Fracking in Europe

Fighting the Revolution

By | Updated Nov 22, 2016 11:29 AM UTC

There are compelling reasons why Europe should replicate the U.S. shale boom. It would bring lower energy prices, for one. The continent's awkward dependence on Russia — which provides about a third of Europe's gas — is another. From the United Kingdom to Poland, companies have tried and failed to replicate the success of fracking in the U.S. In part, their efforts have been stymied by aggressive political opposition. Europeans are refusing to sign up for the shale revolution because they fear it will sully their scenery, contaminate their drinking water and clog their country lanes. But shale holds the promise of cheaper gas that can boost the economy and weaken Russia's grip on Europe’s energy. So which set of imperatives will win — or could they coexist?

The Situation

Europe’s got more recoverable shale gas than the U.S., according to estimates, yet there’s been little exploration. Germany, France, the Netherlands, Scotland and Bulgaria all effectively ban fracking. The only major activity is in Ukraine, which is weaning itself off of Russian gas, and in the U.K., where the government is promoting the technology to help replace plunging domestic output from the North Sea. In October, Cuadrilla Resources won permission to frack as many as four wells in the U.K., ending a two-and-a-half year battle with local authorities. In 2011, tremors caused by an exploratory Cuadrilla rig in northwestern England led to a one-year moratorium on fracking in the country. In 2013, hundreds of protesters camped in a tiny village south of London until the company abandoned its well there. People in Zurawlow, a town in eastern Poland, successfully blockaded a fracking site in 2012 and Greenpeace activists have occupied a shale gas rig in Denmark. The fury — along with regulatory delays, tax concerns and poor output from a handful of test wells — has driven away investors. Chevron, Exxon Mobil and Total abandoned projects in Poland after exploration proved disappointing. Meager gas flows also halted progress in Denmark, with Total ditching shale gas drilling there.

Source: Bloomberg Intelligence 

The Background

Some of the conditions that ignited the U.S. shale boom don’t exist in Europe, nor in other regions for that matter. In most countries, private landowners don’t own the mineral rights to oil and gas in the ground: The state does. That means fracking won’t yield big financial rewards for local landowners. (In the U.S., the owner’s cut can be an eighth of production revenue.) The British government and some companies have proposed direct payments to those affected by fracking. Environmental groups have called the pledges a bribe. Opponents include political organizations like the Greens, which hold seats in legislatures and have galvanized local opposition. People are more than three times as densely packed on the land in Europe than in the U.S., fueling not-in-my-backyard protests. Some rural projects have been rejected because they would bring trucks and equipment used for fracking — the nickname for hydraulic fracturing, which uses water, sand and chemicals to release oil and gas from shale rock — onto picturesque roads dating to Roman times. Alexander Medvedev, the chief executive officer of Russian oil giant Gazprom, has said that the difficulty in finding unpopulated land and enough water to exploit shale wells in Europe could help Russian gas stay competitive. Russia can produce gas for about a sixth of the break-even cost for U.K. shale.

The Argument

Even after a decade of fracking in the U.S., many Europeans still view the technique as untested. But backing away from shale robs Europe of a key source of secure energy. Its dependence on Russia amid the conflicts in Ukraine and Syria adds urgency to the debate. Ukraine and other European countries vowed to reduce their reliance on Moscow after disputes between the two former Soviet Union nations halted Russian gas flows in 2006 and 2009. With renewables still developing and Germany shunning nuclear power, Europe is burning more coal, putting its goals for cutting carbon emissions at risk. Energy-intensive industries — such as steel and petrochemicals — are also in peril as lower gas costs in the U.S. drive global producers to shift investments there. In September, the U.K. imported its first cargo of American shale gas as chemical makers look to cheaper U.S. supplies to keep their plants running.

The Reference Shelf

  • The U.S. Energy Information Administration’s analysis of global shale deposits.
  • A Bloomberg article on how supplies of U.S. shale gas are saving dying European chemical plants.
  • A report from accounting firm Ernst & Young titled “Shale Gas in Europe: Revolution or Evolution?”
  • Businessweek chronicled opposition to fracking in the U.K. in a January 2014 article.
  • BP’s 2016 statistical review of world energy.
  • QuickTakes on the fracking debate in the U.S. and on Russia’s grip on Europe's energy. 

First published Sept. 17, 2014

To contact the writers of this QuickTake:
Kelly Gilblom in London at kgilblom@bloomberg.net
Tara Patel in Paris at tpatel2@bloomberg.net

To contact the editor responsible for this QuickTake:
Leah Harrison at lharrison@bloomberg.net