Eddie

Why gas is not the solution to Europe’s energy security challenges

The events in Crimea and the Ukraine in recent weeks have thrown Europe’s dependency on Russian oil and gas into sharp relief. Although regrettable, the turmoil has come at as good a time as any. Europe is in the midst of hashing out a comprehensive climate and energy policy framework out to 2030. This framework seeks to address the triple challenges of keeping energy prices at a minimum, decarbonising the energy to fight climate change, and ensuring the security of energy supplies.

Europe sources roughly 30% of its natural gas from pipelines that originate in Russia and traverse Ukraine.[1] Russia appears unlikely to bow to Western pressure to exit Crimea and European leaders are bracing for a drawn out conflict, which would disrupt these supplies. This would force countries to purchase gas elsewhere and many politicians believe shale gas production in Europe is the long term solution to current energy security and decarbonisation concerns.

At first glance, one might be inclined to agree. Natural gas has a lower carbon content than coal, and in the US it has dramatically decreased energy prices and increased energy independence. However, there are a number of problems with gas, which I explore below, that make clear it is not a panacea to Europe’s energy challenges.

While many European leaders look on with envy at the US shale gas boom, the experience there is not replicable in Europe, nor should we desire it to be. First of all, the price at which shale gas is sold in the US bears no relationship to the risks undertaken by developers, the true cost of extraction, the water usage and treatment costs, or the externalities associated with production. This price distortion is thanks to generous tax breaks and lax environmental laws.

Developers have systematically downplayed the environmental risks of shale gas exploration, but the realities are beginning to come to light. Tremors of 2 to 4 on the Richter scale are routinely recorded in the area of the Barnet shale.[2] These waves almost certainly assure that pathways to the surface other than the pipe are opened for shale gas to escape. This causes significant amounts of fugitive methane emissions at the wells, which makes shale gas production more carbon intensive than coal.[3] In the Marcellus shale, water treatment plants designed for entirely different purposes are being used to attempt to clean up the water effluent coming from the drill holes. The long term effects of the chemicals used is not known.

But the major reason for low prices in the US is the fact that the gas is essentially trapped there. A lack of export facilities prevent the transport of gas to overseas markets where it could fetch a far higher price. Once these export terminals open next year, Americans will be forced to pay the real market price for their gas. Reflecting this and other factors, prices have already risen to $6.97/Mmbtu in the north-east US – roughly on par with pre-boom levels and current coal prices.[4] After 2015, they will rise even higher.

In Europe, there are myriad barriers to a shale gas revolution. Environmental regulations are stringent, resource rights don’t incentivise extraction on private land as they do in the US, and the industry, in the words of a shale gas company boss in the UK, is ‘getting smashed’ by public opposition.[5] Added to that, production costs in Europe are 150-250% higher per unit than the US and initial evaluations of the size of the resource have proven overly optimistic. The IEA estimates shale gas could only ever supply 2-3% of EU gas demand. And calculations of the size of Poland’s extractable reserves were cut 90% after closer investigation.[6]

In the short term, Europe faces the tough choice of making unsavoury compromises in order to secure oil and gas supplies from Russia or going to the market to source expensive oil and gas from overseas. But in reality, it needs to look no further than its own backyard for plentiful renewable resources and the technologies to harness this energy in a cost effective manner. Without fracking a single well, Europe could deploy renewables and cut gas imports by 80% and save €450 billion on energy import costs by 2050.[7]

So while unfortunate in many ways, the current crisis in the Ukraine and the on-going climate and energy policy negotiations present the perfect opportunity for Europe to reduce dependence on imported energy and decarbonise its economy once and for all. It should not waste it.

 

[1] “EU Bid to Cut Reliance on Russian Gas Sidelines Climate,” Bloomberg New Energy Finance, 21 March 2014.

[2] Peter Elkind, “An earth-shaking mystery in Texas,” Fortune” 23 January 2014.

[3] Michael Obeiter, “New Study Raises Big Questions on U.S. Fugitive Methane Emissions,” WRI, 2 December 2013.

[4]Solar costs to halve as gas prices surge,” Renew Economy, 21 March 2014

[5] Geoffrey Lean, “Why the fracking industry admits it is ‘getting smashed’ by public opposition,” The Telegraph, 13 December 2013.

[6] Rebecca Lawson, et al. “Shale gas: four myths and a truth,” E3G, March 2014.

[7] Ibid.

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One Response to Why gas is not the solution to Europe’s energy security challenges

  1. Roger Faulkner April 1, 2014 at 3:34 pm #

    It seems to me that the supergrid really needs a superstar communicator, perhaps an actor who really sees the importance. Eddie, you’re as close as we’ve got, but somehow, none of us have hit the right chord to resonate with the public. I totally understand the importance of a supergrid, and I have devoted myself to this idea, but I can see that I’m not the right messenger…so I’m praying that a great communicator shall emerge.

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