European Roadblocks for Shale Gas Extraction

By Dave Brown – Exclusive to Gas Investing News

On Wednesday, Schlumberger’s (NYSE:SLB) Chief Executive Officer, Andrew F. Gould, said that shale gas could be much harder to recover in Europe, compared with the United States, because of concerns about environmental damage and other issues.

“The drilling and producing of shale gas wells in Central Europe will be very different from doing so in the southern United States for financial and logistical, social and regulatory reasons,” Mr. Gould said during Oil & Money, a conference convened by the International Herald Tribune. The comparatively high population density of Europe could mean that shale production will run into local opposition because of the way drilling might disrupt communities, and the way that prohibitions could target the pollution associated with drilling processes. Coal power is already struggling under tighter environmental regulations. Natural gas emits fewer dangerous chemicals and about half as much carbon dioxide as coal.

Growth of shale gas production has been most significant in the United States to date, with shale gas production increasing eightfold over the past decade. It now accounts for 10 percent of U.S. gas production and 20 percent of total remaining recoverable gas resources in the United States. The Energy Information Administration (EIA) projects that by 2030, shale gas will represent 7 percent of global natural gas supplies.

Washington has been seeking to help countries in Europe and beyond to try to establish best practice as they enter the market. In April, the Department of State introduced the Global Shale Gas Initiative, a program aimed to help other countries to identify and develop unconventional natural gas safely and economically, and to help bolster U.S. economic and commercial interests.

To date, partnerships under the initiative have been announced with China, India, and Poland before they ramp up production. The State Department has also been consulting with Chile and Jordan on rules and procedures. In August, the State Department held a conference which was attended by about 20 countries and U.S. regulators.

Short Term Outlook

U.S. natural gas production is expected to increase 2.2 percent to 61.3 billion cubic feet per day this year, attributed to a continued escalation in drilling activity despite reduced prices, the EIA said in its October Short-Term Energy Outlook.  Production totals are still expected to decline by 1.5 percent for the following year; however, it is a smaller contraction than last month’s projected fall of 1.9 percent.

“The pace of drilling for natural gas is expected to moderate slightly over the forecast period. The growing spread between petroleum liquids and natural gas prices has also favored a shift towards drilling in shale formations that contain a higher proportion of liquids,” the EIA said.

Environmental Factors

Natural gas consumption should rise 4.6 percent this year to 65.16 billion cubic feet per day due to the surge in cooling demand over the hot summer. Consumption is forecast to rise 0.1 percent in 2011, a slight revision from the previous forecast for no change year-over-year.  However, U.S. natural gas consumption is expected to fall 2 percent this winter as milder weather from October to March tempers heating demand. According to the National Oceanic and Atmospheric Administration’s (NOAA) most recent projection of heating degree days, the lower 48 states should be 3 percent warmer over this period.

Natural gas inventories are expected to total more than 3.7 trillion cubic feet by the end of the year’s injection season on Oct. 31, about 3 percent lower than last year’s record.

Spot Prices

The projected Henry Hub annual average spot price was expected to rise from $3.95 per million British thermal units in 2009 to $4.47 in 2010 and $4.58 in 2011 according to EIA estimates. The Henry Hub spot price closed at $3.59 on Wednesday.

With help from Assistant Editor Vivien Diniz