EU unconventional resource development stalls

June 6, 2016
European governments are reluctant to promote shale gas development even though technology has advanced and extraction processes have matured in North America. 

Hirdan Katarina de Medeiros Costa
Edmilson M. Santos
Vitor Emanoel
University of Sao Paulo

Pol Oliva Marti
IFP Energies
Nouvelles, France

Allan Ingelson
University of Calgary

European governments are reluctant to promote shale gas development even though technology has advanced and extraction processes have matured in North America. Europe continues to rely on Russia for much of its natural gas despite unconventional resources that could be exploited. Even considering the benefits shale development has brought to the US and Canada, Europe will likely not develop its unconventional resources in the near future.

This article outlines the many barriers European countries face in exploiting their shale resources and analyzes data from 2014 supporting the benefits shale gas development could bring to many European countries.

Crucial barriers

Technological and geological uncertainty, strong social opposition, and the lack of supportive governmental frameworks combine to provide the most detrimental barriers to rapid shale development across Europe. Exploration drilling is the best method of alleviating uncertainties about reserves estimates and reservoir engineering practices. With no real path to test prospective shale plays in Europe, it will be difficult to perform a rigorous economic evaluation of the region's unconventional basins.

In most European countries, social opposition further inhibits implementation of supportive regulations. The lack of exploration activity has kept recoverable reserves estimates low and high reserves estimates are typically required to display the true economic benefits of developing unconventional reserves. Near-term shale gas development is unlikely for countries caught in this type of gridlock.

US example

Commercial shale gas development depends on factors specific to each unconventional reservoir.1 Production costs, resource volumes, and market prices factor into a play's viability. Other factors include drilling and completion cost, infrastructure availability, water access, and estimated ultimate recovery.

In the US, annual gas production increased 45% between 2008 and 2012, with unconventional gas accounting for 60% of this growth.2 3

As a result of increased production, US Henry Hub gas prices dropped to $2.76/Mbtu in 2012 from $8.85/Mbtu in 2008.3

The surge in shale gas production lowered LNG imports 50% and 45% in 2012 and 2013, respectively. Several regasification terminal projects were modified to become export plants and consumers began switching from coal to natural gas.4 By 2012, coal-fired electricity generation had decreased to 42% of the US total from 48% in 2008.

The rise in shale gas production increased US energy security, reduced natural gas imports, and opened the possibility of exporting natural gas. The US was expected to become a net exporter of natural gas by 2018. But this outcome has become unclear in the current downturn.

Other countries evaluating their shale gas potential include Canada, Australia, the UK, China, and Argentina.

The countries of continental Europe have generally adopted a more cautious approach to unconventional development, although the region contains 615 tcf of technically recoverable shale resources (Fig. 1).2

Political, economic, social-environmental, and technological-geological concerns all play roles in the opposition to shale gas development, as do regulatory and market concerns.

Political factors

Environmental or "green" parties often have more influence in Europe than their counterparts in the US, and popular opposition to hydraulic fracturing keeps mainstream development at bay. In regions already affected by austerity policies, electoral support for ruling governments is low. Opening shale gas development in these countries could further weaken public sentiment.

Some Eastern European states are also reluctant to damage political and economic relationships with Russia as their primary natural gas supplier.

Economic factors

Recession, public debt, and the financial capacity of national oil companies and market investors have all impacted countries' interest in shale development on both macro- and microeconomic levels.

The European economy continues to languish in general. Individual companies have also had difficulty securing capital for the intensive exploration drilling and completions required in Europe, where current costs can exceed $15 million/well.5 6

Social, environmental factors

Many Europeans have concerns related to the potential direct and indirect environmental impacts of hydraulic fracturing. Europe is more densely populated than the US, where most shale development has occurred in rural areas, and a public mistrust exists regarding government's ability to regulate the oil and gas sector.

Concerns about groundwater contamination, disposal of flowback water, and the volume of water used in drilling and hydraulic fracturing tend to raise fears regarding shale development.

Other environmental concerns include:

• Seismic events.

• Potential fugitive methane emissions.

• Sand consumption in fracking fluids and concerns about silica pollution.

• Land surface disturbances that can impact biodiversity.

• Noise and visual impacts.

Technology, geology

Europe's basins differ geologically from the US in both formation and composition. In many cases, European unconventional reservoirs are deeper and harder to extract resources from, potentially requiring more expensive methods such as ceramic proppants.

