Global gas demand
As an effect of the ongoing financial and economic crisis, global gas demand (p.1) has decreased in the past years. At the same time, unconventional gas production, mainly in the US, has, together with an increased global capacity in liquefied natural gas (LNG) altered the supply side. These developments have an impact on the Eurasian gas markets, as well as for European energy security.
Despite recent years slump in demand, gas is projected to play a continuing (and increasingly) important role in the world’s future energy mix. Both the International Energy Agency’s (IEA) ‘Golden rules for a golden age of gas‘ (2012) and the EU:s ‘Energy Roadmap 2050‘ expect the demand for gas to rise in the future.
Global shale gas resources
The United States and Canada have vast deposits of shale gas (see map on p.3), as well as reserves of shale oil and tight gas. The US is now self-sufficient in gas, and unconventional gas amounts to half of the total gas production today and is expected to rise up to 71% in 2035 (p.5).
Europe as a whole accounts for approximately 10% of the total global shale gas resources. The European countries with the largest reserves are Poland, France and Norway. Ukraine, Sweden, Denmark and the UK also possess considerable shale gas basins. The volume of exploitable shale gas reserves in the EU is difficult to calculate, which makes investments uncertain. New estimates of recoverable shale gas resources in Poland are, as an example, substantially lower than initially calculated. Even based on the original higher estimations, Poland was the only country in Europe on IEA’s ‘Golden Rules’ list (p.83) of the world’s projected top ten unconventional gas producers. Very few shale gas projects have entered the drilling phase and most are in the phase of seismic surveys or at the early planning stage (p.5).
China has significant deposits of shale gas in its interior provinces. Even if shale gas is exploited in the future, China is however likely to remain largely dependent on oil and gas imports from the Middle East and Africa (p.11). Also India has estimated significant shale gas resources, but only 20% are deemed to be accessible.
Russia’s has no major unconventional gas reserves. Given that Russia possesses one quarter of global conventional gas reserves (p.3) and an extensive pipeline network, eventual unconventional resources and the impact of shale gas exports are less important. Neighbouring Ukraine, with the fourth largest shale gas reserves in Europe, could potentially produce enough shale gas to substantially decrease its energy dependency on Russia.
Countries in the Middle East have no major unconventional gas reserves either, and have shown disinterest (at least partly due to owning huge reserves of conventional gas (p.12)).
Currently, only the US, Canada and Australia (p.5) are exploiting their unconventional gas resources (mainly shale gas).
Impact of shale gas on the global gas market
The US has seen a real ‘shale gas revolution’, thanks to breakthrough technology for fracking and reduced operating costs. The rapid commercialisation (p.2) of large-scale shale gas production has made the US self-sufficient in gas and has also brought considerable potential for export. It is likely that a self-sufficient US will have fewer strategic interests in the Middle East and other sensitive, energy-rich parts of the world, as well as feeling less vulnerable to developments beyond its borders (p.7).
Resources surplus has led to substantially lower gas prices in the US, and a switch from coal to gas for electricity generation has taken place. This has in addition caused a global price drop for coal. Cheap gas has encouraged US multinational companies to re-establish and re-invest in the US. There are doubts if the US would strive to become a major overseas gas exporter in the future, mainly because the gas first has to be converted to LNG which is a very expensive process. The US may also prefer to stick to low energy prices to keep its competitive advantage and encourage the ‘re-industrialisation‘(p.4). More information on the setting of gas prices, price volatility and investment uncertainty can be found in GPPi’s report ‘The impact of shale gas on European energy security‘ (p.8-10).
The US shale gas boom has however had other significant impacts on the global LNG market. LNG that was expected to be imported by the US (especially from Qatar), was instead made available to Europe and Asia. This created a “short-term glut“(p.27) in the market, reduced the price of gas and made it more attractive to import. An increased demand from Asia, notably from Japan following the Fukushima nuclear incident, however brought an end to the price reductions. The withdrawal of the US from the LNG market could potentially also in the future put further downward pressure on global gas prices.
