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Page added on January 26, 2013

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US ‘shale boost’ provokes EU fears and indecision

Public Policy

A US industrial boost following its ability to tap abundant shale gas reserves is provoking fears that imperilled energy-intensive European businesses will find it harder than ever to compete.

But calls for the EU to deliver a ‘silver bullet’ and emulate the US by tapping shale gas through ‘fracking’ (see background) remain controversial because of environmental and logistical concerns.

Partly due to its shale reserves, the United States is expected to become almost self-sufficient in oil and gas by 2035 and will overtake Russia in gas production by 2015 and Saudi Arabia in oil production by 2017, a recent International Energy Agency forecast shows.

Advances in drilling and fracturing techniques enabling easier access to gas supplies have led to significant falls in US gas prices since the start of 2010, whilst European prices remain stubbornly high.

Industrial manufacturers have announced investments of more than $90 billion (€68 billion) in the United States to take advantage of its cheap natural gas, according to calculations that underline the revolutionary impact of shale gas on US industrial growth.

Astonishing impact on the US economy

Petrochemicals, fuel, fertiliser and steel companies, attracted by cheap energy are amongst those committed to multi-billion dollar investments, according to Dow Chemical, which has announced a €3 billion investment in Texas and Louisiana and calculated the total value of US industrial investments at $90 billion or more, the Financial Times reported in December.

The development has spurred fear amongst concerned European manufacturers that they will be unable to compete in energy intensive sectors. It is clear that industry such as steelmaking, currently slumping in the EU, is shifting towards the United States after decades of decline.

Nomura analyst Neil Sampat pointed out that steel giant ArcelorMittal has almost no further capital spending planned in Europe for either steel production or iron-ore mining, explaining: “Gradually, the company is changing its geographical exposure to North America from Europe.”

Gordon Moffat, the director-general of Eurofer, the European Steel Association, said: “It’s quite astonishing the impact that shale has had, I think we’re going to see the re-industrialisation of the United States. We’re already seeing transfers of production from Europe to the United States: it’s already clear in the petrochemical sector. And it’s also happening in the steel industry.”

A wake-up call for Europe

“Shale gas is leading to a situation where the US has a much higher level of energy security than in the past, as well as lower energy costs,” said the European Policy Centre’s chief economist, Fabian Zuleeg.

This is clearly encouraging American manufacturing, said Zuleeg, and represents “a wake-up call to Europe that we also need to get our act together on energy policy”.

“We need to assure an affordable, secure energy supply across Europe, with a single market for electricity,” Zuleeg added.

If analysts agree with the diagnosis, they are unsure of the remedy, especially relating to any plans for Europe to follow the US example on shale, with the continent constrained by different geography and attitudes.

Although he believes that shale gas represents a silver bullet against crisis-hit industries in America, and that it could perform the same role in Europe, Eurofer’s Moffat acknowledged the difficulties.

“The US is perhaps better placed to exploit shale gas because of where it is located, outside population centres, whereas in Europe, which does have shale gas, it’s more complicated because it is closer to populated areas and we are more concentrated with our population,” Moffat explained.

Caution surrounds shale in Europe

Europe has taken a far more cautious approach partly because of the difficulties posed by population density, but also in response to environmental risks and fears, which have led to countries such as France and Bulgaria banning shale exploration.

An influential report – Shale gas: unconventional and unwanted – published by environmental group Friends of the Earth last September, claimed Europe risks side-lining its vision for a more sustainable, low-carbon energy future, unless it permanently closes its doors to fossil fuels like shale gas.

Zuleeg encapsulated the ambivalence of the European response, saying: “This does not necessarily mean the EU should go down the route of shale gas, although we should also not dismiss it out-of-hand.”

The United Kingdom lifted its own ban on shale gas exploration on 13 December, despite environmental fears, as it aims to become a European leader in the sector.

UK gives green light to shale exploration

The UK approval of shale gas fracking came some 18 months after its own authorities halted the unconventional exploration process after it set off earth tremors at one site. Shale reserves are nevertheless viewed as a way to counter the UK’s fall in natural gas production.

