Europe’s fracking energy mess

Political observers have rushed to characterize Europe’s volte face on shale as “rolling back its climate policy”. The reality is, however, that Brussels’s energy strategy remains as shambolic as ever

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Poland has hit a stumbling block in its shale development
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Peter C. Glover
On 3 June 2013 06:53

There’s no question that Europe is finally awakening to the enormous economic benefits of shale hydrocarbons. Given the nascent impact of the US shale gas and oil industries on both domestic and global markets it is impossible to ignore.

But while European leaders openly admit to reappraising their anti-shale development attitude, and the fracking technique that made it possible, two barriers to success remain: an incoherent energy strategy that pre-eminently favours environmental considerations, and national greed that can, as in Poland, threaten to choke national shale industries at birth.  

The US energy market suddenly finds itself approaching what just a few years ago was the unthinkable: energy independence. Meanwhile, Europe remains in the thrall of Russian gas dependency, expensive imports and domestic heavy industry turning to cheap US coal imports to fuel their power stations. And while Europe’s gas prices continue to soar, US natural gas prices have fallen to one half of that being paid across the Atlantic.

No one suggests that shale developments will be a silver bullet for the European economies. But it is abundantly clear that the shale gas and oil industries have thrived in the US – despite an anti-fossil fuel president in the White House – because Americans own the mineral rights beneath their properties, unlike in much of Europe. Even so, it doesn’t take a rocket scientist to work out that developing domestic shale reserves still offers a major economic opportunity for many EU states.

But here’s the problem. For all Europe’s belated ‘getting it’ on the potential of shale gas and oil, its anti-carbon addiction still drives an energy strategy beset with inherent contradictions. Having finally seen the shale opportunistic ‘light’, global warmism is still the prevailing angst-ridden driving force – even though alarmists have become increasingly desperate to find a credible explanation for the fact that global average temperature has flat-lined for over 16 years now whilst CO2 levels have continued to rise.

Embarrassingly for Europe, however, the switch of US heavy industry from coal to (shale) gas use has seen US CO2 emissions fall faster than in any other industrialized nation. Meanwhile, the European carbon market has all but collapsed. And Europe’s politicians have finally grasped that EU energy policies threaten an exodus of Europe’s leading heavy and chemical industries if prices are not brought down.

 In May, European President Herman Van Rompuy agreed that Europe needed to face up to the challenge posed by the success of US shale gas and oil which has slashed prices and undercut European competitiveness. “All leaders are aware that sustainable and affordable energy is key to keeping factories and jobs in Europe,” Van Rompuy told the media.

He acknowledged that “Industry finds it hard to compete with foreign firms who pay half the price for electricity, like in the United States.” That may be so. But, as the Washington Post was prompted to observe, Europe “has become a green-energy basket case. Instead of a model for the world to emulate, Europe has become a model of what not to do.” All the signs are, however, that confusion still reigns in Brussels as policies continue to run counter to one another.

Recent headlines have suggested that the EU is quietly trying to “shred” its green agenda, at least as far as it may recant its opposition to fracking technology and shale development. Europe’s green agenda is undoubtedly the single greatest factor driving up energy bills, up 40 percent since 2005. Suddenly, shale development is the new buzz phrase.

Yet, at an energy summit in late May, European leaders persisted in re-affirming Brussels’ core commitment to high-cost, high subsidy-dependent renewable energy projects; and to the war on carbon emissions that is driving the renewables agenda.  It’s an agenda that has, ironically, seen Europe’s heavy industry and power sector’s to turn to high CO2-emitting (albeit, high quality) American coal.

The fact is, without slashing the massive green levies that provide the vital funding if high-cost wind and solar renewables are to thrive, Europe’s politicians will continue to be caught between a rock – rising energy bills – and a hard place – the tyranny of EU-imposed anti-carbon targets. 

Which brings me to the second obstacle: state greed

While green taxes and levies do virtually nothing that actually benefit the environment, they do provide a lucrative windfall for national governments. Governments will be reluctant to give them up. As attractive as the EU’s recent u-turn on shale developments will be to companies prepared to invest, what just happened in Poland provides a sober reminder of the potential rank stupidity inherent in bureaucratic greed.

Poland has long been acknowledged as possessing one of Europe’s richest shale gas resources. The Energy Information Agency estimates the country has as much as 187 trillion cubic feet of shale gas reserves. American and Canadian prospecting companies were attracted enough to set up shop. They believed that the high risk and high cost of exploration would prove worthwhile for all concerned.

30 wells were duly planned for 2013. In the event, only two have been drilled. That’s because state bureaucrats got greedy.

First, they insisted that the foreign gas firms ‘partner’ with a state-run company; a red flag to any private sector investing firms. Next Warsaw imposed a punitive tax regime that, according to accountants Ernst and Young, effectively offered the companies a mere 20-80 percent split – in favour of government.

The impact was inevitable and immediate. ExxonMobil, Talisman Energy Inc (Canada) and Marathon Oil upped sticks and left, deeming the high investment had been made far too risky. San Energy Plc chief, John Buggenhagen, resigning in utter disbelief, summed up the industry response: “Who’s going to come and invest billions of dollars to monetize this gas if the government is talking about taking huge profit margins away from the companies?”

Chevron has chosen to hang on in Poland, but this is largely due to the company’s broader shale investment policy across Eastern Europe generally.  

Political and media observers have rushed to characterize Europe’s volte face on shale and fracking extraction as “rolling back its climate policy”. The reality is, however, that Brussels’s energy strategy remains as shambolic as ever. As if that wasn’t enough, Poland’s bureaucrats have shown that state greed is alive and kicking – and quite capable of choking its ‘golden geese’ at birth.   

Peter C Glover is co-author of the bestselling Energy and Climate Wars and is a contributing editor at The Commentator. For more: www.petercglover.com

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