How Fracking Changed the U.S Energy Sector and How It Could Change Europe's

This is the second article of a series of four articles that will try to shed some light upon the hydraulic fracturing technique and its economic, environmental and geopolitical consequences, especially for the US and Europe. This second article will focus on energy resources employed by European countries and their daunting dependence on imports.

Energy Situation in Europe

Although the situation differs widely from country to country (some countries are more dependent on nuclear, others on coal) European countries are ever more dependent on natural gas: the share of natural gas in electricity production increased from 8.6% in 1990 to 23.6% in 2010.^{https://www.eea.europa.eu/data-and-maps/indicators/overview-of-the-electricity-production/assessmen}

Most scenarios forecast that gas consumption will continue to increase in the next years, but as the European gas production continues to decline, the dependence on imports is going to increase.

In the next years and decades, natural gas is going to have a greater role in the European energy market. If European countries want to remain competitive economies, they must secure a cheap and safe supply of gas. There are the two main reasons that support my claim.

First, natural gas emits 60% less CO2 than coal, which in 2010 produced more than 24% of European energy ^{The Outlook for Energy: A View to 2040, Exxon-Mobil, 2016, p. 64.}; if climate objectives decided at major international conferences, such as COP21, are to be met, coal should be replaced for the major part with natural gas.

Second, for the same reason, renewable energies are going to play a very important role. According to the “2030 climate & energy framework”, renewables need to represent at least 27% of the total energy supply in 2030, while the 2050 objective is to eliminate CO2 production from the power sector.^{https://ec.europa.eu/clima/policies/strategies/2030_en and https://ec.europa.eu/clima/policies/strategies/2050_en.} So, in a few decades renewable energy should supply almost entirely the European electric grid. The problem is that most of these renewable sources are not reliable: solar is available for half of the day, when it is not cloudy; wind, except for coastal areas, is inconstant; geothermal is limited to volcanic areas. The main problem with renewable sources of energy, however, is that peaks in energy consumption (generally just before dawn and just after sunset) are not met by the peak in renewable energy production (10 a.m. - 2 p.m. for solar, first hours after sunset and before dawn for wind)^{Matching Hourly and Peak Demand by Combining Different Renewable Energy Sources. A case study for California in 2020. Graeme R.G. Hoste Michael J. Dvorak Mark Z. Jacobson, Stanford University, pp. 7, 8, 10.}. 

The future solution will be to find a way to store energy in an effective method in order to utilise it during demand peaks. At the present time, however, there is only one solution to solve this issue: we have conventional plants running at the minimum and ready to switch to the full production rate to satisfy the aforementioned peaks. Nowadays, power stations used to this aim are fuelled by coal, because it is very cheap and it is commercially possible to run a powerhouse 24 hours a day to satisfy just a few hours demand. But this means to pollute needlessly. The use of gas power stations is much more efficient because it is possible to swing from an inactive plant to the maximum production rate in a matter of minutes, thanks to the characteristics of the fuel. Thus, there is much less emission of pollutants, both because the fuel is not wasted and because it generates less CO2. 

The problem is that wholesale gas prices in Europe are still too high to make this solution economically sustainable. If domestic production continues to diminish, the price is not going decrease any time soon, as it did in the US thanks to the increased production from shales. As we will see further on, EU countries may import cheap gas from Russia but being dependent on such a problematic neighbour is not desirable and it might also damage political relations with the United States. An increase in production of indigenous gas, mainly through fracturing, may be a step in the right direction to achieve cheaper gas prices and energetic independence.

The Energetic Dependence of Europe

The share of gas produced and consumed in Europe has been decreasing for more than 10 years now. North Sea gas-fields are running out and are expected to drop more than 70% from their peak in 1999 by 2020. New Norwegian deposits were thought to contain a sizeable quantity of gas but later explorations led to abandon this hope. European production, unless shales are exploited, is doomed to become insignificant and EU countries will be dependent on imports.

Let’s examine extra-European gas suppliers and we will see that the world's three largest gas reserves are located around Europe, although on other continents. To the south there are Libya and Algeria. The former is scourged by a civil war since 2011 and it will not be a reliable supplier, at least in the near future. Algeria’s production and exports have lagged in recent years, down about 30%, mainly due to slow governmental approval of new projects and a lack of investments. Although Algeria has the world’s third largest shale-gas reserves, esteemed at least at 700TCF (Trillion Cubic Feet), their development will be difficult because of the remote location of fields and the lack of large quantities of water needed by the fracturing technique.

Looking at the Middle East, Iran claims to have the world’s second largest reserves but because of the geopolitical conditions, again, it is not a viable option.

We are left with Russia, home of the largest gas reserves in the world. Russian resources are not completely explored, much more gas may hide in Siberia and the price should be quite cheap. The problem for Russian gas is the transport to Europe. USSR developed a network of pipelines and pumping station in its territory, but the westernmost and final sections of this network lie in independent countries, in particular in Ukraine. It is a euphemism to say that Russian Federation and its neighbours do not have cordial relations. The transit countries on the western side of Russian border are party to supply agreements but stops in the flow of gas, such as those happened in 2006 and 2009, pose a serious threat to European countries.

Russia tried to overcome these difficulties developing alternative pipelines: through the Black Sea and Turkey to Greece and Italy (“South Stream”) and through the Baltic Sea from Saint Petersburg directly to Germany (“Nord Stream”). However, South Stream was discarded by Gazprom after the European Commission opposed the project; its replacement, "Turkish Stream", is currently under construction but it will pass through Turkey, another troublesome country; “Nord Stream”, even with the recent project of doubling the pipeline, will not be sufficient by itself if Ukrainian pipelines are blocked. 

A few words on Liquified Natural Gas. Some European countries (France, Italy and Spain) have invested in LNG infrastructures in order to import gas via ships from Qatar, but at the present time its price is not competitive, even though it is expected to decline thanks to US shale-gas entering the LNG market.

So, while waiting for other countries to secure Europe with safe supplies of fuel, why do not European countries try to exploit their own shale gas reserves? It is imperative for Europe to find alternative sources of supply in order to improve the security of its fuel supplies and one solution may be the exploitation of domestic shale reserves, just like the United States did. 

Continue