Europe’s Energy Independence Drive Goes off the Rails

A year ago, Russia’s lunge into Ukraine seemed to be focusing European minds on the dangers of depending on Moscow for their energy supplies, pushing countries across the continent to scramble onto the shale-gas bandwagon in a quest to copy U.S. success and move towards having the ability to produce all the energy they need on their own.

But now, after a series of disappointments from one end of Europe to the other, Europe’s shale dreams seem to have all but evaporated. And that makes it increasingly unlikely that Europe will be able to reap the kind of gas-fired benefits that have rejuvenated sectors of the U.S. economy and greatly reduced American reliance on foreign energy. That will have implications for both Europe’s economic competitiveness and its energy security at a time when a sluggish economy and a snarling Russia worry European leaders in equal measure.

The latest blow to Europe’s hopes of pulling off its own energy revolution came late last week, when U.S. oil giant Chevron pulled up stakes in Poland, the country where geology and politics had appeared most promising for a replay of the U.S. experience. Other international energy firms, such as Total, jumped ship last year. Energy companies there have balked at high drilling costs and disappointing results from their early, exploratory efforts. They’ve also been frustrated by ever-shifting tax and regulatory regimes in Warsaw.

Shale has also hit other headwinds of late, with Bulgaria’s government doubling-down on a shale exploration ban; the new prime minister said greenlighting shale there would be “political suicide.” Romania, another potentially big shale play, is now treading water because of vocal public opposition, Scotland banned the practice, and British legislators proposed a moratorium on fracking in that country because of environmental concerns. Last year, foreign firms like Chevron also bailed out of other promising plays including Ukraine and Lithuania to focus limited investment dollars on countries with more definite upside.

“It’s a safe bet that shale is dead, and it’s always been dead in a way,” said Grzegorz Pytel, a shale gas expert at the Sobieski Institute, a Polish think tank. A combination of corporate stumbles, overbearing regulators, tricky geology, and often times hostile public opinion have conspired to derail Europe’s own fracking revolution, he said.

It’s not just Europe that’s stumbling. Countries such as China and Argentina also have vast shale-gas reserves, yet have struggled to muster the elusive combination of good governance, nimble energy firms, and privately-owned mineral rights that has unleashed the shale boom in the United States.

New drilling techniques such as hydraulic fracturing, or fracking, have given the United States the ability in recent years to tap huge amounts of oil and gas that were trapped in shale formations. That so-called shale gale has set the United States on the path to becoming an energy exporter, has led to lower energy prices, and has been a crucial shot in the arm for certain industries that need cheap fuel and feedstock.

On paper, Europe could do the same. Promising shale deposits underlie the continent, from the north of England through France and central Europe, to eastern countries such as Poland and Ukraine. Together, says the U.S. Energy Information Administration, those countries have about 600 trillion cubic feet of technically recoverable shale gas reserves — almost as much as the United States, and enough to supply Europe’s natural gas consumption for more than 30 years.

Those paper riches entranced some European leaders, from British Prime Minister David Cameron to former Polish Prime Minister Donald Tusk, who sought in recent years to promote fracking. Others, especially in France and Germany, but also in central and eastern Europe, either banned the practice outright or slow-footed its development, largely due to environmental concerns and vocal public opposition.

But as Chevron’s Polish departure shows, even Europe’s shale poster children appear to be giving up the ghost. International energy firms have tried and failed to strike shale gold in a series of exploration wells there, even as the Polish government has muddied the waters with an unclear approach to energy regulation and taxation. Chevron said that “the opportunities in Poland no longer compete favorably” with other exploration options in the company’s portfolio.

“It is clearly a combination of unfavorable geology and also bad governance,” said Tim Boersma, an expert on European gas at the Brookings Institute. Given the sky-hopes for shale in Europe, he said, “It’s a big blow. The three most promising places –Poland, Ukraine, and France — are all out of the picture for a variety of reasons.”

Governments from London to Warsaw had certainly played up the potential to replicate at least in part the U.S. experience, selling heady visions of energy independence and a faster-growing economy. Cameron last year touted the “massive opportunity” shale offered Britain. Tusk played up the role that Polish reserves could play in ending Russian energy blackmail. But those promises vastly outpaced the actual developments on the ground, where companies were unable to come close to replicating the rapid-fire growth of shale gas extraction that transformed Texas and North Dakota.

“The problem in the U.K. is that the government overhyped this,” said Howard Rogers, a gas expert at the Oxford Institute for Energy Studies. Without real-world information on how much gas is underground and how much can be gotten out, all the British plans “are pie in the sky, really,” he said.

A similar dynamic was at work across the continent in Poland. Initial estimates of the country’s shale gas resources were vastly inflated, leading successive Polish governments to promise all sorts of upside before those promises sputtered in a series of dry gas wells.

“Because of these big hopes, there are big disappointments right now,” said Tomasz Daborowski, a shale expert at Polish think tank Centre for Eastern Studies, or OSW.

To be sure, there are plenty of places cheering shale’s headwinds. Key lawmakers in the U.K. are worried about the environmental impacts of the practice in a small, densely populated country that is trying to meet ambitious climate-change targets. Scotland lives from offshore oil and gas, but just banned fracking. France and Germany have long been opposed. Bulgaria flirted with fracking, before suddenly reversing course — and despite overwhelming reliance on Russia, Bulgaria’s new government is determined to maintain the fracking ban.

And Russia itself, which supplies about one-third of Europe’s natural gas, has spent years demonizing fracking in a bid to remove potential competitors. Last year, former NATO boss Anders Fogh Rasmussen said that Russia helped organize pan-European resistance to shale gas exploration. Russian media have gleefully chronicled Europe’s recent fracking frustrations.

In some ways, developing Europe’s shale resources is arguably less vital than it seemed just a few years ago. That’s because countries across the continent have started diversifying their energy options, even without tapping their own resources. The U.S. boom means there is plenty of natural gas that can be imported on tankers; Poland and Lithuania, for example, have recently used the construction of gas-import terminals to give themselves an alternative to Russian gas. Better pipeline connections between European countries have also made it easier to move gas supplies around, easing energy concerns for vulnerable countries, especially those in the east.

But another reason fracking is struggling to take off is that — despite Russia’s annexation of the Crimean peninsula and continued strong-arm tactics with its energy exports — many European countries are still less concerned about energy security than climate change.

Brussels hopes to build an “energy union” that can finally manage to achieve the seemingly contradictory goals of making energy supplies greener, cheaper, and more secure. Germany is ramping up its massive bet on clean energy. France sits atop plentiful reserves, but won’t even consider fracking. Even in the U.K., lawmakers from across the political spectrum warned last month that shale gas is still a fossil fuel, and that decades of reliance on yesterday’s energy would impair Britain’s ability to dramatically slash greenhouse-gas emissions.

“Certainly the policymakers in Brussels and the Scottish government are just completely wedded to this vision of a renewable-energy future where we can phase out fossil fuels,” Oxford’s Rogers said. “The most fervent of them don’t want to see shale gas developed because that might deflect focus from renewables.”

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