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The shale revolution failed
Material posted: Publication date: 22-11-2014

Shale boom in Europe is delayed to produce shale gas becomes economically impractical. Due to lower prices for Russian gas, which will follow the oil drop at the beginning of 2015, Europe will completely forget about slate, experts predict. Promised shale revolution may now not take place.

Europe is in no hurry to develop gas production from shale rock. So, in Poland, shale gas reserves of which are among the largest in the EU (estimates vary from 300 to 400 billion to over 5 trillion cubic meters), will need at least another six years before shale gas will become commercially viable. This writes the Financial Times.

The foreign oil company, which planned to mine in Poland to abandon plans for exploration because of bureaucratic difficulties. These global giants such as ExxonMobil and ConocoPhillips, Italy's Eni and France's Total, has signed with the authorities of the Poland agreement on the development of its mineral resources, however, the results of the drilling did not satisfy them. Given the bureaucratic delays, a number of companies to invest in last years money in Polish shale (in just the past four years, invested nearly $780 million) abandoned their projects. Of the eleven companies who planned to work in Poland, refused seven, including Eni, Exxon and Total.

"We did everything we could, but to justify the continuation of works it is no longer possible, — FT quoted the head of the British 3Legs Resources of Kamlesh Parmar. — Some potential was demonstrated, but based on the results obtained, the company could not continue to make investments".

According to Parmar, projects in Poland may take more time and money than "many might imagine". For example, ConocoPhillips, which began the search for shale gas in Poland together with 3Legs in 2009, still continues to conduct exploratory drilling to assess the prospects of work in the country.

In addition, the commercial attractiveness of developing shale reserves was affected by the recent collapse of oil prices, as current prices of the projects becomes unprofitable even in the US, where the "shale boom" started in 2010 and the cost of production of "shale" by far the lowest in the world.

The Ministry of the environment of Poland believes that the country will reach the level of commercial production, comparable profitability with the United States, around the year 2020.

Shale revolution, which has for several years talked of Europe in the hope to reduce dependence on Russian gas, is deposited not only in Poland. The country — the locomotives of the European Union has frozen almost all projects relating to shale gas.

"Some activity is observed only in the UK — about on the same level as in the U.S. ten years ago, — says the head of East European Gas Analysis Mikhail Korchemkin. In continental Europe there is no positive news".

According to experts, the main reason for this lull is the radical difference between European and American laws on land ownership. In the USA the landowner disposes of everything that is located under the site at any depth, while in the European countries only fertile layer thickness of several tens of centimeters. "American farmers sell the mining rights of its gas, while the European don't want on their land who produced someone else's gas," says Korchemkin.

In addition, according to him, in the first quarter of 2015 there will be a significant price reduction for Russian gas. The fact that the price of long-term contracts with Gazprom is linked to oil prices since the middle of the year fell by a quarter.

"So on the shale front comes complete silence," predicts Korchemkin.

The head of the national energy security Fund Konstantin Simonov notes that the technical feasibility of shale gas in Europe proved, but commercial is not. This is prevented by several factors. "In the first place — the small territories of European countries, — says Simonov. — The shale gas technology involves the use of large areas, which is expanding drilling. In Poland under the drilling was initially allocated about 30% of the country. But in smaller countries, such as Hungary, the situation is even more complicated."

Secondly, Europe is traditionally strong environmental lobby, the environmental legislation is considerably more sensitive than in the US. And extraction "oil shale" requires the use of the technology of hydraulic fracturing (the so-called freking), which are injected into the ground chemical reagents and there is a threat of their entry into drinking reservoirs. In this regard, for example, in France the use of freking prohibited by law.

And finally, the Europeans just do not have the necessary equipment and infrastructure. "In fact, you need to build from scratch a set of lines of gas pipelines," — said Simonov.

The head of the NESF recalled that initially, the Americans offered Europe the technology of shale gas production. "But now the EU has a new hope: the same shale gas, but made in the USA and delivered to Europe in liquefied form, — said the expert. — This is why the EU has virtually buried the idea of extracting gas from shale in its territory".
It is noteworthy that last week the NESF released a new report on the problems of gas supply to Europe. He had to be presented in Latvia, however, Konstantin Simonov, who came to Riga this report, was deported from the country without explanation.

"I have a letter of the Latvian Minister of foreign Affairs, where it is said that, according to special services Latvia, I threaten the national security of the country, — said Simonov "Газете.Ru". But what threat I represent, is not explained".

In the report of the NESF presents a forecast according to which domestic production in the EU on the existing resource base (including non-traditional types of production) in the next 12 years will be about 70 billion cubic meters (43% compared to 2013), which is comparable to the annual consumption of Italy and 2.5 times more deliveries of Algerian pipeline gas to the EU.

The report shows that in recent years LNG from third countries, which was the chief hope of EU rate on the growth of diversification of supply of imported gas has become a major source of frustration.

By the end of 2013 deliveries to the markets of the EU liquefied gas decreased up to 40 billion cubic meters, which is twice less than in 2010-2011. And disposal facilities for receiving LNG in the EU has set a historic record low — 21%. "And judging by the dynamics in the first we months of 2014, the declining trend of LNG to the European market remains (an average of 86 million cubic meters per day against 112 million cubic meters last year)," reads the report.

The considerable underutilization of capacities for regasification of LNG to the EU, on the one hand, suggests that the European market in its current state unattractive for suppliers of liquefied gas, including to European companies that contracted liquefied gas from producers under long-term contracts. With another — the European Union, by default, has a reserve to increase LNG imports in case of force majeure, subject to market margins or changing market conditions.

The main problem is that for the supply of liquefied gas, including from America, now the Asian market (primarily Japan and China) is much more attractive than the European.

This is due to higher prices in the Asia-Pacific region. The same Japan after the accident at the "Fukushima-1" refused from nuclear energy and replaces drop-generation liquefied gas. China is trying to replace gas with coal, the dominant energy balance of the country, but which is a very polluting fuel. In this regard, the price of LNG in Asian markets exceeds $600 for 1 thousand cubic meters, which is significantly higher than European prices.

"To return the LNG to European markets, consumers in the EU need to be planned Not the prize, — stated in the report of the NESF. — The price of gas on spot platforms of Europe in the summer drops to $280-300 per thousand cubic meters the Price of gas the main suppliers under long-term contracts varies between $360-400".

Aleksey Topalov


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