Andreas Goldthau, Associate Professor in Public Policy, CEU

Gas Supply Security After the Shale Gas Revolution

The Politics and Economics of European Energy Security Amsterdam Marriott Hotel, the Netherlands, 18-19 November, 2010

The dash for shale gas

Shale gas will rock the world (Amy Jaffe) A quiet revolution (Dan Yergin) A game changer (Baker Institute)

Dr Andreas Goldthau 18 November 2010

Shale gas became a catch-all phrase for unconventional gas.

Tight gas gas stuck in a very tight formation underground trapped in unusually impermeable hard rock, sandstone or limestone formations (tight sand). No significant gas flows without fractures Shale gas gas trapped in fine grained, sedimentary rock formations relatively small and impermeable pores No significant gas flows without fractures to create channels connecting the pores Coalbed methane commonly found in coal seems, often near surface generally not released into the atmosphere until coal mining activities unleash it usually requires dewatering
Source: naturalgas.org
Dr Andreas Goldthau 18 November 2010

Technological progress has brough shale gas into the global gas balance.

Technological breakthrough Hydraulic fracturing Horizontal drilling techniques

Shale fracture surface shown before (left) and after (right) reactive fluid contact (1,000x magnification on ESEM microscope): increase in effective surface area and enhanced flow channels for gas to diffuse from shale fracture surface
Source: Halliburton

Dr Andreas Goldthau 18 November 2010

Technological progress has brough shale gas into the global gas balance.

Technological breakthrough Hydraulic fracturing Horizontal drilling techniques

Dr Andreas Goldthau 18 November 2010

Drivers of the shale gas revolution: surge of production

Unconventional became conventional bulk of shale gas plays in Northern America bcm200 700 180 shale gas production soared since early 2000s, 160 now providing for half of U.S. output, and growing Alaska 600 140 effective lock-off of U.S. import market
500 120
100

Shale gas
AEO 2010

400
80

Coalbed methane

AEO 2005

300 60
40

Onshore conventional

200

20 0
0 20 10 20 0

100

Source: EIA

Offshore
2015 2025 2035

0 1990

2000

2008

Source: EIA
Dr Andreas Goldthau 18 November 2010

Drivers of the shale gas revolution: surge of production

Unconventional became conventional

200 180 160 140 120 100 80 60 40 20 0
0 20 10 20 0

AEO 2010 AEO 2005

Source: EIA

Offshore

Dr Andreas Goldthau 18 November 2010

Drivers of the shale gas revolution: economic recession

Economic recession, gas demand down by 5.9% in EU 700 by 7.3% in FSU

650 600

550 US 500 Russian Federation European Union Former Soviet Union 450

400

350

300 2005 2006 2007 2008 2009

Source: BP
Dr Andreas Goldthau 18 November 2010

Drivers of the shale gas revolution: economic recession

Economic recession, gas demand down

700 650 600 550 500 450 400 350 300 250 200 150 100 50 2005 2006 2007 2008 2009
Source: BP
Dr Andreas Goldthau 18 November 2010

US Russian Federation China European Union Former Soviet Union

Drivers of the shale gas revolution: LNG

Increased global liquefaction capacity 300 bcm liquefaction capacity end of 2009 projected to reach some 460 bcm by 2015 Qatari LNG capacity at 105 bcm by 2013

120 bcm = 50%

Source: BNP Paribas

Dr Andreas Goldthau 18 November 2010

Implications for European energy markets and security: oversupply and price slumps

gas glut increased gas-to-gas competition

Dr Andreas Goldthau 18 November 2010

Replication of the U.S. success story may be difficult in Europe

Environment High environmental standards (no Halliburton loophole) Access to water and disposal of used water an issue Strong environmental movements

Regulation Ownership of subsoil resources (state not private) Land access/ drilling rights difficult due to high population density Fiscal regimes for unconventional gas production lacking

Economics Availability of (pipeline) infrastructure Availability of business in energy service sector High European well costs

No copy paste in Europe Still, U.S. developments have great impact on European markets
Dr Andreas Goldthau 18 November 2010

Short term implications for European gas markets and energy security: oversupply and soft market

gas glut

Source: BNP Paribas

Dr Andreas Goldthau 18 November 2010

Short term implications for European gas markets and energy security: oversupply and soft market

increased gas-to-gas competition / diversification

Gazprom's exports to Europe (bcm)
148 146 144 142 140 138 136 134 132 130 128 126 2004 2005 2006 2007 2008 2009 132.8 138.6 138.1 141.6 145.1 143.8

Source: Gazprom

Dr Andreas Goldthau 18 November 2010

Long term implications for European gas markets and energy security: uncertainty

Transition towards new market & pricing structures (increasing spot indexation; take-off under pressure) Dis-incentivizing effects on Russian investment in export capacity Long term supply bottlenecks, price hikes

Dr Andreas Goldthau 18 November 2010

In addition, some wild cards may be looming

Growing environmental concerns in U.S. / growth path of shale gas industry Economic recovery in Europe Cartelization of globally traded gas market share

Dr Andreas Goldthau 18 November 2010

energy.ceu.hu goldthau.com

Dr Andreas Goldthau 18 November 2010