Foreign Frackers Now Find Comfort in Water-Hungry Spain

A few years ago, fracking in Spain seemed as likely as bullfighting in Britain.

These days, energy companies from Texas, Canada and Ireland are going after exploration and drilling permits in hopes of capitalizing on geology that indicates Spain has a sizable chunk of the 883 trillion cubic feet of natural gas in shale estimated to sit under Europe.

What’s changed? A sluggish economy for one -- the energy industry estimates fracking could eventually create tens of thousands of jobs in a nation with an unemployment rate of 26 percent. Unlocking gas deposits might ease what consumers pay for the heating fuel. It’s about triple the U.S. price.

As important, the national government, with the economy in mind, took a pro-fracking stance even as regional and local authorities harden what’s long been widespread European environmental opposition to oil and gas development of any kind.

In December, two years after ousting the Socialists, the People’s Party-led Parliament changed a law to foster shale exploration with new environmental safeguards. Since then, the PP government sought Supreme Court approval to wrest control over land use from regional authorities who try to block fracking. And it’s kept intact a tax break for explorers established in the final years of the dictatorship in the 1970s.

“Spain is one of a handful of countries in Europe that is most hospitable to unconventional gas,” said third-generation oil man George Yates, a New Mexico native who worked in oil and gas exploration projects in Europe for about two decades. “And it’s under-explored territory” for shale rock.

Fracking Camps

Europe is dividing into fracking camps. On one side are mostly conservative-leaning governments like those in the U.K., Poland and Spain that court shale explorers. On the other are those that have banned them such as France. Germany temporarily won’t allow toxic chemicals mixed into fracking water.

That doesn’t mean there aren’t Spanish hurdles.

Spain has never had a big oil discovery -- a major hope, a deep-water play off its Canary Islands, has been locked up since 2001 under relentless green opposition and protracted government reviews. Spain is also Europe’s most water-stressed nation. Fracking is a water-intensive drilling method that can consume 2 million to 4 million gallons of water per well.

Shale Gas Espana, a lobbying group for prospectors in Spain, has said some of the water can be treated and reused.

“The industry isn’t taking into account the possible environmental damage or the cost of cleanups,” said Julio Barea, head of campaigning for Greenpeace Spain. “Given Spain’s circumstances, I don’t think fracking is going to happen.”

Clearing Projects

Drilling itself is at least a year away as Spain’s Agriculture, Food & Environment Ministry has yet to clear any fracking project after studying its potential effects on land, air and water. BNK Petroleum Ltd. is close to delivering studies for seven prospective wells near Burgos and expects its drilling won’t take place for at least one year, according to a spokeswoman.

This comes amid a continuing anti-fracking push by some residents and environmental groups and in the shadow of national elections in 2015 that will test whether the country’s pro-fracking coalition has staying power.

Basque Tour

None of that deters Yates, president of Dallas-based Heyco Energy Group. One winter day back in 2006, Yates toured the northern Basque region with the head of the Basque government’s exploration company to discuss potentially drilling for gas. By day’s end they shook on a deal. After seven years of testing and seeking clearance, Yates said the project is “about a year away from doing drilling, depending on how quickly the government moves.”

Most prospectors working in Spain have foreign support or ownership. They include Canada’s R2 Energy Ltd. and BNK, George Soros-backed San Leon Energy Plc in Dublin and a unit of closely-held True Oil LLC of Wyoming.

“They have experience outside Spain in non-conventional exploration and their interest is clear,” said Juan Klimowitz, general manager of exploration consulting firm Gessal in Madrid.

Central and regional governments have approved about 70 oil and gas exploration permits and almost 60 more are pending decisions. Klimowitz estimated frackers hold about three-quarters of the 50 or so onshore permits in the north, where much of estimated gas, and the opposition, can be found. Licenses have jumped about 80 percent in five years.

“The new ones are almost all for shale gas,” said Issac Alvarez, an industry consultant and former head of exploration and production at Repsol SA, the Spanish oil giant. “Spain has a very attractive tax treatment and a well-developed infrastructure for gas. Also, energy costs a lot here.”

Spain’s central government “is in favor of exploration,” said Clara Vilar, a spokeswoman for the Industry Ministry, which authorizes permits. Fracking is getting regulated “so that exploration and research is done with all the guarantees possible and under law.” Considering Spain imports more than 99 percent of its natural gas, “what the government is trying to do is at least see what kind of resources the country has.”

Alvarez, who teaches university courses on fracking, says he hopes those arguments are persuasive. The prevailing view among many Spanish politicians, whether from the People’s Party or the Socialist party, is that most voters remain wary of fracking, thus politicians want to be seen as skeptical as well.

“What is really clear is the politicians are quite scared of the pressure that environmental groups can organize,” he said. At the same time, “they feel the high unemployment and they see the stalled economy.”

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