Expert: Unconventional gas has “huge” potential

Expert: Unconventional gas has “huge” potential

By Jan Vitásek

Shale gas and unconventional gas have a huge future potential when compared with conventional gas supplies. But their lack of social acceptance, and the technological adjustments and regulatory framework required to develop them remain a challenge in Europe, Pawel Konzal, associate director for Energy Industries of the World Economic Forum (WEF), told in an exclusive interview.

Let us start with energy policy after Fukushima. Germany took a U-turn and announced that it will phase out its nuclear power. What do you expect to be Fukushima’s impact on the energy mix?

There was a period of uncertainty after Fukushima, but one thing that clearly emerges is that countries which wanted to pursue nuclear expansion will still do so, especially countries such as China, India or Russia, where the majority of nuclear capacity was planned or in construction. The same applies to some of the OECD countries like the UK, France or Poland. These programmes will continue, notwithstanding that they will probably review safety standards.

In relation to Germany and other countries which decided to shut down the nuclear power plants, of course there will be an impact on the energy mix. You can name four energy sources which will potentially fill the gap: coal, renewable energy, natural gas and the energy efficiency. But not all four of these are present in all the countries.

There is lots of talk about the expansion of coal, especially in relation to Poland which has many coal power plants. Do you think there could be any potential in this direction?

It is possible. And we should also mention other parts of the world, because in countries such as Malaysia or Indonesia new nuclear plants were also being considered, and now you can see that coal will be probably filling a much larger part of their future demand. Of course the picture is not exactly the same in Europe because of carbon pricing and so on, but coal will definitely fill part of the gap in Europe too.
You already mentioned that apart from Germany the nuclear phase-out has also been discussed in Switzerland which decided to stop all of its plants, and the same happened in Italy. Do you think that something similar will also happen in Poland?

I think that the nuclear program in Poland will still go ahead. There is always a possibility that a review of security standards will take place - which may always have impact on the tendering process - but I do not think that the programme itself will be cancelled.

But this will also depend on what people think because the President Bronisław Komorowskisaid that there could be referendum on this.

As in all OECD- or EU member countries, public opinion is the most decisive factor. Iwould have to examine the last polls of public support, but I think they still show support for the nuclear programme. I can also answer this question from other side of the coin. You have an energy triangle, which consists of security of supplies, competitiveness and environmental sustainability. These three policy objectives impact decisions in any given region. Of course you cannot try to focus to the maximum extent on all of these issues simultaneously. You can emphasise one – keeping the two others at some basic level which is acceptable to you. And I think that in countries such as Poland, which are fast growing economies with growing energy demands, the public will be favourable to nuclear energy.
In recent years or months there have been massive changes in the gas industry. How did the huge development of US shale gas extraction impact on natural gas transport routes?

These changes saw their origin with the development at the very beginning of the 1980s of horizontal drilling and hydraulic fracturing technologies. These two technologies have been improved and then deployed on a large scale in the last decades in the US, which has led to a huge surge in the supply of natural gas in the US.

A decade ago the United States was expected to become a vast gas importer through LNG and this is why a lot of important infrastructure was built in the last decades. Now, with the not only plentiful, but also cheap, gas shale gas present in the whole of North America, the picture changed first of all in the North American markets, but then other markets were affected too, because the LNG supplies originally destined for the US had to find a new home.
How could the unconventional gas markets develop in the future?

The important questions are: will North America become a major gas exporter, and for how much longer will this situation of vast supplies of cheap gas last? The answer is that even with the low price of gas, companies will keep producing the gas to keep their licenses and leases of land. You may also know that the American Congress recently granted the first permission convert an LNG importing terminals into an LNG exporting terminal. That means that the US will be able to ship part of its gas to other regions of the world. Another question is whether the unconventional natural gas revolution will spread to Europe and Asia. Either way, Europe will – or is already – benefiting from the unconventional gas in North America and I think even if unconventional gas were to develop in Asia, Europe would benefit anyway, because of the larger than expected free LNG supplies.
Is there any potential of developing unconventional gas in Europe itself?

There are many challenges and many adjustments that will need to be done if unconventional gas is to be developed in Europe. In North America there is a long history of onshore drilling, which is not the case in Europe. The issue is whether people are used to onshore drilling. If you have seen it for a hundred years, there is nothing surprising in having such things introduced to your landscape. Of course, there is a tradition of coal production onshore, but that is a different thing. On the other hand the unconventional gas production has undergone a dramatic change in technology in the last decades. The US is much less invaded than it used to be in the terms of its landscape.
Does the technological shift result in a longer usability of natural gas reserves? Can gas be a secure supply of energy?

Definitely. In the US, thanks to the supplies of the unconventional gas, projected supplies have almost doubled. Looking at the Energy Information Administration's study estimating the potential of different countries’ shale gas, its main conclusion is: yes, there is a huge potential which is substantial also in comparison to the conventional gas supplies. But as already mentioned, the need for social acceptance, technological adjustments and regulatory framework around it. The second thing is that in the US the owners of the land are also owners of the resources. In Europe, the owner of the resources is the state. That is also changing the business model because in the U S the land owners do have the direct incentive in having the resources underground developed, because they receive rent. In Europe it is a question, whether the owners are incentivized enough.
Maybe in Europe it is not so easy to extract gas this way, but what about Russia or Arab and Middle East countries? Could there be the potential?

Of course, but Russia has also a big potential in conventional gas, so this is a different thing. Outside of the EU Ukraine is a country with a great potential. But the biggest country we should mention is China. The development of the unconventional gas in China would be a game changer. Speaking about the Middle East, I think that, putting aside different geology, water scarcity would be biggest challenge there, as shale gas production you use substantial amount of water.
If we shale gas extraction becomes a reality in Europe, what changes should be made to current distribution network?

For shale gas, the distribution network is a crucial thing. Unconventional gas is dispersed in production and so you need to bring it to the places with demand for it. And in North America, you have a vast and very well developed distribution network.

But if there is unconventional gas development on a big scale in Europe, either you would have to have a development of the gas distribution network, such as in the US, or the gas would be consumed locally in the place where it is produced. For example, it would be consumed in Poland to generate electricity and part of it could be exported.

In other words, either you transmit the gas as a molecule, and you have to build the gas distribution network, or you can transmit is as an electron and then you need electricity network.
Could there be any fall-out for the various pipeline projects that are being built or projected in Europe, like Nabucco, South Stream, and others?

In the World Economic Forum (WEF), we do not look so much about what particular projects will be changed, because at the end of the day it is the role of the companies. We are more interested in what are the macro trends, because they can change the energy architecture and landscape.

Anyway, there is a recent report on the natural gas market by the WEF. Half of that report is a research done by Cambridge and research associates, and half of the report are perspectives of CEOs of different companies, including GdF (Gaz de France), Total or Talisman Energy. These are very interesting perspectives and I can gladly recommend this reading material.

Bookmark/Search this post with