Nicholas Watson in Prague -
How often it seems that time and technology make a seemingly intractable problem irrelevant.
European capitals spent much of the noughties fretting about energy security and the continent's over-reliance on Russia, especially for its gas, which Moscow used to great effect as political leverage in its dealings with European governments. Like a chess grandmaster, the Kremlin plotted two, three moves ahead of the plodding Europeans, leading to worries that the EU could end up shivering in the dark if it didn't offer the necessary obeisance to Moscow.
But now the prospect of being able to develop huge unconventional sources of gas using new technology, at the same time as gas demand is falling and the use of renewables is rising, could well render the decade-long fight for control over the huge pipelines that bring the gas to Europe from Russia and beyond ultimately meaningless.
The gas industry's "quiet revolution," as Tony Hayward, chief executive of BP, described it at an October gathering of industry players in Buenos Aires, began in North America, where new techniques such as horizontal drilling and hydraulic fracturing have allowed energy firms to access hard-to-get-at deposits of unconventional tight and shale gas, as well as coal-bed methane (CBM), at much lower costs than thought possible five years ago. In some cases, the costs are now lower than in conventional projects, he said.
By some estimates, the US now has more than 2,000 trillion cubic feet (cf) of gas available, giving it over 100 years of supply and transforming it in one fell stroke into a gas self-sufficient country. By comparison, Russia's reserves of conventional gas, the largest resource in the world, are just over 1,529 trillion cf, according to BP.
It's hard to say right now exactly how far these discoveries will reshape the world's entire energy markets. However, Antonio Brufau, executive-chairman of Spain's Repsol, says the magnitude of the world's unconventional resources "changes any long-term view on the industry," while Dan Yergin, head of IHS Cera, describes unconventional gas as the "biggest single innovation in the energy industry in a decade" - and one that will spread from North America to the rest of the world.
Experts believe unconventional gas resources could add as much as another 250% to world gas reserves, some of that in "stable" areas like Europe. The International Energy Agency estimates Europe's reserves of such unconventional gas at 35 trillion cm, which is much less than in North America or Russia, but still enough to replace 40 years of gas imports at current levels.
Those new techniques pioneered in North America's shales are already spreading to Europe, as well as other parts of the world like China and Latin America. ExxonMobil, which in December shocked the markets by announcing a $41bn takeover of US independent gas producer XTO Energy, has already drilled for shale gas in Germany, and is looking at drilling more wells in Hungary and Poland. ConocoPhillips is also looking at Poland in a joint venture with Lane Energy. And Austria's OMV is looking for shale-gas deposits in the Vienna basin.
Unsurprisingly, Russia has poured scorn on these "unconventional" dreams. Alexander Medvedev, Gazprom's pugnacious deputy chief executive, claims there are many myths surrounding shale production and that the environmental consequences - such as intensive water use - are often overlooked.
That's true - hydraulic fracturing involves injecting a mix of water and chemicals at high pressure in order to create fractures in the hard rocks and get the gas out. Industry and environmental groups argue this process has a significant environmental impact - as well as using lots of water, the fracturing fluid could contaminate water supplies - and could even induce seismic events.
Such concerns prevented the US gas firm Chesapeake from drilling for shale gas in an area of New York state. Luckily for European policymakers, who are worried more about energy's security than its purity, is that many of the most promising reserves are to be found in the countries that are most worried about Russia's baleful influence on their energy supplies, like Poland and Ukraine.
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