In relation to gas exports, Russia previously faced very little competition (mainly in Europe). Delivering natural gas in such great quantities provides Russia with political leverage vis-à-vis energy-dependent countries. The shale gas boom led Middle Eastern nations, no longer able to sell natural gas to the US, to export LNG to Europe and Asia. Having other credible sources of supply has strengthened Europe’s negotiation position with Russia and other suppliers.
Different countries will most probably try to replicate the US shale boom, while Russia will strive to prevent this from happening in its neighbourhood (p.2). Its vast conventional gas reserves and developed transport network will probably retain Russia’s dominant position in the global and European energy markets. However, according to IEA predictions, US will surpass Russia and become the world’s largest gas producer in 2035, which will obviously have a significant impact on gas prices and Russia’s energy relationships (p.11).
China is not yet a shale gas producer, and there is domestic pressure to develop new energy sources to diversify and secure supply to meet the growing demand (p.10). Despite investments in unconventional gas, nuclear, renewable and fossil fuel energy, China will not achieve energy self-sufficiency, thus remaining dependent on energy import. China’s regulatory environmental framework is weak, so there are no regulatory obstacles to explore shale gas.
Impact of shale gas on the European gas market
Developing shale gas in the EU could lead to a greater energy security by diversifying energy sources, thus reducing the EU’s overall energy dependency (p.14). In particular Poland has strongly supported the development of shale gas to reduce its energy dependence on Russia. Other countries, such as France and Bulgaria, have for the moment chosen to implement bans (see map of regulatory approaches on p.16).
Even if EU member states started exploiting shale gas reserves, the EU would still largely depend on external gas suppliers (p.7). There are many indications today that the North American shale gas revolution will not be replicated in Europe. A range of regulatory barriers and rising public concerns on the negative environmental and climate impacts of extracting shale gas (possible water contamination, water resource depletion, earthquakes, degradation of biodiversity, land take and methane emissions) make it unlikely for shale gas developments to go ahead if they don’t turn out to be both economically and environmentally viable (p.1).
As mentioned before, the impacts of the US shale gas boom can already be felt in Europe, for example via the price drop of coal and increased possibilities to import LNG. (The fact that the US is self-sufficient in gas also means it will not compete with the EU for LNG supplies from other parts of the world). Exploitation of shale gas and other unconventional energy sources indicates that the markets and transport routes will become more competitive and flexible (p.5). Energy importing countries can thus also utilise and transport domestic resources, and balance energy imports with regional export. These developments will increase competition and further weaken Russian grip on the European gas markets.
The LNG infrastructure will play a central role (p.7) in determining the effect shale gas has on the European gas market (as shale gas is distributed all around the world and most locations are not connected to Europe by pipeline). LNG re-gasification terminals are more flexible than pipelines, thereby giving less leverage to individual suppliers. However, having sufficient re-gasification capacity does not guarantee securing LNG supplies at reasonable prices, as an increased global competition regarding LNG import is foreseen. This in turn makes investment uncertain. Australia, Qatar and Nigeria are foreseen to be important global LNG suppliers.
The 2050 Energy Roadmap, published by the Commission in December 2011, recognises shale gas as an energy source that could potentially lessen the EU’s import dependence and play an important part in the EU’s energy mix in the future. The continuing uncertainty about the future role of unconventional gas resources, in particular shale gas, has left EU member states deeply divided.
In September 2012 the European Commission published three new studies on unconventional fossil fuels, in particular shale gas. The studies look at the potential effects and benefits of these fuels on energy markets, the potential climate impact of shale gas production, and the potential risks shale gas developments and associated hydraulic fracturing (“fracking”) may present to human health and the environment. An EP Policy Department study called for a directive and recommended banning, or at least restricting, the injection of toxic chemicals during fracking in 2011. A previous report, commissioned by DG Energy (2011), on the licensing and permitting procedures for shale gas project concluded that there are no major gaps in EU environmental law when it comes to regulating the current level of shale gas activity.
