Shale Gas – Poland’s Answer to Nord Stream?

Shale Gas – Poland’s Answer to Nord Stream?

It was like a throwback in time. In this postmodern, cloud-computing era, one might have expected the Nord Stream gas pipeline to have been opened by a short-and-sweet tweet by Gerhard Schröder or with Dmitry Medvedev pointing his IPhone at one of those ubiquitous QR barcodes. Instead, we watched half a dozen presidents, chancellors and prime-ministers labor around a huge valve wheel in the ”center-of-Europe-for-one-day” – Lubmin, on Germany’s Baltic coast. It was nice to see European leaders working together to move something forward, in this case Russian gas.

The conventional wisdom is that Poland and Ukraine are the big losers amidst all this fanfare. According to some more conservative thinkers, that is because this pipeline provides Russia with the opportunity to bypass the countries whenever it sees fit, but probably mostly because both will miss out on substantial transit revenues to the tune of billions of euros, as well as negotiating leverage with Gazprom on future prices.

If we set aside for a moment larger questions about the environmental implications of the fossil fuel economy, and focus on European Union “energy security,” Nord Stream accomplishes what it sets out to do, namely diversify transit routes. From the EU perspective, security is found, as Winston Churchill once argued in reference to oil, “in variety and variety alone.” That goes for variety in energy resources, energy suppliers and energy distribution routes. Examining the European energy mix in terms of resources, we can state that it is clearly diverse, with little under one third of the electricity pie being fuelled by natural gas, while nuclear energy (although in decline), coal (also in decline) and an increasing share of renewables complete the pallet. The European Commission is working hard on diversification of suppliers in the Caspian region, while Nord Stream contributes to diverse supply routes.

One even more obvious way of achieving energy security is of course the exploitation of one’s own natural resources. For several decades the British and the Dutch have been good examples of this, contributing to a substantial degree to European energy security by exploiting their natural gas. The “shale gas revolution” in the United States is being framed as a boon to U.S. energy security. Other examples are Germany’s investments in wind and solar energy, or Austria’s or Sweden’s investments in geothermal energy. Some general regulations on competition and environmental issues set aside, these are developments in the European cases that have contributed to both national, but given the more integrated market, also European energy security.

Given the rhetorical interest in “energy security” in Europe, it is therefore interesting to observe the skeptical reactions to the exploitation of unconventional natural resources. We are not saying the development of these resources should get a carte blanche. There are too many uncertainties currently and possibly some lessons to be learned from recent U.S. experiences, where the science has not caught up with industry practices, nor will it for several years in all likelihood. But while in the U.S. the desire for energy independence has led to industry marching boldly (and perhaps somewhat blindly) ahead of policy, some European policy makers, with the French leading the way, appear eager to ensure that unconventional extraction methods, especially “high-volume, slick-water hydraulic fracturing” (or “fracking”), are stillborn. And at this stage where the true viability of fracking is not yet known, one can understand why the French line isn’t proving terribly popular in every part of Europe. Poland, for example, according to a recent US Energy Information Administration study is estimated to have 5.3 trillion cubic metres of unconventional gas reserves, equivalent to 300 years’ domestic natural gas consumption.

We could speculate about the motives of the French to legally ban hydraulic fracturing last summer, but in fact that is not our interest. A reasonable approach for those EU Member States seaking to explore their own unconventional natural resources should focus on clearing as many of the geographical uncertainties as possible, both in terms of actual explorable reserves as possible links to seismic activity. Furthermore, environmental issues should preferably be addressed within regulations applying to conventional natural gas. Also, an institutional barrier might have to be overcome when chemicals used when exploiting unconventional natural gas in fact fall under European REACH regulations on chemicals and their safe use. In more densily populated parts of the continent, having numerous wells might pose a problem.

The uncertainties that have arisen so far and the inability of industry and policy makers on both sides of the Atlantic to properly address those issues, could in the short term lead to serious erosion of public acceptance for the exploration of unconventionals. Even in Poland some skepticism can be identified, although the government has clearly identified unconvential resources as a viable path to energy security. It is therefore crucial that industry and policy makers get together to decide how to address these uncertainties, and the perception that the industry cart is leading the regulatory horse be avoided. Given Poland’s current energy mix, with coal making up the lion’s share of electricity generation, a useful starting point for the EU would be an open mind towards the exploration of unconventional natural gas. That position would make the photos from Lubmin, and all the talk of energy security for Europe, seem like less than just hot gas.