Shale-gas boom or bust?
European energy prices soar above US levels
Yesterday’s summit of European Union leaders had its gaze firmly fixed across the Atlantic. The meeting was the first time that a European Council has focused on the issue of energy prices – and it was a discussion dominated by comparisons with the United States.
EU leaders were presented with statistics from the European Commission showing that while electricity prices in Europe have risen by 40% since 2005, they have decreased during the same period in the US. Why has this happened? The main reason is the exploration and extraction of shale gas in north America since 2005.
While the US has embraced shale gas, Europe has held back because of uncertainties over the economic potential of this unconventional fuel and the environmental risks linked to its extraction.
The Commission has been keen to stress that energy is a national competence. But an increasingly vocal majority of member states wants to forge ahead with shale-gas exploration, and they want the EU to provide a clear signal to investors that it supports such a move.
Ahead of yesterday’s summit, José Manuel Barroso, the president of the Commission, wrote to member states saying that the EU needs a “Union-wide approach on using the potential of unconventional hydrocarbons” and that “we need to act swiftly”.
“The global energy equation is changing fast, and if we want to avoid losing in this race for resources, we will have to step up our joint European efforts,” Barroso said in a speech in the European Parliament on Tuesday (21 May). “While the United States is on its way to becoming a net exporter of gas instead of an importer, as a result of the shale-gas boom, Europe’s import dependence is further increasing and, for oil and gas, is set to grow to over 80% by 2035.”
But shale gas remains a controversial issue in the EU, with France and Bulg-aria having banned extraction. There was disagreement over whether the conclusions of yesterday’s summit should refer to ‘unconventional hydrocarbons’. In the end, member states chose to say that the EU should co-ordinate a more systematic recourse to “indigenous sources of energy”,
It is still not known what potential there is in Europe for shale-gas extraction. To find out there would need to be widespread exploration – a process that has barely started. The Commission is to produce an analysis of the potential of shale gas in Europe by the end of the year. “It is probable that it will be more problematic in Europe than it has been in the US,” said Pat Rabbitte, the energy minister of Ireland, which holds the presidency of the Council of Ministers. “There are member states who under no circumstances want eyes taken off the decarbonisation of energy agenda.”
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What the pro-shale countries want from the Commission is analysis rather than regulation. “It would save member states a lot of time if there was a common framework for dealing with this issue,” said one EU diplomat. “Then everybody does not have to start from scratch.”
The focus on energy prices at yesterday’s Council is seen as unproductive by some MEPs, who insist that the debate is being driven by big business and energy companies in order to pressurise member states into dropping their opposition to shale-gas exploration and to their ambitions to freeze energy prices.
Claude Turmes, a Green MEP from Luxembourg, said that yesterday’s Council conclusions ignore other solutions to the problem of high energy prices: “While little attention is paid to real solutions, such as scrapping oil-price indexation, [which is] responsible for rocketing gas prices in Europe, EU leaders are opening the door to shale gas, following blindly the US myth based on a polluting and dangerous technology.”
Turmes says that the Council’s conclusions, promising low electricity-per-unit-prices, are misplaced and would undermine investors’ confidence at a time when two-thirds of EU power plants will have to be replaced.
Ahead of yesterday’s summit, the business confederation BusinessEurope wrote to EU leaders claiming that high industrial electricity prices were stretching Europe’s energy-intensive industries to breaking point.
According to the letter, the widening gap between prices in the US and Europe is not just because of shale gas but also because of the EU’s “renewable policies, carbon pricing and the structure of electricity markets”.
BusinessEurope singles out support schemes for renewable energy as being particularly disruptive to prices, and also heaps blame on the EU’s troubled emissions trading scheme.
Internal market
Environmentalists and indu- stry groups welcomed yesterday’s call for member states to finalise the internal energy market. Data shared with member states by the Commission yesterday showed that countries with more competition in the energy sector have lower prices. The internal energy market was meant to be fully operational by 2014, but that will not be the case – political resistance from national governments and complications over connections have blocked its progress.
Yesterday’s Council conclusions note that in addition to finalising the objectives of the internal market – such as adoption and implementation of the remaining network codes – interconnections should be developed to end ‘energy islands’ that are unconnected to European infrastructure, such as the Baltic states, by 2015.
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