Shale Gas And Europe’s Dangerous Lack Of Common Energy Policy

The first thing that comes to mind when discussing energy is the rising price of crude oil and the promises of new sources such as the sun and the wind. Not enough attention has been dedicated to natural gas, a traditional energy source that is not necessarily new, but new extraction methods have made shale gas so important and caused it to grow so rapidly that it will radically change the worldwide energy market.
Shale gas extraction recovers gas that would otherwise be trapped in layers of rock, and was invented by visionary Texan entrepreneur George Mitchell. Greeted at first by skepticism, in recent years it has been embraced with large investments by major energy companies. It was initially thought that shale gas would be an insignificant energy source, but development and exploration has been fast, already making up one third of US natural gas production, and predictions put it at 50% within the next twenty years. Accessible US gas reserves have doubled thanks to the new method, and similar methods have also contributed to a similar rise in reserves of crude oil. These new developments have already had significant political and economic ramifications, and will continue to influence world politics in years to come.
Until four years ago, the United States was obsessed with the looming energy shortage to the point that it directly influenced foreign policy and industrial strategies. Today, shale gas runs plentiful through the pipelines that cross the country, and shale oil has significantly boosted petroleum output. The US will probably become energy self-sufficient again, and may even become an energy exporter.
The implications for Africa and the Middle East are huge, and although they will retain strategic focus because of the war on terror, they will cease to be a vital lifeline for the US, and will no longer serve as guarantors of the global petroleum supply; Europe will have to look after itself. There is talk that the lack of interest in oil during the war in Libya and the relative indifference with which the world market has reacted to sanctions on Iran are indicators of a shift that is already taking place. Whether these theories are valid or not, the fact remains: while the US carried the full cost of the war in Iraq, the war in Libya was shared equally with France and Great Britain (even though the US had to eventually step in and prop up its weaker allies with sophisticated weapons and monitoring systems).
The shale gas revolution has already had a drastic effect on the American economy, pushing supply so high over demand that the cost of natural gas has dropped to only one quarter of what it costs on average in Europe. Regulated in Europe by its main producers (Russia, Algeria, Libya, Holland, and Norway), the price of natural gas is tied to the price of oil and hovers around $80 a barrel, while in the US the same amount only costs $15. Not only does this influence the cost of electricity and home heating, but also several industries that were previously in decline, among them the petrochemical production industry that supplies plastics, fertilizers, and intermediate chemical products to the American manufacturing industry. There is also talk of a drastic change in the transportation system, but this is still a hypothetical situation, although certainly interesting.
Shale gas appears to be popping up everywhere: Brazil, Australia, Argentina, Mexico, Canada, Africa, Russia, and most importantly China, although the different nature of China’s geology make it uncertain whether extraction will be as economically convenient. At the moment the only country to leap ahead has been the United States, while Europe seems to be in trouble. Italy aside, where geologists have excluded the possibility of shale gas due to a lack of correlated coal deposits, there are presumed to be substantial reserves in Ukraine, Poland, and Germany. Environmental concerns have posed stiff opposition to the exploration of shale gas and oil, managing to stop research completely in France and Bulgaria, while the EU has taken a neutral stance based on the apparent lack of negative environmental consequences from the more than 20,000 wells in operation in the US.
European troubles also stem from the different legislative positions (in the US the subsurface belongs to whoever owns the surface and is often willing to tempt fate, while in Europe it usually belongs to the state), but Europe is most in difficulty due to the long term contracts that member states were forced to sign with large providers like Russia, Algeria, Libya, and Norway in leaner times. To insure their investment, the suppliers wisely resorted to a “take or pay” provision, in which not only was the price of natural gas tied to that of oil, but the consumer was also forced to pay for the quantity stipulated in the contract for the duration (usually 20 or 30 years), whether it was actually shipped and consumed or not.  The lack of a European energy policy and a shared network of pipelines has sealed the deal: we Europeans today pay more than five times the price paid in the US domestic market, and the fragmentation of the consumers has made us too weak to stand up to the suppliers. With Europe divided, not only do we put our currency in danger, but we also risk destroying our economy with a selfish and nonsensical energy policy.

2 Comments

  1. María Reply

    An ambitious article that tackles this issue from many angles; I just wish Mr. Prodi had also considered the controversy around “fracking”

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