The European Parliament rejected a ban on shale gas on 21 November and asked for a robust regulatory regime to address environmental concerns.

The Commission is meanwhile expected to come up with a framework for managing risks relating to shale gas this year.

Whether through efficient shale exploration, or otherwise, Zuleeg is convinced that secure energy prices are key to European industrial recovery.

“Investment in pan-European energy transmission [smart grids] is desperately needed if we want to bring renewables on line to a greater degree and create more security of supply, as well as reducing costs,” he said.


8 Comments on "US ‘shale boost’ provokes EU fears and indecision"

  1. Plantagenet on Sat, 26th Jan 2013 6:21 pm 

    Why should the EU go after shale oil and shale gas in their own countries when they can get all the oil and NG they want from their friends in Russia, Algeria, Libya, Syria and Iran.

  2. dissident on Sat, 26th Jan 2013 6:24 pm 

    The shale oil and gas myth is quite rampant. We’ll see how long the BS bonanza in the US lasts. All the talk of recovery and no jobs figures to back it up.

  3. rollin on Sat, 26th Jan 2013 7:42 pm 

    Europeans should respond to shale oil and gas like Ulysses responded to the call of the sirens, tie themselves to the mast and get past it.

    Just because the US is high on the fossil fuel drugs of oil and gas, doesn’t make their claims true. The only way the US will be energy independent is 50 to 80% demand destruction. Think about what that implies.

  4. DC on Sat, 26th Jan 2013 7:50 pm 

    The only US ‘industry to receive a ‘boost’ has been the OIL AND GAS INDUSTRY. Mainly in the form of investor dollars generated on Casino St. in New Yawk, and massive public subsidies designed to insure the O+G boys never suffer an actual loss-ever. The US economy may be run on dirty oil, but there more to an economy than just oil, important as it is. Nor is the US ‘competing’ with the EU. The EU has need to compete with US, they all-ready have superior engineering and technology, and use far less energy per unit than amerika does. The US only wants to see the EU frak like they do, so it will DESTROY the EU, environmentally, which is the same as destroying it economically. Which is cheaper and easier than destroying the EU through a war, which would be both awkward and impossible in any event.

    The US goals to crush EU independence,(for good) were to destroy it with engineered financial crises , IE the PIGS, and the environmental attack is to introduce fraking to the European mainland through US MNC oil giants.

    The EU would be well advised to send the US oilcos and there banks packing if they wish to retain any semblance of civil society. The EU has lost political control to US manipulation, and the economy has been heavily damaged by the same. Time is running out…

  5. BillT on Sun, 27th Jan 2013 3:13 am 

    DC, you paint a very accurate picture as I see it. Europe is dead financially as well as Japan and the Us. What is the term? “Dead man walking”?

    The coming years will see the fraking bubble burst and take down what is left of the world economy. THEN the reality 2×4 will hit everyone and the decline will begin in earnest, or so I believe.

  6. Ham on Sun, 27th Jan 2013 10:06 am 

    ‘US to become self-sufficient by 2035 and will overtake SA by 2017’
    Really? How they going to do that? Add 10000 more drilling operations? The depletion rate of shale means you have to frantically keep drilling, which is why this giant Ponzi is going to fail in Europe. Most shale in EU is under private land or under Paris. The above is one more example of media hype and Bakken baloney.

  7. Nathan Johnson on Sun, 27th Jan 2013 5:10 pm 

    The news I read indicated shale oil is to meet only about 2% of world demand for oil by 2035, not that civilization will make it that far. The traditional supplies of oil are running low now, while demand continues to rise. We don’t have long until the end. We must take drastic measures to reduce world demand or the price of oil will make it to expensive to drive to work, everything will crash and the world population will starve.

  8. DC Billt-hour on Sun, 27th Jan 2013 6:02 pm 

    Much whistling passed the graveyard is being taken place here. Unpleasant news that is cognitiv dessonance getting disregarded automatically like a robot brain.

    Much better paying attention so to not be blind sighted by real world.

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