Selected implications of shale gas extraction in Europe

e distribution of unconventional gas resources in Europe is uneven. As outlined in Figure 1, there are three major basins in Europe: the Lower Paleozoic play (reaching from the east of Denmark down to Gdansk), the Carboniferous marine basin (spreading from North West England through Germany to western Poland), and the Lower Jurassic basin (south of England, France, the Netherlands, Lower Saxony and Switzerland). is means that not all European countries have unconventional gas potential. According to the IHS Cambridge Energy Research Associates (IHS CERA) report ‘Gas from Shale – Potential outside North America?’, the biggest basins of recoverable shale gas resources are located in Germany and the Netherlands followed by the northern German -Polish, French and the Anglo -Dutch basins, which are in line with the geographical estimations.


Distribution of unconventional gas in Europe
e distribution of unconventional gas resources in Europe is uneven.As outlined in Figure 1, there are three major basins in Europe: the Lower Paleozoic play (reaching from the east of Denmark down to Gdansk), the Carboniferous marine basin (spreading from North West England through Germany to western Poland), and the Lower Jurassic basin (south of England, France, the Netherlands, Lower Saxony and Switzerland 1 ). is means that not all European countries have unconventional gas potential.According to the IHS Cambridge Energy Research Associates (IHS CERA) report 'Gas from Shale -Potential outside North America?' , the biggest basins of recoverable shale gas resources are located in Germany and the Netherlands followed by the northern German -Polish, French and the Anglo -Dutch basins, which are in line with the geographical estimations 2 . 1 F. Geny, Can European Gas Be a Game Changer in European Gas Markets?, e Oxford Institute for Energy Studies, December 2010, p. 48-54.

Resource estimations
ere is a degree of uncertainty regarding the amount of recoverable shale gas resources in Europe, as di erent methodologies have been applied to measure it.
e Join Research Centre, the European Commission's research body, approximate that for geological estimation of unconventional gas sources there is between 15 and 40 per cent of uncertainty of whether the sources are recoverable.ere is also a difference between technically recoverable and economically recoverable resources.For instance, KPMG3 estimates that there are substantial resources of shale gas in Eastern Europe, however, it points out that that there are di erent geological settings in di erent gas formations.In addition, shale gas resources in Europe are located 1.5 times deeper than those in the US4 .Lack of precise data about the availability of unconventional gas in Europe is one of the main challenges for European operators.
In 1997 H. H. Rogner estimated that Central, Eastern and Western Europe combined have 14 gigatonnes of oil equivalent (Gtoe) of shale gas (Figure 2).In comparison, according to the same estimations, the US have 7 times more shale gas resources than Europe.Rogner's work was one of the rst comprehensive estimations of shale gas resources worldwide and the best international study available at the time; however, his methodology is not perfect.While all available data was used in the study, the remaining gaps were lled with estimates5 .

Western Europe Eastern Europe
Since H.H. Rogner, there have been several attempts to estimate resources, including attempts made by the IEA, the Energy Information Administration (EIA), IHS CERA, Wood Mackenzie, Cedigas and scholars.
For example, to illustrate di erences in shale gas estimations, the EIA's 'World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the United States' estimates that there are around 17 trillion cubic meters6 (tcm) of recoverable unconventional gas resources in Europe, with Poland having the highest amount of shale gas resources 7 .IHS CERA estimates that there could be between 3 and 11.9 trillion cubic meters 8 of recoverable shale gas reserves in Europe.
Shale gas exploration in Europe is still at a very early stage and the industry still needs to determine the real geological potential of this resource.e European Commission acknowledges that there is uncertainty as to what is the precise volume of technically recoverable shale gas, however its potential could be at a level of 16 trillion cubic meters (tcm) 9 .
To conclude, studies acknowledge that there is a considerable shale gas potential in Europe; however, there is a degree of uncertainty as to how much recoverable resources are available.Methodology of calculating shale gas potential depends on several factors, including geological, social, environmental and economic challenges, which are further described in this paper.

