EU GAS IS WORSE
While it is possible to run through a laundry list of potential natural gas resources for possible delivery to Europe, many opportunities are elusive, and major pipeline projects always seem to be on the way, according to Prof. Jonathan Stern, Director of Gas Research, Oxford Institute of Energy Studies.
Painting a picture of gas resources in North Africa, for example, he notes that there are plenty of reserves in the region, but can it overcome the turmoil? North Africa, he says, has witnessed failed license rounds in Algeria, or political turmoil in Libya. Egypt, he notes, is even becoming a gas importer.
"There's plenty of reserves in all these countries – nothing to do with the existence of gas. The problem is, can this gas be developed and do we have the political and commercial conditions in these countries?" he asks, saying it is a question of huge importance for both gas and geopolitics, but is almost completely ignored in conferences and literature.
Meanwhile, the potential in the Caspian Region in connection with the Southern Corridor does receive attention, he says. "Basically, what we're looking at is Azeri gas with the increment of Shah Deniz phase II at the end of this decade. That will provide Europe with a maximum additional 10 bcm of gas – I say maximum, because it is possible, perhaps even likely, that some of that gas will not get past the Turkish market."
In connection with that, he asks if the sanctions against Iran will be lifted, and, if so, will we see Iranian gas in Europe? Prof. Stern reports that according to an Oxford Institute report from last year on the subject, "even if the sanctions are lifted, we will not see a substantial increase in Iranian exports for at least a decade, and possibly longer than that."
He also mentions the potential of substantial gas exports from Iraq, but he says he hasn't seen much progress. "There are tremendous security problems in that country and my question would be, even if we do see the pipeline completed, even if we do see supplies flowing, how secure will those supplies turn out to be, given the domestic economic situation and the domestic export security situation?"
And what about the 2 decade-long discussions of supplies from Turkmenistan, coming across the Caspian Sea?
"That, of course, depends upon on a resolution of the Caspian issues," he says, also mentioning questions over the viability of Turkmen gas.
"Essentially, what we see is a picture of little available gas before 2020," he offers, adding that it could improve in the 2020s. "But we have no assurance that that will be the case."
Prof. Stern observes that there has been talk of the Southern Corridor for over 15 years, but with little gas flowing through it. The talk, he says, is likely to continue.
"It is conceivable that Russia's Turkish Stream project could seek to utilize capacity in the Trans Adriatic Pipeline (TAP) pipeline – no one has raised this yet from either side, incidentally."
He says while the project may be interesting, he's not convinced anyone will want to buy gas via Turkish Stream at the Turkish-Greek border. "But if it was possible to utilize that TAP corridor, then that would be at least a possibility of taking more gas to Italy via that route."
Regarding the East Mediterranean, Prof. Stern noted the ongoing difficulties between Israel and its neighbors in the region. "If we look at reserve numbers, could Israel provide some gas to Europe? Well, certainly it could, but the question of the politics of all of these possible linkages looms large and the most promising idea at the moment is that Israeli gas could be liquefied, delivered to the almost idle Egyptian facilities and exported from there – it might come to Europe, or it might not."
In his view, he says that East Med gas is more likely to provide a regional economic pan-political peace dividend between Israel and its neighbors.
He contends that more attention should be placed on the availability of gas from North Africa. "That availability looks like it's going to fall before increasing again, possibly in the 2020s, but we're very dependent upon politics and, particularly, some kind of renewal in investment and improvement in upstream terms in countries like Algeria and Libya.
Speaking of Europe's indigenous supplies of natural gas, Francis Egan, Cuadrilla Resources, mentions that his company has exploration licenses in the UK, Holland and Poland, which has given Cuadrilla an understanding of the various stages of evolution of the shale gas exploration business in Europe.
Questioning supply/demand forecasts, he says it's a fundamental fact that Europe is running out of its own indigenous gas, particularly in the UK. "Currently in the UK, we're importing about half of our gas, and, by 2030, we will probably be importing most of our gas: 90% plus."
Not quite as severe as in the UK, he says the trend is similar in the Netherlands, considering the decline in Groningen and the curtail in production: "Moving from a net exporter of gas to a net importer of gas."
The situation across the entire EU, according to Mr. Egan, is even worse, with the European Union importing 80% of its gas, forecast to get even worse.
He contends that there are some benefits for Europe in producing its own gas.
"There are clearly security of supply issues, but there are also economic and environmental issues."
Mr. Egan admitted that the economics for shale gas have yet to be determined in these early stages of the game. While Europe doesn't have "wide open planes," he says that it does have the infrastructure for production: a gas network that is probably the most developed in the world.
Cuadrilla's exploration sites in Lancashire in the UK, he says, are 25 meters away from a natural gas pipeline, the other 30 meters away from a distribution grid. Shortages of water for shale gas production, he explains, are not a problem in the UK.
According to the British Geological Survey's middle estimate case there is 1,330 trillion cubic feet of gas in the UK. "To put that in context, total UK annual gas demand is 3.2 tcf. So there is a lot of gas in the ground – on heating along, 100 years' worth."
Regarding the question of how much of it it is possible to extract, Mr. Egan explains that everyone wants the answer to that question, but no one wants to drill a well.
He quips, "You can't talk the gas out of the ground; you have to go in and drill some wells. And that is the question that needs to be answered.
"We are in danger of overcomplicating the matter by worrying to death about thousands of wells and millions of cubic meters of water and tons of CO2 emissions before we've fully drilled 2-3 wells to determine what rate the resource will flow out and how quickly it will decline."
He points out that the shale in the UK is over a mile thick and is gas bearing throughout in contrast to thinner plays in the US.
"If it can be developed at multiple intervals with horizontal drilling technology and multilateral completions, then there is the potential to develop this with a far lower surface footprint than anything seen so far in the US," he offers. "And I strongly believe that Europe has the potential to develop that."
France, Germany and Holland, he says, also bear good potential despite their barriers to activity.
According to Mr. Egan, the industry needs to pass three tests: 1) Is there a technically recoverable resource? 2) Social license, and 3) Can we extract economically?
Furthest advanced in the UK, Mr. Egan says Cuadrilla hopes to be drilling there before the end of the year and testing some wells next year. "So, to misquote Churchill, I would say that we're approaching the end of the beginning in the UK – a very long beginning."
In the Netherlands, he says, there is a strategic environmental assessment being performed; in Poland he says there have been false starts, considering the "well documented withdrawals" from the country, but there is still opportunity there.
Of the EU, he says, "I'm sure if it can be done successfully, I believe it can in the UK under the strictest UK and European Union regulations that I've ever seen for drilling an onshore well in the universe."
Because of the strict regulation, he says he thinks it can be done successfully virtually anywhere in Europe.
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