More regulation, tempered expectations on shale's global horizon

LONDON -- As Europe prepares the first continentwide standards for exploiting shale gas, industry executives and analysts predict that the wildcat success of the American gas experience is unlikely to be replicated elsewhere on the globe anytime soon.

The uniqueness of the U.S. shale revolution was apparent during a daylong meeting here of more than 200 industry leaders seeking to identify the trends of shale's future. Growing public skepticism was one. A lowering of expectations was another.

With few exceptions, drilling by hydraulic fracturing has met vigorous popular opposition in Europe. China badly wants to tap into its vast gas reserves but is hampered by difficult geology and poor infrastructure. Africa and Latin America have potential but need years to develop it. If America has any shale challenger, it likely will be Russia.

Regulation in the United States, now largely in the hands of state governments, may be tightened as more local communities speak out over their fears of water contamination and air pollution.

Asia will be the market for the future. Looking eastward, the United States is moving toward liquefied natural gas exports, although the head of BG Group predicted that only 25 percent of proposed LNG projects are likely to be executed in the next dozen years.


"There's a perception that the world will be awash with cheap LNG. We do not think that is the case," said Chris Finlayson, BG Group's chief executive.

The transformative effect of shale on U.S. energy prices and industrial renaissance is not lost on Europe, which harbors an "American dream" but is wary of the price.

Each of the European Union's 28 countries is free to decide its policy and level of regulation for fracking, the process that has revitalized the U.S. energy industry. That may soon change, as the European Commission, the European Union's executive body, seeks to "harmonize" standards, said Environment Commissioner Janez Potocnik.

Surveys showed that 3 of 4 Europeans would be worried if a shale gas project were planned for their neighborhood, he said. Europe needs a risk-management policy to ease people's minds.

"Our objective is to put in place a framework that would reap the potential economic and energy benefits of shale gas, and ensure that extraction activities using fracking are carried out with proper climate and environmental safeguards," he said.

Opposite trends in U.S., Europe

The U.S. shale boom had an unusual constellation of enabling factors: an abundance of unregulated wildcat drillers, a pre-existing network of oil services and pipelines, and private ownership of mineral rights.

That favorable alliance was a boon to small drilling companies, consumers and manufacturing, but not necessarily for the oil majors. "No oil and gas company is making any real money out of shale," said Paolo Scaroni, CEO of the Italian energy company ENI SpA.

Such facilitating conditions don't exist in Europe, where layers of shale often are deep and difficult to reach, where populations are dense and overindustrialized, and where landowners have little financial incentive to allow drilling on their property.

As the U.S. power sector switches from coal to gas, cheap coal is flooding into Europe and encouraging an opposite trend away from expensive gas-fueled energy.

The result is a drop in climate-changing U.S. carbon emissions, while emissions in climate-conscious Europe are climbing. "We are living a paradox," said Scaroni.

The U.S. Energy Information Agency said Monday that energy-related emissions fell 3.8 percent last year, reaching the lowest level since 1994, partly due to the transition to gas.

Energy-intensive industries are migrating from Europe to America, where gas is one-third the price, said the ENI chief, and there is little chance Europe can match that. But even the inducement of high prices is not enough to overcome the obstacles of developing shale on a mass scale.

"The continent of Europe is not ripe for shale gas today," he said.

Maria van der Hoeven, executive director of the International Energy Agency, agreed that Europe needs an energy policy to encourage a transition to cleaner fuels.

"At the end of the day, gas is not the answer to the climate issue, and that is where renewables and energy efficiency come in. But we think gas is a very good ally for decades to come," van der Hoeven told the London meeting.

Britain and Poland have Europe's brightest prospects for exploiting shale, but both have seen setbacks. The "dash for gas" policy endorsed by the British government has been hamstrung by determined public demonstrations.

Poland has no problem with hostile public opinion. Polls show 78 percent are in favor of developing shale, said Piotr Wozniak, an undersecretary of state in Warsaw's Environment Ministry. But exploration results have been disappointing. Exxon Mobil Corp., Marathon Oil Co. and Talisman Energy Inc. have withdrawn from the country, although other energy companies snapped up the relinquished blocks, he said.

The industry needs to respond to environmental concerns with new technologies as dramatic as the smartphone and tablets in communications, said John Hofmeister, the former president of Shell Oil Co. He mentioned experiments with waterless fracking as one example, eliminating the need for huge supplies of water and the problems of wastewater.

2 takes from America

A day of incisive analysis with a parade of statistics was contrasted by a lively face-off between former U.S. Energy Secretary Bill Richardson and the world's leading anti-fracking campaigner, "Gasland" filmmaker Josh Fox.

"Thanks for inviting me. I don't get to hang out in a room like this very often," Fox deadpanned to the organizers, including Britain's Financial Times.

Richardson, who completed two terms as New Mexico's governor in 2011, said President Obama is an advocate of shale gas development "with a strong component of regulation." Shale is a bridge to a future of renewable energy, he said.

Fox's criticism of the industry was blunt, and at times personal. "Your companies have come in and invaded places where people live and caused an enormous amount of suffering and human rights violations," he said.

Regulation was inadequate, he said. He told Richardson that when he was governor, his state had 50,000 oil wells and only 14 inspectors.

"My last year, I was known as the greenest governor in the country," countered Richardson, who promoted wind and solar energy in New Mexico. Shale drilling is new, and people naturally are fearful of what they don't know, he said.

"It's seems like a very wide gulf between how you guys are seeing the world and how people are being impacted by the decisions you are making. ... There's a bubble reality in this room," said the filmmaker.

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