Factors in uencing shale gas prospects
ere are several factors which could potentially in uence prospects of shale gas in Europe.
Among other factors, the IEA 10 mentions public concerns regarding the environmental and social impact of shale gas as an obstacle for its development in Europe.Indeed, shale gas has caused a certain degree of social unrest among local communities a ected (or that potentially might be a ected) by exploration activities.e most recent protest took place in the UK in January 2014, following the announce-ment of investment of 29 million pounds by French oil and gas company Total into shale gas11 activities in the UK.
Environmental concerns related to the use of hydraulic fracturing12 and horizontal drilling have been one of the issues debated both on national and European level.In fact, several countries, including France, Germany and Bulgaria have banned hydraulic fracturing.In addition, the fact that in Europe landowners have a very limited right to the resources in comparison to the US is not contributing to gaining more social acceptance on the issue.
Although EU Member States have each individually adopted a set of mining, geological and environmental regulations which apply to shale gas exploration and exploitation, there is no single EU law which regulates this issue.In fact, in the past years the European Commission has looked into the environmental impact of shale gas and in January 2014, it published 'Recommendations providing minimum principles for the exploration and production of hydrocarbons' .e recommendations tackle, inter alia, regulatory issues related to exploration and production, provide guidance on monitoring requirements and outline procedures regarding inspections and sanctions.Although it is a non-binding document, a er the evaluation of the impact of Commission recommendations planned for 2015, it might lead to more stringent laws 13 .
Legal policy frameworks which are not supportive of shale gas, will increase cost and limit the number of drilling locations.IHS CERA model shows that lack of supportive policy framework will increase production cost and might push the industry into a position where the development of shale gas will no longer be pro table .For instance, the lack of such supportive framework in Germany would make shale gas pro table only if the price of gas was higher than 21 euro per megawatt hour (MWh).With favourable policy in place the amount of recoverable gas in Europe could reach 106 billion cubic meters (bcm) per year (in comparison with 61 bcm if such framework is not put in place)14 .

Figure 3. Germany resource potential at price levels without supportive policy
Source: A More Competitive Energiewende: Securing Germany's Global Competitiveness in a New Energy World, IHS CERA, Main Report, p. 47.
Social and political issues are not the only constrains to shale gas development.
Other di culties include limited access to pipelines, shortage of expertise in the EU with regard to technology, di erent geological formation compared to that in the US, location of shale gas basins in highly populated areas, water access (hydraulic fracturing needs large amounts of water).Finally, the cost of development of shale gas will also have an impact on its prospects.
e current state of the European gas infrastructure is another potential bottleneck to the development of shale gas as the transmission infrastructure requires signi cant investments.Moreover, more cross -border gas infrastructure connections need to be further developed, if the production of shale gas reaches level when it could be exported to other countries 15 .
Shale gas also a ects other issues such as the development of road infrastructure, tra c management, access to water supplies, wastewater treatment and gas storage.
Furthermore, shale gas resources in Europe are located much deeper than those in the US, raising the cost of extraction.For instance, according to A.T. Kearney, the cost of drilling in Germany could reach between 11 and 44 euros per MWh, while in the US the same cost is between 7 and 17 euros per MWh 16 .Pöyry, an international consulting and engineering company, argues that high estimations of extraction costs in Europe do not take into account the "likely economy of scale and technical ingenuity" 17 .
Figure 4 (below) outlines IHS CERA's estimation of recoverable shale gas at various price levels in di erent EU Member States.Assuming that the price will stay above 21 euro per MWh 18 , the recoverable potential in seven EU Member States (Germany, France, Poland, the United Kingdom, Austria, the Netherlands, and Denmark), could reach 2,086 bcm 19 .Interestingly, Poland seems to be most price sensitive and if the price reached 21 euro per MWh, Poland could produce as much as 70bcm per year in 2035, a production comparable to current pipeline exports from Norway (100 bcm) 20 .

Figure 4. Recoverable resources at price levels
Source: A More Competitive Energiewende: Securing Germany's Global Competitiveness in a New Energy World, IHS CERA, Main Report, p. 47. 16 A.T. Kearney, New A.T. Kearney Study on Shale Gas Production in Europe, http://www.atkearney.com.tr/news-media/news-releases/news-release/-/asset_publisher/00OIL7Jc67KL/content/new-a-t-%C2 %A0kearney-study-on-shale-gas-production-in-europe. 17 Europe is not expected to experience a shale gas boom comparable to the one that has happened in the US.In fact, Europe is not heading the same path as the US and will not be faced with a shale gas revolution, because of a number of factors which disrupt the speed of shale gas development.However, while shale gas is not expected to transform European markets as a whole, it has a potential to in uence regional markets and help them in reducing their dependence on gas imports.Such impact will of course not be the same in every European market; however, those EU Member States where shale gas will be produced could potentially bene t from taxes, and increased job market.