Reserve levels also remain uncertain with so few test wells drilled in Europe, and the limited fracturing experience increases financial risk.

While pipeline infrastructure exists through most of Europe, some prospective areas lack the access needed to allow for commercial extraction.

Regulation, competition

Many European countries need to modify existing oil and gas legislation to clearly define the rights, duties, and liabilities related to shale gas exploration, including laws penalizing returns on shale investments.

Moratoriums and bans on hydraulic fracturing in some countries would have to be lifted. The absence of EU-wide regulation of shale-gas extraction and hydraulic fracturing produces uncertainty and results in an extensive bureaucracy that lacks definitive fiscal incentives to drive shale gas development.

Volatile natural gas pricing mechanisms in Europe further complicate the commercial viability of shale gas production. The lack of a well-developed onshore oil and gas service industry also makes Europe less competitive. Equipment and contract services are more expensive, and operations are carried out with less general experience.

Brent crude's fall below $40/bbl in December 2015, raised further doubt about European shale's commercial potential. The combination of cheap substitutes, such as coal, and low output from some of the European wells drilled to date has only deepened this uncertainty.

EU shale potential

Although a common EU legal framework is generally demanded by both supporters and opponents of shale gas development, it does not yet exist.

UK Prime Minister David Cameron considered the EU process too slow and felt it generated regulatory uncertainty that would reduce private investment in shale gas development. Cameron's position led to rejection of amendments to Directive 2011/92/EU, which proposed requiring an environmental impact assessment for all upstream activities involving hydraulic fracturing.7 Instead, the European Commission developed a recommendation on how to regulate hydraulic fracturing activities to ensure the public health, environmental protection, efficient use of resources, and public access to information.8 The recommendation included:

• Performing strategic environmental assessments prior to granting licenses.
• Risk assessments.
• A minimal distance between fractured zones and groundwater.
• Fracturing fluids disposal management.

These recommendations, however, are not legally binding and EU member states can decide whether or not to follow them.

Spain exemplifies strong social opposition to unconventional development despite its dependence on imported oil and gas. In 2014, 300 municipalities declared themselves "fracing free." Four of the country's 17 regional governments banned hydraulic fracturing in portions of Spain's most prospective areas.

France imports 97% of its hydrocarbons.9 Natural gas represented 15% of its primary energy mix in 2012. Despite being one of the smallest gas consumers in the EU, France has a fully functioning, interconnected gas market. It has prospective basins and could provide a competitive environment for unconventional development, but enacted a total ban on hydraulic fracturing in 2011 (OGJ Online, May 12, 2011). The government's moratorium is strengthened by broad social opposition to the technology.

Poland has made attempts to reduce its carbon intensity and diversify its energy mix with shale gas, but suffers from technological-geological barriers. The government's regulatory framework has been weighted down with excessive bureaucracy increasing the time required to secure drilling permits, amend existing permits, or reach an environmental decision on subsequent drilling.

The UK has promise as a shale gas producer (Fig. 2). Despite the growing dependence on hydrocarbon imports, the country is one of the largest EU oil producers. The country added 907,000 b/d of natural gas liquids in 2014, but its overall hydrocarbon production is declining. As the third-largest EU consumer of hydrocarbon resources (Fig. 3), the UK is implementing policies to develop shale gas and reverse a potentially precipitous decline. Given the barriers to continental European shale development, the UK is the most likely EU member to develop its unconventional resources.

Short-term potential

The outlook for European unconventional resource development is bleak. Advances in shale extraction projects in France seem highly unlikely. Both the regulatory ban on fracing and strong social and political opposition to the practice appear to be entrenched. The country's strong nuclear energy mix combined with well-diversified fossil fuel import sources also suggest a continued lack of support for shale gas development.

Low reserve estimates for shale gas and sustained social opposition to its development create a similarly bleak scenario for unconventional development in Spain. The Spanish government has not enacted fiscal incentives promoting development.

Poland was the first European country to pursue shale-gas exploration, but its prospects have worsened in the absence of needed regulatory changes. Increased time cycles, unclear directives, and an indecisive environmental evaluation system have also discouraged companies from investing in Poland's shale prospects.

The UK is working to implement regulations for domestic shale gas exploration. While the path is not yet clear, it appears the country will develop its unconventional resources once the needed regulations have been passed.

