A European perspective on the shale gas revolution

Abstract

The shale gas revolution has become a ubiquitous presence in media and scientific circles, and has started to permeate political agendas across the globe. The hype spread from the US, where major technological advancements have rendered the exploitation of unconventional gas profitable and unleashed a virtually unbridled quest for the resource. The sudden increase of supply has caused gas prices to plummet and now provides the US industry and households with cheap energy and significant competitive leverage. After the diagnosis that the revolution had the potential to leave a lasting impact on global energy markets, not only carrying widespread economic, but also geopolitical implications, the question most naturally arose to what extent and under what conditions the US success could be replicated elsewhere. The aim of this paper is to provide a comprehensive analysis of the potential, challenges and limits of European shale gas. The potential has been heatedly debated and it is safe to say that uncertainty remains prevalent. Exact estimates continue to be scarce and the economic implications of the exploitation on the continent somewhat of a mystery. However, experts largely agree that considerable amounts of technically recoverable gas are trapped in European shale and could, despite more elevated costs due to geological constraints, higher wage-levels, less developed infrastructure and regulatory bottlenecks, go a long way to ensure security of supply, diversify energy sources and carry major welfare gains for European economies. Yet, the political debate remains highly divided and fluid. In large parts of Europe environmental qualms continue to dominate the headlines and nurture a lack of public acceptance, which appears to dampen political will and ultimately constrain the establishment of a shale gas industry. Shale gas would not solve all problems and surely has its drawbacks, but if used strategically, as a substitute for more carbon-intensive energy sources and a complement to renewables, the benefits seem to outweigh the costs and Europe would perhaps be well-advised to take a more pro-active approach towards the resource.