Shale gas continues its regulatory roller coaster ride in the EU. Earlier this year, a study published by the European Commission concluded that there is already an adequate regulatory framework in Europe for shale gas activity as it currently stands, however the debate rages on.

Across Member States, the approach to further regulation ranges from the UK, where existing environmental regulation is seen as stringent enough to accommodate shale gas, to Germany where there are growing calls for increased regulation. In Poland, new regulation is focused more on the management of shale gas arrangements (for example giving companies which find shale gas priority when applying for a mining permit) and taxation of hydrocarbon production, than on imposing additional controls.

The UK is still arguably the best informed Member State, in that it was the first to carry out a detailed study. This may explain its broadly favourable stance to shale gas. The head of the UK’s Environment Agency, Lord Smith, has just given his support to hydraulic fracturing in the UK. This follows last month’s report issued by DECC (Department of Energy and Climate Change) which recommended that hydraulic fracturing should be allowed to continue, with appropriate safeguards and mitigation measures.

Other Member States are commissioning studies into shale gas which may inform their approach to regulation. In Germany, the results of a comprehensive study by experts into the environmental impact of hydraulic fracturing, commissioned by the Federal Ministry for the Environment and the State ofNorth Rhine-Westphalia, are expected this summer. In the meantime, there are growing calls for increased regulation at Federal level, and an informal moratorium on hydraulic fracturing has just been introduced in the State of Hesse pending publication of the environmental study.

In France, the Government published its expert study into shale gas in March 2012, which was clearly in favour of exploration. At the same time it issued a decree setting up a National Commission to evaluate the environmental issues involved in shale gas. This was the first sign of positive movement in the shale gas debate in France since the ban introduced in July 2011. It remains to be seen however how the election of President Hollande will affect this, bearing in mind his stated opposition to shale gas during his election campaign.

In other Member States, shale gas continues to be controversial. In Bulgaria shale gas exploration through hydraulic fracturing has been banned  following widespread protests (although there are concerns that the decision was made too hastily). A ban in Romania currently looks likely, but only until the results of EU studies into environmental impacts of the technology are known (see further below). There is talk of a similar ban in the Czech Republic, but this is in the context of a concern that its legislation is extremely out-of-date and a ban would allow time to amend all necessary provisions.

At EU level, policy and decision makers continue to monitor the situation to assess whether further regulation is necessary. Two draft reports have just been issued by Committees of the European Parliament on different aspects of shale gas. Both are non-legislative reports, and their purpose is to enable the European Parliament to set out its political position on the issue ahead of any new regulation or policy being proposed by the European Commission.

The draft report by the ITRE Committee (Industry, Energy and Research) on “Industrial, energy and other aspects of shale gas and oil” is broadly favourable. It recognises the crucial role of worldwide shale gas production in ensuring energy security and diversity in the long term, including in Europe and its contribution to achieve the EU’s goal of reducing greenhouse gas emissions by 80-95% by 2050 compared to 1990 levels (the basis of the EU Energy Roadmap for 2050).

The second draft report, on “The Environmental impacts of shale gas and shale oil extraction activities” is by the ENVI (Environment) Committee, whose members are less favourably inclined. Even so, it confirms that the risks are well-understood and can be effectively managed with existing technology and best practices. In particular, it stresses that wellbore integrity is key to preventing groundwater contamination.

Neither draft report calls for new regulation, but the ENVI report takes the stance that further screening is needed of both European and national law to assess their adequacy, with “improvement measures” to be taken where necessary.

Disclosure of chemicals used in fracturing fluid is a key issue for both reports, with the ITRE Committee urging full disclosure, and the ENVI Committee calling for disclosure on a mandatory basis. There is increasing interest within industry in exploring the possibility of adopting a procedure in the EU along the lines of FracFocus in the US. FracFocus is a web-based national registry, run by the US Groundwater Protection Council and US Department of Energy. It allows the public to access information, on a well by well basis, on chemical constituents used in hydraulic fracturing. In some US states, disclosure on FracFocus is a mandatory legislative requirement post application of the relevant fluid.

At the same time, there are many studies ongoing into REACH (the chemicals regulation), and the completeness of registration dossiers on a broad basis, not just in relation to shale gas activity. Whilst there is an understanding at EU level that REACH is not the tool to give the public access to the information it is looking for, correct information must be provided in the registration dossiers when the time comes for registration to ensure that appropriate risk management measures are in place.
Final versions of the European Parliament Committee reports will be published later this year, once they have been voted on in the Parliament. In the meantime other studies have been commissioned by the European Commission into other aspects of shale gas, for example the socio-economic impacts of shale gas and the climate impact of shale gas.

The IEA (International Energy Association) is currently due to issue its “Golden Rules on Unconventional Gas Projects” at the end of this month. These rules will aim to set out best practice and help to “reassure a sceptical public” that shale exploration is safe. Whilst these rules will not have regulatory status as such, they are highly likely to influence how shale gas regulation moves forward at EU and Member State level.

