Time for the EU to Get Fracking

By Bryan Livingston
Executive Vice President and Principal

Recent events in Ukraine have brought Europe’s dependence on Russian natural gas into sharp focus. The upside of the situation is the EU can do something about it. And, it seems, at least some of the continent’s political leaders are starting to get it.

In recent weeks, both David Cameron, the UK’s prime minister, and José Manuel Barroso, president of the European Commission, the EU’s executive body, have referred to the trauma in Ukraine as “a wake-up call” for European energy policies. Others have joined in on the chorus, calling for a reduction in the continent’s dependency on Russian natural gas.

They’re all looking at the same numbers. Quite a few EU members are 100 percent dependent on Russia for natural gas (Finland, Bulgaria, Estonia, Latvia, Lithuania, Czech Republic) while many others are not far behind (Slovakia 99, Romania 86.1, Poland 79.8 and Austria 71). Some 30 percent of the continent’s gas comes from Gazprom, Russia’s behemoth gas supplier. To say the EU is vulnerable would be putting it mildly. Gazprom’s share of the European gas market rose from 26 percent in 2012 to 30 percent in 2013.

The EU should take steps in two directions to overcome its vulnerabilities. A few halting steps have already been taken, despite the presence of significant “not in my backyard” posturing. Not be left out, the U.S. and other NATO allies can do our parts as well.

First, the EU needs to start moving in the direction of long term solutions involving energy exploration and development. Specifically, an abundance of natural gas is available in shale deposits on the continent and in the UK. Some estimates say that Europe has over 470 trillion cubic feet (tcf) of recoverable gas in shale. This supply would go a long way toward meeting the EU’s current yearly need of 18 tcf.

Of course, developing these resources and moving towards energy independence will require a big dose of political will. Countries such as France and Bulgaria have banned hydraulic fracturing (fracking) entirely while others like Germany, Denmark, Ireland and the Netherlands have discouraged it with high taxes or royalties. We can only hope that the situation in Ukraine is starting to move public opinion, because any shale development that starts today won’t have much effect on supply for another five to 10 years.

In the meantime, the EU could ease its dependencies on Russian gas by diversifying the natural gas supply chain on the continent. Better interconnected pipelines from east-to-west are needed to supplement the mostly north-to-south pipelines coming out of Russia and through Ukraine and Eurasia. Imports of liquid natural gas (LNG) need to be incentivized. Some 20 LNG regasification plants are operational in the EU, but most are underutilized. These plants have a capacity of 198 billion cubic meters (bcm), but in 2013 Europe imported just 48 bcm of LNG, the lowest level since 2004.

Speaking of LNG, this is where the U.S. could step in and step up. In fact, we have been helping to some degree by sharing our expertise not just on how to develop shale gas deposits, but also on how to do it in an environmentally sound manner. We should take the next step, by liberalizing our LNG export policies and greatly easing our own restrictions. We could put more skin in the game by building more export terminals and generally accelerating the development of our LNG export infrastructure.

At the end of the day, developing unconventional natural gas resources in Europe and elsewhere in Eurasia, in addition to expanding our own LNG export infrastructure, would give rise to an efficient global natural gas marketplace that would effectively blunt the efforts of any one supply country, like Russia, to exploit its natural gas exports for geopolitical advantage.