Friday's EU reports on shale gas are extremely significant. Two reports cover environmental impacts at the local level and the global level. More on those reports later, but to break one of my own rules, the headlines should be incredibly positive for shale gas.
The environmental impact at the local level study highlights risks but comes to the broad conclusion they can be mitigated. In short, no smoking guns.
The climate impacts of shale gas is complex but has a very significant headline conclusion: LNG and pipeline imports from Russia and Algeria have a greater impact on emissions than domestically produced shale gas would cause. The sub-headline: Bye Bye Professor Howarth and his shale gas is worse than coal theory.
Having said that, a certain rule of thumb in shale gas is don't believe the first thing you read. For example, 328 pages of the first report cover potential market impacts of shale gas and they don't expend all that energy to say resources are insignificant. But that isn't the impression one could get from the first reports. From Reuters
European development of shale gas could offset the decline in its conventional gas output but will do nothing to reduce the continent's dependence on imports, a European Commission study has found.
So should the lazy investor yawn and say shale would have been nice, but this proves that nice Mr Buchanan has been right all along and it will never amount to much? Only very poor lazy investors it would seem
The authors said the best current estimate of technically recoverable volumes of shale gas are 16 trillion cubic meters (Tcm) in Europe, 20 Tcm in the United States and 21 Tcm in China, compared with about 200 Tcm globally.
The fact that Europe's resources are 80% of those of the US should tell you something. The US's 100% is a shale revolution, but 80% of those resources in Europe is go back to bed?
How big is 16 TCM (565) TCF actually? 40 years total Western European gas use for one or 200 years the total use of the UK, Europe's largest user (80BCM). Russia exported 207 BCM in 2011, Norway 92BCM and more importantly, the EU imported 91 BCM of LNG. Figures from BP World Energy Statistics as usual.
I can only put the Reuters story down to not actually reading the report combined with limited understanding of gas market fundamentals. Unfortunately Bloomberg isn't much better
Shale-gas production in the European Union won’t make the region self-sufficient in natural gas, according to a study by the EU Joint Research Centre.
“The best-case scenario for shale-gas development in Europe is one in which declining conventional production can be replaced and import dependence maintained at a level around 60 percent,” the JRC’s Energy Security Unit said in the report published today in Brussels.
No one has ever said shale gas would replace all imports but the monetary value of LNG imports alone in 2010 was in the area of $25 billion dollars. $25BN or even larger oil index costs north of 100 billion euros is not something to be easily dismissed. Neither one of the reporters are actually energy reporters so it's good to see Platts take :
EC studies show shale could help EU meet 40% of own gas needs
So what does the first report on resources actually say? Out of 328 pages here are the other highlights from the summary, of which Reuters chose only the last paragraph.
- Overall, the scenario analysis highlights that shale gas does have the potential to extensively impact global gas markets, but only under strongly optimistic assumptions about its production costs and reserves.
In a scenario favourable to shale gas development, natural gas as a whole has the potential to capture 30% of the world’s total primary energy supply by 2025, rising further to 35% by 2040. This would make it surpass oil as the world’s foremost source of energy.
Relative to a scenario that is not carbon constrained, strict CO2 emissions targets reduce the production of natural gas, including shale gas. However, the strict CO2 emissions targets modelled do not preclude a significant absolute growth in natural gas use. The modelling results therefore support the potential role of natural gas as a bridge fuel.
Shale gas is relatively evenly dispersed around the world and the majority of regions will likely witness at least some level of production in the future. The USA and China are well placed to become the top producers of shale gas, although significant production also takes place in most of the other regions. The scenario analysis suggests that shale gas will tend to be used within the regions where it is produced. No single region will produce enough shale gas so as to move from being a net importer to a net exporter.
The global trade in natural gas, driven by conventional gas, will increase in any scenario. Shale gas development, however, has the potential to moderate the degree of growth, particularly for interregional LNG flows. Low LNG costs would mitigate the reduction in trade resulting from widespread shale gas development.
Significant shale gas production has the potential to lower natural gas prices, although the extent of this reduction strongly depends on the way natural gas will be priced in the future. In particular, oil indexation has the potential to reduce the fall in gas prices resulting from shale gas development.
The degree of penetration of gas in transport strongly depends on the oil-gas price link. A weaker link implies greater potential for shale gas to induce a significant growth of gas use in transportation.
The impact on demand in an optimistic shale gas scenario is not equal across all regions. Much depends on the relative competitiveness of fuels and technologies in each region. This is particularly apparent for electricity generation. While shale gas can induce a dramatic change in the USA’s electricity generation mix, its impact on China’s mix is more limited.
Much more on this over the coming days. One thing the reports can change is a common public perception that shale gas as either so secret or so novel that we must take a break and study it more before we can make decisions. Providing such a complete and even handed European view counters that argument. One thing is certain, the opposition will regret asking for a full study that addresses their concerns fully yet finds few if any of them that could slow shale down. Expect either a big fightback,or simply wishing reality away by encouraging their friends in the press to read the Reuters and Bloomber headlines and dig no further.