Analysis: European Unconventional Gas Could Rival North America

The size of European unconventional commercial gas reserves rival that of North America, according to a major new study by IHS Cambridge Energy Research Associates (IHS CERA). The study, Breaking with Convention: Prospects for European Unconventional Gas estimates Europe's total unconventional gas in place could be 173 trillion cubic meters (Tcm), or 6,115 trillion cubic feet (Tcf).

Breaking with Convention is the first of a series of essential analyses of the prospects for unconventional gas development in Europe and the world. Based on the systemic analysis of the key unconventional gas plays in Europe (both shale gas and coal bed methane) and drawing on extensive IHS proprietary databases, the study explores the extent to which the sizeable potential of unconventional gas is likely to be realized and what it means for European gas markets.

"The technological revolution in unconventional gas has been the single most important energy innovation so far this century," said IHS CERA Chairman and author of the Pulitzer-Prize winning book, The Prize, Daniel Yergin. "Its tremendous potential has already transformed North America's energy landscape and may now transform the global gas industry."

Unconventional gas in Europe is likely to make significant contributions to supply in the next 10 to 15 years, the report says. IHS CERA estimates production levels ranging from a minimum of 60 billion cubic meters (Bcm)—less than half of current shale gas production in North America—to 200 Bcm around 2025.

Among the key challenges that will determine the ultimate productivity in Europe is a regulatory environment that is currently ill-suited to unconventional gas, the report says.

"Regulations designed for traditional exploration and production have not been adapted to reflect the character of unconventional gas," said Jonathan Parry, IHS CERA global gas director.

"But there are significant challenges ahead, including uncertainties over length of tenure, permitting regimes and norms and water management, among others."

The delivery price of unconventional gas is also expected to be higher than the current prices of Europe's present import sources. However, IHS CERA's oil price assumptions place the cost of unconventional gas on par with the long-term average price of contract gas, given the expectation that long-term contracts incorporating some linkage to the price of oil will remain the norm for some considerable time.

"Unlike in the United States—where the revolution in unconventional gas production has made the market nearly self-sufficient—unconventional volumes of gas in Europe are likely to keep domestic supplies stable in the face of declining conventional production," said Jan Roelofsen, IHS Global Senior Product Manager.

The impacts of the stabilization of domestic supply, though not as revolutionary, could be substantial, the report notes. A stabilized domestic supply could alleviate current fears over security of supply and increase the level of comfort with higher levels of reliance on gas, including imports. European policymakers could then be faced with an important strategic choice between a domestic secure and relatively-clean unconventional gas and more costly zero-emission alternatives.

"There is no question that substantial production of unconventional gas in Europe would have a major impact on the dynamics of Europe and Asian gas markets," said Shankari Srinivasan, IHS CERA Managing Director Europe, Global Gas.