What is welcome is the increasing acknowledgement that decisions around shale gas should be based on fact, not emotion, with consideration of existing studies and commissioning of new studies as necessary to ensure that the debate is properly informed.

Source: Natural Gas Europe

An official visit to Canada by Polish Prime Minister Donald Tusk will reportedly lead to formal co-operation between Polish and Canadian based companies in the area of shale gas.

Polish daily Dziennik Gazeta Prawna reports that Grupa Lotos SA will enter into an agreement withTalisman Energy, to jointly explore unconventional gas concessions held by the Gdansk based company.

PKN Orlen is reportedly to enter into a strategic partnership for shale gas exploration with EnCana Corp, Canada’s largest natural gas producer. The arrangement will allow for joint participation in Poland and in North America

Last summer, it was reported that Orlen and Encana had reached a deal reportedly involving access to Encana’s activities in the U.S. along with a contribution of $200 million USD from Encana to co-finance prospecting works in Poland, in exchange for a stake in Orlen’s concessions in the Lubelskie (Lublin) Basin.  Orlen hold six shale gas concessions in the Lublin region (Bełżyce, Garwolin, Lubartów, Lublin, Wierzbica, Hrubieszów).  However, the joint venture project did not get the green light from the Ministry of Treasury.

Polish natural gas leader PGNiG is reportedly also in discussion with potential co-venturers, but has not reached any firm arrangements to date.

In April, PGNiG and PKN Orlen, the largest refiner in Central Europe, revealed that they has startedtalks over collaboration on oil and gas exploration, in Poland and abroad.

Source: Natural Gas Europe

Prime Minister Donald Tusk has pledged that the exploitation of shale gas “will begin a new epoch for energy in Poland.”

The premier outlined his thoughts at an academic conference on shale gas in Warsaw on Wednesday.

Nevertheless, Tusk said that there was still much to be done before the project could be effectively realised, and that a legal framework needed to be formalised.

“No one will risk large sums of money in such a place that will not guarantee a continuity of investment,” he said.

Tusk outlined the need for “a tax system concerning this wealth, and a legal system that will be profitable not only for our own country, but also friendly for those who will cooperate with us on this venture.”

The Polish government believes that tapping the country’s shale gas resources will be a major step towards being more independent in the energy sector, with Poland still largely reliant on Russia for gas.

Source: Oil & Gas

One “Champagne Discussion Roundtable” at the Unconventional Gas and Oil Summit in Warsaw, Poland led to an effervescent discussion: “Examining the PR Aspects of Shale, Exploring the case for NIMBY.”

The session was led by Intercultural Strategy Consultant Dr. Photini Pappas of Wisdom in Action International.

She noted that public opinion had been a decisive factor in the future of shale gas development in Europe. Dr. Pappas asked participants sitting at the round table how they saw the present role of public opinion in Europe and prompted them to offer strategies for the way forward in developing unconventional gas in Europe.

“Public opinion is going to be a crucial part of the shale gas story in Europe,” said Chatham House’s Prof. Paul Stevens. “The fact that we have developed an organization in the UK called ‘Frack Off’ says it all, to be perfectly honest. It’s a major issue and the support that they’re garnering is absolutely incredible. Part of the reason I suspect is the recession and the lack of funding for NGOs, they need to find a sort of crusade to try and raise revenues. The whole shale gas operation is a gift for this – they’ve latched onto this to the nth degree.

“Plus the fact that the industry itself is its own worst enemy. They don’t seem to have a clue how to deal with public relations, they shoot themselves in the foot every other day. You have to ask yourself ‘Why the moratorium in France, Bulgaria?’ etc. etc. It’s because public opinion is there and the UK government’s sort of hanging on in there by the skin of its teeth, coming under huge pressure to follow the example of the French.”

Fivos Spathopoulos, Consultant Unconventional Shale Exploration & Visiting Lecturer in Petroleum Geology at Imperial College London, said he was surprised the not in my back yard (“nimby”) principle also applied to renewable energy projects as well.

“A few years ago in the UK they said only 60 turbines would be necessary to provide domestic electricity for 1 million inhabitants in which case for the whole population in Britain they need 3,600; are they going to put them all offshore? Where? If not an environmental problem in the North Sea then at least for navigation,” he said.

Another participant pointed out the noise created by wind turbines as well as the massacre of birds.

Mr. Spathopoulos said, “There’s an argument that all the developed countries have been spoiled by having all the energy they need.”

“I think there’s a problem that we have been spoiled in some way with reserves of gas and oil and have taken it for granted,” said Environmental Chemist Stefan Jansen of Deltares. “Now we are getting into a phase where we are dealing with the consequences.”

Participant Michael Wyne said: “You could choose not to live next to a big, smoky coal-fired power station; you could choose not to live next to a nuclear power station – you knew where they were, whereas nowadays you can choose somewhere nice and green and pleasant and the next year someone wants to put 20 turbines over your back garden.”

