With its population of 500 million Europe is one of the largest energy markets in the world. Earth’s Energy has written extensively about how Europe has become more and more dependent on Russia to provide its energy needs with natural gas as the continent attempts to warm its homes in winter and wean itself off of coal to meet is Kyoto greenhouse gas emission commitments. And just at the very time that it appears that Europe may be destined to be captured by the Russian gas monopoly, there is hope that it will be saved by another source across the Atlantic Ocean – shale gas.

Russia currently supplies about a quarter of Europe’s natural gas demand and this number is expected to rise rapidly as the North Sea deposits begin to dwindle. Until this year Europe was dependent on one pipeline through the Ukraine for access to that Russian gas.  Twice this past decade that pipeline was shutdown in the height of winter when Russia and the Ukraine argued over pricing issues.  Europe shivered while the disputes were ongoing. In an attempt to remedy this, Russia and Germany brought the Nordstream Pipeline into play this fall.  It goes under the Baltic Sea from Russia to Germany, thereby bypassing third countries.

Yet while assuring that Europeans will not freeze in winter, the European Union is still concerned about its growing dependence on Russia’s pipeline monopoly.  So now Europe is taking action.  First, it has brought in rules that will not allow a pipeline operator to also be a supplier of gas. Russia opposes this legislation for the obvious reasons. Its state owned Gazprom owns the pipeline and the gas feeding Europe. Second, Europe is looking to diversity its gas supplies to increase its energy security. As we wrote earlier, one way to do this would be to build a southern pipeline to bring gas from the Caspian Sea region and avoid Russia altogether. As we write several competing pipeline projects are under consideration but it is unknown which one will win out, how long it will take to construct, and whether a pipeline will indeed ever be built.

Yet while Europe has been dwelling on Russia, a new source of gas has sprung up that may solve its supply problems. Both the United States and Canada are awash in relatively cheap shale gas as the map below shows.



Shale gas has also been found in Europe, including France, the UK, Germany, Austria, Poland, Bulgaria and the Ukraine. However, as The Economist points out, extraction costs are higher in Europe do to less favourable geography and much deeper deposits.

Presuming jurisdictions can make the extraction of shale gas environmentally friendly (a matter of intense debate in most countries at this time), there are those who believe North America will lessen Europe’s dependence on Russia while at the same time diminish “the petro power” of the OPEC nations. (See also The Telegraph: Energy crisis is postponed as new gas rescues the world)

As Money Morning points out, North America’s shale gas advantage has changed the tide:

The eight- to 10-year head start North America has had on the rest of the world means there have been significant technological and operational developments in the U.S. and Canada to meet a number of the environmental and logistical problems related to hydro-fracking and horizontal drilling.

Now eight to 10 years may not sound like a huge advantage…But it most certainly is. Eight years ago, we were still talking about how much liquefied natural gas (LNG) would need to be imported into the U.S. and Canada to meet energy demands. But today, we don’t require any imports, and both countries now plan to begin exporting LNG based on excess shale gas.

Shale gas now accounts for 25% of North American gas production and is growing as the continent eyes new markets in Europe and Asia.

RIGZONE adds that according to a study by Rice University’s Baker Institute, “Shale Gas and U.S. National Security”, U.S. shale gas alone will substantially reduce Russia’s gas market share in Europe from 27% in 2009 to 13% by 2040, reducing the chances that Moscow can use energy as a tool for political gain. European customers now have an alternative supply to Russian gas in the form of liquid natural gas (LNG) supplied from Canada and the US.

Russia already has had to accept lower prices for its gas and is now allowing a portion of its sales in Europe to be indexed to spot gas markets, or regional market hubs, rather than oil prices.

“This change in pricing terms signals a major paradigm shift,” noted study authors Kenneth B. Medlock III, Amy Myers Jaffe, and Peter R. Hartley.

While shale gas deposits exist across the planet, rapid development of shale gas outside of North America is not a certainty. The unique market and regulatory structures in the U.S and Canada enabled the shale boom to happen. Ownership of transportation capacity rights is unbundled from pipeline ownership in these countries, which made it possible for a producer to access markets through competitive market and regulatory processes.

See also E&P: Unconventional Shale Gas Could Soon Be A Global Resource; Trade Arabia: Saudi sees threat of shale oil revolution; Taiwan News: The shale gas revolution; Calgary Herald: Asian markets loom as remedy for North American gas woes



Russia’s natural gas monopoly, Gazprom,  has recoiled against the threat of shale gas by saying it is environmentally harmful reports the Global Warming Policy Foundation.



Tags: , , , , , , , ,