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Eastern Europe to helm shale gas revolution

24th July 2012

Ukraine and Poland plan shale gas development which could ease national and European dependence on Russian gas

Eastern Europe to helm shale gas revolution
It is estimated that if Ukraine were to halve its energy consumption relative to GDP, it would suppress the need to import natural gas

Ukraine and Poland edge closer to reducing their dependence on Russian gas imports through shale gas development, a report by GlobalData highlighted on Monday. Eastern Europe has often been described as the cradle of a potential shale gas revolution which could alter the geopolitics of the energy sector.

The International Energy Agency (IEA) estimates that natural gas will be the only fossil fuel to witness increased demand in the near future.

Poland’s maximum recoverable shale gas reserves are estimated at 68.6 trillion cubic feet. The country accounts for almost a third of the European shale gas market and aims to assert itself in the region’s energetic chessboard through several exploration projects.

Poland’s major energy company PGNiG has achieved technical shale gas production and aims to start shale gas production on a commercial scale in the next two to three years.

Ukraine also plans to produce its own shale gas, and several government initiatives such as the addition of shale gas to the country’s list of strategic minerals have reportedly aimed to further this goal. The Ukraine holds around 7 per cent of Europe’s total shale gas reserves, representing a potential goldmine.

Ukraine is a transit country for an estimated 80 per cent of Russia’s gas exports to the European Union and currently relies on Russia for approximately 60 per cent of its gas demands. Production of only 1-5 per cent of Ukraine’s shale potential could save the country USD 500-750m in gas imports from Russia each year, experts say.  It is estimated that if Ukraine were to halve its energy consumption relative to GDP, it would suppress the need to import natural gas.

However, shale development in Eastern Europe faces several challenges, such as environmental risks associated with hydraulic fracturing, limited access to drilling equipment, difficult land access.

Over the past decade, Europe has become wary of its reliance on substantial gas imports from Russia and fearful of the political leverage this grants the latter. Europe is the world’s largest net gas importer and relies on Russia to meet approximately a quarter of its gas demands (see latest OGT report on Russia's South Stream gas pipeline). The EU-backed 3,300 km Nabucco Pipeline was scheduled to carry up to 31 billion cubic meters of gas from the Caspian region without transiting Russia, but the project has been moving at a glacial pace.

In 2006 and 2009, Russia disrupted gas supplies to Europe via Ukraine, which momentarily deprived the continent of 20 per cent of its gas supply. Alternative suppliers of gas have since been high on the agenda, and the Middle East, the US, and more recently Ukraine and Poland, are perceived as favourites beyond 2030 to ease Russia’s foothold in Europe’s gas market.

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