One by one, Europe’s shale dreams have evaporated. Poland, Lithuania, Ukraine, and even the UK have all seen oil majors throw in the towel on fracking projects that were once seen as a path towards a European energy renaissance. The FT reports on how mismanagement and unfavorable conditions both in energy markets and the natural world have tripped up so many countries in their attempt to follow America’s lead:
The reasons for the bust across the region are varied: sometimes unfavourable regulatory and tax regimes, as well as bans or temporary moratoria on hydraulic fracturing such as in Bulgaria, Romania and the Czech Republic, often following environmental protests. Some senior western officials, including Anders Fogh Rasmussen last year when he was Nato secretary-general, have accused Russia of secretly stirring up such protests, which Moscow denies.
Lower oil prices have also changed the financial equation, in a region where drilling costs are high and which lacks the infrastructure whose development has driven costs down in the US.
On top of all that, in the words of one executive from a US oil major, “the rocks aren’t there”. Geological formations that appeared promising in countries such as Poland have turned out to be more difficult to fracture with existing technology than reserves in North America. Some industry insiders say the geology has been the biggest single factor holding back development of central European shale.
Europe’s experience will frustrate governments that had pinned hopes of bolstering domestic energy production (and therefore diversifying away from Russian supplies and all the conditions that come with them) on hydraulic fracturing.
But it also serves as a foil to prove just how extraordinary America’s experience these past seven or eight years has been. Oil production is up 75 percent since 2008, and since 2005 natural gas output has spiked 44 percent. This formula for this boom involves a long list of variables, including (but not limited to): mineral rights incentivizing homeowners to lease land for drilling, evenly-layered “wedding cake” geology favorable to horizontal well-drilling, a deep pool of available capital, wildcatters willing to take risks in a fledgling industry, an already robust oil and gas services industry, preexisting pipeline infrastructure, low population density, and a relative abundance of water. All of these conditions have proven vital to the shale revolution, and for Europe they’ve been difficult to replicate.