The current price climate mitigates against EU shale gas production becoming a reality. The UK could play a pivotal role in reversing this fortune if its attempts are successful. If UK efforts fail, however, resolve could strengthen against unconventional resource development elsewhere in Europe.


The authors acknowledge support from BG E&P Brasil Ltda. and Fundação de Amparo à Pesquisa do Estado de São Paulo (FAPESP Sao Paulo Research Foundation) through the "Research Centre for Gas Innovation - RCGI" (Fapesp Proc. 2014/50279-4), hosted by the University of Sao Paulo, and Brazil's National Petroleum Agency (ANP) through its research and development levy regulation.


1. American Geosciences Institute (AGI), "America's Increasing Reliance on Natural Gas: Benefits and Risks of a Methane Economy," AGI Critical Issues Forum: Final Report, Fort Worth, Tex., Nov. 19-20, 2014.

2. US Energy Information Administration (EIA), "Technically Recoverable Shale Oil and Shale Gas Resources: An Assessment of 137 Shale Formations in 41 Countries Outside the United States," June 13, 2013.

3. BP PLC, "The 63rd Annual Statistical Review of World Energy," (, June 2014.

4. Araujo, R. and Moutinho dos Santos, E., "Impactos da Produçao de Shale Gas no Mercado de Hidrocarbonetos nos Estados Unidos," Instituto Brasileiro de Petróleo, Gás e Biocombustíveis (IBP), Rio Oil & Gas Expo and Conference, Rio de Janeiro, Sept. 15-18, 2014.

5. EIA, "Trends in U.S. Oil and Natural Gas Upstream Costs," Mar. 23, 2016, pp. 141.

6. Erbach, G., "Shale Gas and EU Energy Security," European Parliamentary Research Service, December 2014, pp. 10.

7. European Parliament, "Amendment of Directive 2011/92/EU on the assessment of the effects of certain public and private projects on the environment," Sept. 10, 2013,

8. Official Journal of the European Union, "Commission recommendation of 22 January 2014 on minimum principles for the exploration and production of hydrocarbons (such as shale gas) using high-volume hydraulic fracturing (2014/70/EU)," Jan. 22, 2014.

9. Spooner, M., Tomasi, M., Arnoldus, P., Johannesson-Linden, A., Kalantzis, F., Maincent, E., Pienkowski, J., and Rezessy, A., "Member State's Energy Dependence: An Indicator-Based Assessment," European Commission, Economic and Financial Affairs, Occasional Papers 196, June 2014, p. 105-113

The authors
Hirdan Katarina de Medeiros Costa ([email protected]) is a lawyer and visiting professor at the University of Sao Paulo's Institute of Energy and Environment. She holds an MS in law from the University of Oklahoma, Norman, Okla. Costa also holds an MS in energy and a PhD in sciences from the University of Sao Paulo.
Edmilson Moutinho dos Santos ([email protected]) is an associate professor at the Institute of Energy and the Environment at the University of Sao Paulo. He holds a BS in both economics and electrical engineering from the same institution. Santos holds MAs in energy management and policy from the University of Pennsylvania, Philadelphia, and energy-systems planning from the University of Campinas, Sao Paulo. He has a PhD in energy economics from the Petroleum Institute and Université de Bourgogne, Rueil-Malmaison Cedex, France.
Vitor Emanoel Siqueira Santos ([email protected]) is a masters degree student at the Institute of Energy and Environment at the University of Sao Paulo. He has also served as a consultant at the University of Sao Paulo's Agency for Innovation. He holds a BS in petroleum engineering from the University of Sao Paulo.
Pol Oliva Martí ([email protected]) is an associate at the Boston Consulting Group, Madrid. He has also served as product and sales manager at JBC Soldering Tools. He holds an MS in petroleum economics and management, and he earned a BS at the Universitat Politè;cnica de Catalunya (Industrial Engineering) and specialized in petroleum economics and management at the IFP School, Rueil-Malmaison, France.
Allan Ingelson ([email protected]) is the academic director of the Haskayne Energy Management Program and an associate professor in the faculty of law, at the University of Calgary. He has also served as the associate dean for undergraduate and graduate programs at the Haskayne School of Business, Calgary. He holds a JD from the University of Alberta and Calgary and an LLM from the University of Denver.