Potential bene ts of shale gas in Europe
According to the International Association of Oil and Gas Producer (OGP), shale gas can provide a number of economic bene ts on the local, regional and national level.OGP lists potential bene ts such as lower import costs, employment, and development of supply industry in Europe.It also notes that governments would be able to bene t from royalties and tax revenues on shale gas 21 .
A report on 'Macroeconomic e ects of European shale gas production' , prepared by Pöyry for OGP, outlines that shale gas could contribute to lower gas and wholesale electricity prices.For the purpose of its analysis, Pöyry developed three scenarios: 'No Shale' , 'Some Shale' and 'Shale Boom' production levels in the EU. e 'Some Shale Scenario' assumes 15 per cent of shale gas can be technically recoverable.In addition, there are adequate levels of political and public support towards enabling extraction of shale gas resources, however some restrictions are still in place and not all shale gas can be produced.e 'Shale Boom Scenario' assumes around 20 per cent of resources are recoverable and there is a widespread political and public support 22 .e scenarios outline that an average wholesale gas price reduction could be as much as 6 to 14 per cent compared to 'No Shale Scenario' . is may bring from 36 billion to 51 billion euro savings by 2050.Such scenarios could particularly benet the power sector and development of gas-red power plants and would reduce production costs for the industry.
Pöyry estimates that the average wholesale electricity price could drop by 3 per cent in 'Some Shale Scenario' and 8 per cent in 'Shale Boom Scenario' . is will bring from 28 to 42 billion of savings in 2050.In addition, shale gas could reduce spending on the household level by 8 to 11 per cent in 2050 and it could increase EU28 GDP from 57 to 145 billion euro in 2035 and from 138 to 235 billion euro in 2050.Pöyry believes that lower gas and electricity prices would bene t consumers and would drive overall consumption at the household level 23 .
e European Commission Communication on unconventional hydrocarbon outlines only a moderate direct price impact on the regional gas markets in comparison with the US, due to smaller volumes of shale gas in Europe and because prices are calculated to a large extent based on oil-indexed contracts 24 .
A study, by Ernst&Young, shows that availability of cheaper gas could lead to replacing the coal generation with gas.However, it also points out that lower gas prices could potentially lead to decreasing investments in renewable energy.Ern-st&Young estimates that gas alone will not be able to help reduction of greenhouse gas emissions to be in line with EU targets, hence EU Member States would have to o er heavy incentives in order to attract investments into this technology.In addition, the EU would have to apply legislation which will be protecting the development of renewable energy sources.Ernst&Young also states that the drop in prices of gas in Europe will not be as extensive as in the US 25 .
A similar view is supported by the European Renewable Energy Council (EREC), which outlines that shale gas might cause a diversion of investments away from renewable energy.However, EREC also outlines that at the same time, additional gas-red power could be bene cial from 'an overall system perspective' 26 .e report 'Macroeconomic e ects of European shale gas production' showcases a di erent scenario.It outlines growth in the renewables sector between 2020 and 2035.At the same time it forecasts an increasing gas generation 27 (Figure 5).European publications also link increasing European competitiveness with the development of shale gas.An interesting example is the impact of shale gas on the chemical industry, which in 2012 generated 558 billion euro revenues.e chemical industry in Europe employs circa 1.1 million people and in 2012 created a trade surplus of 49.5 billion euro, although in 2012 it faced a decline in the overall share of global demand.According to CEFIC28 , the European Chemical Industry Council, shale gas could have a potential bene cial impact on the chemical industry, as 35 per cent of energy used by the petrochemical industry is gas. is industry would therefore bene t from indigenous and less costly gas.CEFIC believes that shale gas could potentially have an impact on petrochemicals and their value chain as well as fertilisers production.
Shale gas could also lead to the development of the oil eld services sector in Europe, which has grown in the US in parallel with the growth of shale gas, and which currently focuses on other regions than Europe, i.e.Middle East.However, as Ernst&Young noticed, there will be only little rush to invest in a new capacity, as long as there is uncertainty about the potential of shale gas. is could require investments into new high -speci cation equipment such as drilling rigs or pumps.For instance, such support has been provided by BGK Bank to Na a Piła, which could buy new rigs.E.ON, a German energy company, also notes that European service industry is not as mature as the service industry in the US.Moreover, E.ON estimates that the cost of drilling and simulation could be as much as four times higher in Europe, in comparison to the US29 .

