LONDON — Shale gas, which has transformed the U.S. gas market, could soon be flowing in Europe, shifting the balance of power in the continent's energy relationship with key supplier Russia.
In the past two years, big energy giants including Exxon Mobil and Royal Dutch Shell have snapped up licenses in Sweden, Poland, Germany, France and Austria to explore for shale gas — natural gas trapped in layered rock, rather than porous reservoirs.
The majors were slow to realize the potential of shale gas in the United States and later spent tens of billions of dollars to buy assets from independent explorers.
They are keen not to make the same mistake in Europe.
"It's something they can't afford to miss out on," Ken Chew, consultant at IHS CERA said, adding that European shale reserves remain highly uncertain.
A study by consultants Advanced Resources International said Poland alone could have recoverable reserves of 3 trillion cubic meters, equivalent to more than 200 years of its own consumption and six years of gas use across all 27 countries in the European Union.
Shell and Exxon have already started drilling and with about another 40 companies also exploring, first gas may not be far off, said Florence Geny, a research fellow at the Oxford Institute for Energy Studies.
"In two years … we could see production in Poland, northern Germany or southern Sweden," said Hans-Martin Schulz, geologist with GFZ German Research Center for Geosciences in Potsdam.
But analysts say it will be a decade before meaningful volumes flow, partly because the European market is oversupplied and is expected to remain so for a few years.
The industry also faces some new obstacles in Europe.
Special Challenges
Since shale gas flows less freely than from traditional reservoirs, wells must be drilled closer together to exploit reserves. This results in a larger footprint, which could be more of a problem in densely populated Europe.
Environmentalists in the United States have argued that the mix of water and chemicals drillers used to fracture shale rock contaminates water supplies. This has curbed drilling close to urban centers such as New York.
In Europe, the likely proximity between drilling sites and cities could prompt even more public concern about water safety.
Europe's dearth of drilling rigs — 82 operating in February compared with more than 1,400 in the United States, according to data from oil services giant Schlumberger — could also slow activity.
However, industry players are not put off by the challenges.
Plenty of Europe's shale basins sit under rural land, Schulz said, while some of the most prospective sites are in Poland and Ukraine, which are not so densely populated.
Exxon's head of gas marketing in Europe, Richard Guerrant, said he was not worried about Europe's high population density as the U.S. experience showed even drilling in metropolitan sites was possible.
Europe has the advantage of having an extensive existing pipeline network to get any shale gas to market and plentiful supplies of water — something many shale producers in the United States crave, IHS's Chew said.
Security of Supply
European concerns about growing reliance on Russia for energy could also drive explorers to overcome obstacles.
Europe receives a quarter of its gas from Russia, and Moscow expects this figure to rise to a third by the end of the decade.
After Russia shut off gas supplies in 2006 and 2009 in disputes with Ukraine, European Union leaders sought ways to reduce their dependence on free-flowing Russian gas.
European efforts to develop alternative pipeline supplies have irked Moscow, and North American shale gas production has already shattered Russian gas export monopoly Gazprom's liquefied natural gas plans.
Gazprom deputy chief executive Alexander Medvedev last month slammed shale gas as "dangerous," saying he doubted that European environmental regulators would allow it — comments that analysts said show how threatened the world's largest gas supplier feels.
North America's lost appetite for LNG has already led to a flood of cheap fuel in Europe, which has forced state-controlled Gazprom to show rare flexibility in its supply contracts with European buyers to boost sales.
European shale gas puts Gazprom's dominant supplier position further at risk. But even if little gas flows from under Europe, shale from this side of the Atlantic could still be a threat.
"Shale gas, and particularly shale gas in northern Africa, may provide additional volumes for the growing European gas market," Paolo Scaroni, CEO of Italian oil major Eni, said earlier this month.