environmental concerns is the fear that fracking may result in the contamination of drinking water, the potential release of harmful methane gas, seismic events and the pollution of large volumes of water used in fracking. There is also a fear that a greater availability of cheaper shale gas for power generation could frustrate the achievement of EU greenhouse gas reduction targets. Additionally there is an acute recognition that cheaper gas-fired generation will bring greater public focus to the level of subsidies required to sustain investment in renewable generation. Europe, cognisant of these environmental and political concerns, has therefore to date taken a more cautious approach and there is no doubt that environmental risks and concerns will play a decisive role in the evolution of the European shale gas industry over the coming years.
Although the positive economic impact of shale gas in the US is evident, many argue that the current National and European regulatory infrastructure are insufficient for fracking to take place safely.
EU Member States are entitled, pursuant to EU law, to determine what energy sources to exploit and the means of extraction and have taken different stances on shale gas exploitation. France and Bulgaria are the most ardent opponents and have banned fracking. By contrast, the UK announced in December 2012 its intention to introduce a generous tax regime for shale gas whilst lifting its suspension on fracking. Poland is also very keen to progress its shale gas industry, having granted over 100 concessions.
In Ireland, the response to shale gas has been restrained. A 2012 EPA commissioned report called for more research into the possible risks from fracking and recommended companies make a full disclosure of the chemical composition of the additives used in fracking, something which has caused much controversy in the US given the “Halliburton Loophole”. In early 2013, the EPA announced its intention to commission three separate studies on fracking and Minister O’Dowd stated that the use of fracking would not be authorised until the EPA study has been concluded and its findings considered. Currently, three onshore petroleum exploration options have been awarded and Enegi Oil has stated its intention to apply for an Exploration Licence prior to the expiry of its option.
In January 2012, the European Commission published a study on the legal framework for shale gas. It concludes that the existing regulatory framework in Europe is adequate, at least for regulating the current levels of shale gas activity. Such exploration/exploitation activities are already subject to EU and National laws, for example, authorisations for exploration/production by the Hydrocarbons Directive, water protection by the Water Framework Directive, the Groundwater Directive and the Mining Waste Directive, and the use of chemicals by REACH. The study does however recognise that a more thorough assessment of the regulatory framework, both at EU and Member State level, would need to be carried out as shale gas projects develop into larger scale operations. The study also identifies weaknesses at national level that should be remedied, such as that neither Environmental Impact Assessment nor public consultation are required for starting exploration activities in most Member States.
The Commission published three subsequent studies in September 2012. In these studies, a number of risks associated with shale gas extraction were identified and questions were raised relating to the adequacy and applicability of EU legislation. Building on these studies, the Commission is expected to deliver a framework on managing the risks and addressing regulatory shortcomings in 2013 which should provide better guidance for the evolution of the industry.
The Environment Commissioner speaking in Dublin in November 2012 stated that “while shale gas offers great opportunities, it also poses new challenges to the environment. We need to ensure clear, transparent rules from the outset.”
In November 2012, the European Parliament called for a robust regulatory regime to address concerns but rejected an amendment urging Member States not to authorise new fracking operations.
Due to ongoing concerns with energy prices and security of supply, the potential of shale gas cannot be disregarded. The further development of shale gas in Europe will however largely depend on how, or indeed whether, Member States can adequately address the environmental consequences of exploiting shale gas. The studies being carried out at National and European level, together with the information learned from the US, will assist in the creation of the foundations for a regulatory framework which should ease and mitigate the concerns and opposition. Even where these environmental concerns are addressed, a big question remaining is whether development of the shale gas industry is reconcilable with EU ambition for GHG reductions.
Contributed by Fergus Devine, Conor Linehan
