May 2012, Vol. 239 No. 5

Features

Shale Gas Should Replace EU Coal-Fired Power: UK Economist

Europe must not reject shale natural gas production and should develop it as a replacement for coal in the power sector, energy economist Dieter Helm told the Flame gas conference in Amsterdam April 17.

While burning coal emits twice as much CO-2/kWh as natural gas, the fuel has overtaken gas to become the largest fuel source in Europe’s power market, at a time when the region is pursuing a policy of decarbonizing its power sector.

Helm quoted a Polish energy ministry official following the closure of Germany’s nuclear plants lastyear in the wake the Fukushima disaster in Japan as expecting a big increase in his country’s lignite sales to Germany. He said there was an inconsistency at work: if the same environmental and health standards were applied to coal production that are applied to the shale gas industry, we would close down the coal industry overnight, he said.

The earth’s crust is riddled with fossil fuels, and policymakers should assume that the supply of gas is infinite, he said. But instead of using natural gas and directing research money into low-carbon technology, the EU is spending hundreds of billions of euro on offshore wind and solar panels.

“Offshore wind makes nuclear look cheap, and solar panels make offshore wind look cheap,” he said. And once the money has been spent, it’s gone. There are technical, legal and logistical problems with shale gas production, but the environmental objections to it make no sense if the alternative to gas-fired generation is mining for lignite and coal, which is far dirtier and more dangerous even before it is burned in power stations, Helm said. “Coal is about the most environmentally dangerous stuff there is for energy…Not using gas means using coal and expanding our carbon footprint.”

When the U.S. shale gas production ramped up, it began to displace coal in the power sector and led to a big reduction in carbon dioxide, he said. That was without any policy in place. Unconventional gas also has a price advantage: priced differently from conventional gas it will compete with it and displace it, reducing Russian Gazprom’s “unhealthy” hold on Europe and this will be better for all, he said. Russia accounts for about a quarter of the EU’s gas supply.

Some observers believe that if European gas market share were more evenly divided between a greater number of suppliers then a lot of the objections to it as fuel – security of supply risks, political vulnerability – would fall away and its market share could actually grow.

There is a mixed approach to shale gas production in Europe, with some countries imposing moratoriums on it and others counting on it to reduce import dependency, especially on Russia. Even in Poland, which says it plans to develop its shale resources, progress has been very slow and there are no grounds to expect a rapid take-off of shale gas production, according to U.S.-based Chevron, which is still on its second commitment well there.

Special Regulatory Framework Unnecessary
Meanwhile, two reports prepared for the European Parliament are set to recommend that the EU does not need to adopt a special regulatory framework for shale gas, according to early drafts of the eports seen by Platts.

In light of growing public concern about the potential risks of shale gas exploration, and environmental concerns over hydraulic fracturing, or fracking, the European Parliament decided last year to launch its own investigation into the risks. The European Commission had already ruled out the need for EU-level legislation.

A draft report by Greek Euroskeptic MEP Niki Tzavela for the parliament’s industry committee concludes that the current licensing procedure for shale gas exploration, regulated by general mining or hydrocarbons legislation, is “adequate” for early exploration of shale gas.

Tzavela’s report states that developing shale gas would help the EU achieve its goal of cutting greenhouse gas emissions by 80-95% by 2050 compared with 1990 levels. And it backs the EC view that gas will be a critical interim technology in the decarbonization of the EU energy sector. But it calls on national governments to ensure that there is adequate training in the gas industry to ensure that professionals have the skills needed for shale gas exploration.

Risks Same As Conventional Gas
Similarly, a separate report prepared by Polish centerright MEP Sonik Boguslaw says that the prevailing view of experts is that the inherent risks involved in shale gas and tight oil extraction are common to conventional fossil fuel extraction and “could be contained through preemptive measures, including proper planning, testing, use of new technologies, best practices and continuous data collection, monitoring and reporting.”

While Sonik’s report acknowledges that fracking needs large volumes of water, it says these are not significantly higher than in other industrial activities, and that because fracking takes place at depths of over 3 km, the only real risk of groundwater pollution arises from the integrity of the wells. But it does recommend that those drilling for gas should be obliged to declare the chemical content of their fracking fluid.

Both reports also call on national governments to make changes to national regulation where necessary to accommodate shale gas extraction at national level. They will be considered at future meetings of the committees. Sonik’s report is provisionally on the agenda for the April 24 meeting of the parliament’s environment committee, a EP source told Platts April 16.

Work To Resume In England
The Wall Street Journal reported April 17 that the British government has decided that shale gas exploration can resume in the north of England if new procedures are followed, despite evidence that Cuadrilla Resources’ drilling operations caused two earth tremors last year. Closer seismic monitoring will be needed of hydraulic fracturing, but any risk to the public or to water supplies can be acceptably mitigated, a government report said.

The conclusions, which are still subject to public consultation, will provide some relief to the nascent U.K. shale gas industry, whose future has been clouded by growing public opposition in the past year. Cuadrilla estimates its license in the northern county of Lancashire could contain 200 Tcf of natural gas. The two tremors – magnitude 2.3 and 1.5 on the Bowland shale – have essentially put the industry on hold. Earthquakes of that strength can barely be felt at the surface.

The government agreed with a report commissioned by Cuadrilla that said its fracking caused the tremors. “The earthquake activity was caused by direct fluid injection into an adjacent fault zone during the treatments,” the report said. The report said fracking could resume if new procedures are followed to reduce the risk of further tremors: running an initial, lower-pressure fracturing operation and monitoring the results, and real-time monitoring of the growth of fractures during full-strength operations.