The European Parliament debated the shale gas issue in November 2012 (see EP dossiers: (ITRE) | (ENVI)). The European Parliament rejected a ban on shale gas, while calling for a robust regulatory regime to address environmental concerns. The Commission was given a mandate to investigate if there is a need for regulation at EU level. An initiative is awaited during 2014 (see “Environmental, climate and energy assessment framework to enable safe and secure unconventional hydrocarbon extraction”). There have been recent discussions relating to shale gas in the contexts of revising the ‘environmental impact assessment’ (EIA) directive and the Green paper on 2030 climate and energy policies. Energy commissioner Günther Oettinger has, as well as other important stakeholders, given support to shale gas exploration in recent times.
Main sources for the summary
The shale gas ‘revolution’ in the United States: global implications, options for the EU / European Parliament. Policy Department External Policies, 2013
Briefing note studying the US shale gas boom and the effects on the US energy market, as well as implications for the rest of the world (notably the Middle East and Russia).
Shale gas and the EU internal gas market: beyond the hype and hysteria / Teusch, Jonas. Centre for European Policy Studies (CEPS), 2012
This CEPS paper analyses the interplay between shale gas and the EU internal gas market, drawing on data presented in the 2012 International Energy Agency’s report on shale gas and additional scenario analyses performed by the Joint Research Centre.
Golden rules for a golden age of gas: World Energy Outlook special report on unconventional gas / International Energy Agency (EIA), 2012
This ‘golden rulebook’ contains global information issues relating to unconventional gas, including country and regional outlooks.
The shale gas ‘revolution’: challenges and implications for the EU / Dreyer, Iana ; Stang, Gerald. European Union Institute for Security Studies (EUISS), 2013
This briefing note focuses on the debate on the need for Europe to develop its own energy resources, and the risks and benefits of unconventional hydrocarbon production.
The shale gas boom: the global implications of the rise of unconventional fossil energy / Vihma, Antto. The Finnish Institute of International Affairs, 2013
What does the US shale gas story suggest about global and European climate politics? Is the US shale gas boom merely the first sign of a new strategic world map? This briefing paper presents an analysis of and preliminary findings on these multifaceted dilemmas.
The impact of shale gas on European energy security / Andreas Goldthau ; Wade Hoxtell. Global Public Policy Institute (GPPi), 2012
Policy paper examining developments in unconventional gas and the implications on gas market structures and European energy security.
The impact of shale gas on energy markets / House of Commons. Energy and Climate Change Committee, 2013
House of Commons report considering the implications of the “shale gas revolution” for energy markets around the world.
The role of gas in the external dimension of the EU energy transition / Andoura, Sami ; d’Oultremont, Clémentine ; Notre Europe ; Egmont, 2013
Policy paper laying out concrete recommendations on how the EU could strengthen its gas strategy, including shale gas, both internally and externally.
Technically recoverable shale oil and shale gas resources: an assessment of 137 shale formations in 41 countries outside the United States / US Energy Information Administration (EIA), 2013
This report provides an initial assessment of shale oil resources and updates a prior assessment of shale gas resources issued in April 2011. It assesses 137 shale formations in 41 countries outside the United States, expanding on the 69 shale formations within 32 countries considered in the prior report.
The ‘Shale Gas Revolution’: developments and changes / Stevens, Paul. Chatham House, 2012
This Chatham House briefing paper summarises the earlier report ‘The shale gas revolution: hype and reality’ and provides an update on what has happened since 2010 and how this may have changed the overall picture.
Unconventional gas: potential energy market impacts in the European Union / Pearson, Ivan. Joint Research Centre (JRC), 2012
This report investigates the potential impact of unconventional gas, most notably shale gas, on European Union (EU) energy markets. It examines only the potential benefits of shale gas exploitation and should be seen together with the associated report addressing environmental issues.
Shale gas: a comparison of European moratoria / Ruven Fleming. In: European energy and environmental law review, n.1 (2013), p. 12-32
This article aims to analyse existing moratoria on shale gas extraction.