Page last updated at 23:15 GMT, Thursday, 8 April 2010 00:15 UK

Should Gazprom fear shale gas revolution?

By Konstantin Rozhnov
Business reporter, BBC News

European countries heavily dependent on Russian gas supplies are cheered by signs of a balance shift in the continent's energy market.

Laying a gas pipeline in Russia
Russia supplies more than a quarter of Europe's gas needs

Dozens of companies, including world majors, have begun exploring or even drilling in search of shale gas, amid talk of huge reserves in the US, Poland and many other countries.

Russian gas giant Gazprom's deputy chief executive Alexander Medvedev has reacted by branding shale gas projects as "dangerous", provoking suspicions that Russia could be unnerved by the latest developments in the world gas market.

In 2009, Russia was beaten by the US to the title of the world's leader in gas production, but it still satisfies more than a quarter of Europe's gas needs.

For his part, the head of Russia's union of oil and gas producers, Gennady Shmal, has told journalists: "Statements that there will be a revolution in the gas industry and that the United States and Europe will manage without our gas are a propagandistic stunt."

He added, however, that "it is necessary to monitor the situation in this sector", according to Itar-Tass news agency.

US know-how

US Energy Secretary Steven Chu said that US natural gas reserves had "definitely" increased by a third and had "probably doubled", thanks to new natural gas drilling technologies.

One of the unconventional methods which attracts a lot of attention and is credited with contributing to the US natural gas production surge is so-called "hydraulic fracturing", the technique of shale gas extraction.

Shale gas deposits sit in tight rock formations at depths of up to 3km, but new technology has made them accessible for the first time.

Shale gas now accounts for up to 20% of US natural gas production, and the US has been ready to help other countries discover whether they possess significant shale gas resources and show them how to turn the reserves into money.

If a commercially beneficial technology is found, the issue will be raised about the need for Russian gas exports to Europe
Vladimir Chuprov, Greenpeace Russia

According to estimates by consultants Advanced Resources International, Poland alone could have 3 trillion cubic metres of potentially recoverable reserves of shale gas, enough to satisfy domestic demand for more than 200 years.

Russian daily Kommersant has reported that Europe's gas reserves could jump 47% if Poland's gas reserves are confirmed.

Poland consumes 14bn cubic metres of gas a year and imports more than 70% of it from Russia.

It is easy to see how the country could benefit from starting shale gas drilling as soon as possible. Not only could it decrease its dependency on Russia, it might even turn into a gas exporter.

But specialists highlight a number of difficulties with implementing the US shale gas drilling experience in Europe.

"We certainly see it [shale gas] as a major opportunity, but we also think it's important to manage expectations," US special envoy for Eurasian energy Richard Morningstar said in an interview with Reuters news agency.

Money and environment

One of the problems is the cost of shale gas extraction.

"In terms of reserves, it [shale gas] is comparable with high-pressure gas and is present everywhere, but the questions is whether the shale gas extraction technology can advance to a commercially advantageous level," said Greenpeace Russia energy programme director Vladimir Chuprov.

"If a commercially beneficial technology is found, the issue will be raised about the need for Russian gas exports to Europe, which may create serious problems for Gazprom," Ria Novosti news agency quotes Mr Chuprov as saying.

A worker checks dials at a distribution point in Poland
Poland has to import more than 70% of its gas supplies from Russia

But it looks as though Gazprom officials do not have too many reasons to lose sleep over shale gas at present, partly because there is another big factor working against it - environmental concerns.

The US Environmental Protection Agency announced last month it was going to study the impact of the hydraulic fracturing technique on people's health and environment.

Under the technique, water, sand and chemicals are pumped into rock formations under high pressure.

A number of environmentalists are concerned the method could contaminate drinking water supplies.

It also requires the drilling of a lot of wells close to each other, which leads to a more significant footprint.

Besides, as some point out, it will take longer for shale gas drilling to take off in Europe than it took in the US, purely because there are not enough of the land drilling rigs in Europe that are essential for shale gas projects.

'Energy security'

Nevertheless, the Polish government has been an active supporter of the projects, says Oisin Fanning, head of the British company San Leon Energy, which has exploration licences in Poland.

"The government is creating a very large commercial incentive to develop these [shale gas] deposits," he told the Times newspaper.

Mr Morningstar, US special envoy for Eurasian energy, believes that shale gas "certainly can be a way" to increase Eastern Europe's energy security, if these projects in the region's countries succeed.

"It's not a question of being independent from Russia - it's a question of having overall energy security," he says.

But other experts point out that even if planned European shale gas projects do not bring significant results, Gazprom could still find itself under pressure from rising shale gas production in the US and other parts of the world.

Falling demand and increased gas production in the US have already forced the Russian gas monopoly to divert its liquefied natural gas from North America to Asia.

For now, Gazprom does not appear to have a serious shale gas problem. But the company may need to think carefully about whether it should start getting seriously worried soon.



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