Shale gas and European import diversi cation
According to the EIA, natural gas consumption in Europe will be steadily increasing until 2040, making shale gas an attractive option to rising demand.
Around 67 per cent of EU natural gas imports originate from Russia, Norway and North Africa 30 .Central European Countries (CEE) are particularly dependent on gas imports.According to KPMG in 2010, on average 69 per cent of natural gas consumption in the CEE region came from import 31 .
is import dependency is predicted to rise in view of declining indigenous production of natural gas in Europe.According to the report on 'Macroeconomic e ects of European shale gas production' , the EU's dependency on gas from outside Europe could reach as much as 89 per cent between 2020 and 2050, if no shale gas is developed in Europe.Indigenous shale gas could also help Europe to reduce dependency on foreign gas to 62 per cent by 2050, if the 'Shale Boom Scenario' is applied.
e European Commission outlines that shale gas would be able to meet around 10 per cent of the EU's gas demand in 2035, helping to maintain European gas import dependency at a stable level 32 .In particular, it could help with o setting the declining North Sea production.
e 2014 IHS CERA 33 report estimates that more than 20 billion cubic meters of shale gas production per year is possible in Germany by 2030.Domestic energy production (both conventional and unconventional) could meet more than 35 per cent of today's gas demand 34 .is could modify Germany's import dependence, and stabilise the increasing supply of Russian gas to the country.
Indigenous shale gas production in Europe could also help EU member states negotiate gas prices and gas contracts with Russia.Overall, shale gas could make EU member states less dependent on foreign gas and help counter decreasing gas production in Europe.

Conclusions
Future prospects of shale gas and its potential economic impact are still to be determined.ere are several factors which need to be taken into consideration when estimating potential recoverable resources of shale gas in Europe.e European market is complex and while geological issues play a role in those estimations, in fact, regulatory framework, social acceptance and environmental impact are equally important.
ere is a degree of uncertainty around all aspects of shale gas development.Geological estimations are not precise, and moreover, there are several factors such as depth of resources and density of population in Europe.e issue of underdeveloped infrastructure to accommodate shale gas will also play a role in further development of this resource.
e regulatory framework around shale gas will play as important role, as without supportive laws, the costs will rise and the number of available drilling locations will decrease.Moreover, uncertainty regarding how legislators will handle the issue of shale gas may in uence investors' con dence and decrease the level of interest among energy companies in the European market.
As long as Europe does not face a shale gas boom, shale gas might have an impact on certain aspects of the European economy.Firstly, it might have an impact on long -term wholesale gas and electricity prices, however the level of impact is not estimated to be high.Secondly, it could stabilise the increasing levels of Europe's dependency on natural gas.irdly, it might have an impact on regional markets helping them to give up coal generation and increase the declining national production of gas.
Finally, shale gas could help in development of the oil eld companies in Europe and could boost the chemical sector.It might also have an impact on job creation, however the impact will be minimal and will not be comparable with the situation in the US, where millions of jobs were created due to the development of shale gas resources.

Selected implications of shale gas extraction in Europe
According to the 2011 International Energy Agency data, 60 % of natural gas production in the US comes from unconventional sources.Currently in Europe the commercial production of shale gas has not yet been developed.However, the European Commission estimates that conventional production in those countries which have already made some progress could already start as early as 2015.
e 2013 A.T. Kearney report outlines that European resources constitute 7 % of world resources, but the success of shale gas exploration in Europe will depend on a series of economic, political and geographical factors. is paper analyses the potential impact of the development of the shale gas industry in Europe, particularly recoverable potential of shale gas, its impact on the economy, overall EU energy mix, energy prices and the European job market.In addition, the paper brie y discusses the potential impact of shale gas extraction on gas imports and security of supply.
Keywords: natural gas, shale gas, energy, security of supply, gas import, gas prices

Figure 1 .
Figure 1.Map of unconventional deposits in Europe

Figure 2 .
Figure 2. Estimates of unconventional natural gas in place by type, unconventional gas in Gtoe