A look at the impact that LNG and unconventional gas could affect the future of the EU gas market.

Nicholas Newman 24 November 2012

In recent years, Europe has experienced a gas glut caused by the US becoming self-sufficient in gas (mainly due to unconventional gas production), which has also caused traditional US suppliers to divert exports to the European Market. However, there have been acts of god, banana skins and black swan events that have affected in recent times the EU gas market. These have included Japan’s massive emergency imports of gas and the Libyan war that halted gas exports to Europe, although Libyan gas exports are beginning to recover.

We are in the midst of on-going changes in the European gas market framework, in part due to European Commission intervention, but also due to the development of alternative gas import sources both domestic and foreign. We have seen the rise in the use of hub pricing, as there has been a decline in the dominance of oil indexed long-term gas contracts and a greater range of contracts made available. The trouble is the market is asking will the new trading environment depress prices or maintain Gazprom’s ability to influence the market. It is also being asked is too much world gas production capacity coming on stream too soon.

As for shale, America is not the only source for shale gas E&P so is UK, Poland, China, India, Australia and Argentina. Nevertheless, for the EU shale E&P is at a much earlier stage of development than in the US. There are fears that US shale gas could flood the EU gas market, thus delaying development of EU domestic production for years. In addition, there are fears that Europe is still not ready to fully exploit shale gas production on a large scale.

Factors affecting the EU gas market include developments in Asian pipeline gas and LNG demand. The black swan in the market could be China, Beijing could insist that the Central Asian gas resources it has been developing should be paid for at below market prices or even in kind. Or even that it will replace gas imports with its own massive reserves of unexploited unconventional gas, which it could switch too, instead of importing from Central Asia, Gulf States, South East Asia and Australia.

In addition, the timing and slippage of North American shale gas projects. Also the future pricing and production policies of gas producers together with market developments, including how soon will Europe’s economy recover and the impact of rival fuel sources on gas demand. However, forecasting about the future depends on how many acts of god, banana skins and black swans will occur to affect the European gas market.

Loosely based on notes of a seminar  given by Howard V. Rogers Senior Research Fellow OIES on

16 November 2011

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Poland plans to veto EU proposals to apply environmental legislation to shale gas.

Nicholas Newman http://www.oxfordprospect.co.uk/Freelance-Journalist.html

EU Commissioner has declared that it is investigating how the European Commission can apply its strict Environmental regime to Europe’s infant shale gas industry. The EU Energy Commissioner Guenther Oettinger seeks to create a common set of European wide standards to regulate the safety and environmental issues that face policy makers and regulators concerned with the development of shale gas. Such a common set of standards would the Commissioner hope promote a high level of environmental security, safety and energy independence.

Such ambitions have caused serious concern to the Polish government, with September 30, Maciej Olex-Szczytowski, a special adviser on economics and business to Poland’s Ministry of Foreign Affairs, said the country would veto any new EU legislation. Poland is concerned that such proposals would handicap its ambitions to  develope the country’s estimated 5.3 trillion cubic metres of shale gas.EU Energy Commissioner Guenther Oettinger has announced that his proposals should be ready for consideration by member states in Spring 2012.

 However, despite Poland’s concerns many of Europe’s investors in shale gas E&P would welcome the Commission’s moves to create a European common set of standards to apply to the industry, rather than the rather chaotic situation where every member state has its own set of regulations. http://www.oxfordprospect.co.uk/Energy-Features.html