“Last year the German government said they would subsidize German companies for solar panels, but not in Germany, because there is no sun,” recalled Fivos Spathopoulos. “But if you go to Greece, which is a depressed economy, you can have solar panels there and send the electricity back to Germany.”

“The Greeks are welcoming this in the hard economic struggle,” added Dr. Pappas.

She continued: “I have a feeling we are waking up to a new reality, because in the past I suppose the key conflicts we knew like corporate capitalism on the one hand, the labor movement and working classes on the other. All of a sudden we have corporations waking up to the fact that it’s the middle classes who are now opposing their activities, and I think shale gas is a very interesting case in point, which have to do with post materialist values: quality of life, clean environment, how to leave this environment safe and clean for our children – these arguments come up often in the anti shale gas blogs.”

Someone asked: “Are those same people saying ‘I’m prepared to live with less energy’?”

“The discussions that I’ve been in – they’re perfectly fine with environmental damage in Russia,” said Udo Edelman, Managing Director, OneMarcellus. “As long as it’s faraway. The argument in Germany is ‘We have all the gas we need. There’s enough gas, we don’t need to develop our resource.’”

Paul Stevens added: “When I asked my friends from Germany where they were going to get their power if they shut down nuclear and they said they’d import it from France.”

“It’s a daunting task to think that somehow we will be reducing energy demand,” said a participant named Jeffrey Sundquist. “Even if you look at the developed world cutting back significantly, the growth in the developing world is going to far outpace any savings, so where is that coming from?”

“We’re at 87 billion barrels a day currently, globally there are other places that are trying to bring alternative energy onstream, but the alternative energy does not have the economics. There are economies of scale in legacy energy, so there’s no ability or willingness to pay for new energy – these are diametrically opposed. You’ve got increasing demand, unaffordable new energy, austerity measures, no ability to pay by the consumer…somebody has to pay for this. Who is it?”

Michael Wyne asked if nimby-ism wasn’t a function of education.

“We live in an information age. People can go and find what they want very quickly and if we as an energy industry are not open about what we’re doing. ExxonMobil realized that one of the best things they could do was to put up a freely searchable map-based interface of their shale gas operations, so you can click on a well and see exactly the constituents of the proppant – it’s all in there.

“Once you give people the ability to gain access to information they perceive as reliable,” he continued, “they can begin to educate themselves maybe away from that nimby-ism. If you keep that quiet, then those that have formed opinions that are putting them freely out on the web take the upper hand.”

Mr. Spathopoulos expressed that the issue in France regarding the hydraulic fracturing ban was not environmentalism but a traditional way of life they sought to protect. “Jose Bove and others don’t talk about the environment, they have 85% nuclear power anyway, but they want to keep their traditional way of life.”

Participants talked about “mobile activism” when it appeared that protesters were not actually from the place where they were demonstrating against something. Paul Stevens mentioned that online social networks had allegedly driven recent uprisings in the Middle East.

Stefan Jansen piped in: “I think the industry simply has to deal with that – it’s the reality of the moment. On the one hand, people are really informed, because of the internet, but on the other they aren’t able to place it in the right context.”

Source: Natural Gas Europe

The fledgling shale natural gas business in Poland is in danger of becoming too politicized, a former Polish geologist said.

Warsaw estimates it has as much as 3.3 trillion cubic feet of natural gas, lower than the 187 trillion cubic feet estimated by the U.S. Energy Information Administration.

Officials, however, said shale gas analysis carried out in conjunction with the U.S. Geological Survey confirmed the country remains in position to become a major energy producer and that more drilling will likely reveal greater reserves.

Polish politicians are divided over what role foreign entities should play in the country’s shale natural gas sector.

“Politicians don’t want to do the wrong thing but they lack experience and this makes it difficult for them to be a partner with a strong industry,” Pawel Poprawa, a shale gas expert formerly with the Polish Geological Institute, told the Platts news service.

State-controlled natural gas company PGNiG holds most of the shale concessions in the country among rival energy players.

One official who spoke with Platts on condition of anonymity said there was an emerging climate of xenophobia in Warsaw. Polish Deputy Environment Minister Piotr Wozniak, however, denied the allegations.

“If we really want to develop these resources we need foreign investors,” he said.

Source: United Press International

Some foreign operators and industry experts involved in Poland’s nascent shale natural gas exploration sector are becoming concerned about the politicization of the industry and a tendency to favor domestic state-controlled companies.

Although Poland remains at the forefront of shale gas exploration in Europe there has been a noticeable politicization of the public debate about the industry since last October’s parliamentary elections. During the campaign, politicians appeared to be competing to reassure the public that their party could extract the most from potential shale gas production.

Firstly, the main opposition party, the nationalist and populist Law and Justice, proposed introducing a minimum 40% royalty fee on future production and new legislation outlawing “undesired investors” from acquiring companies engaged in shale gas activities.

The pro-shale gas and economically liberal Civic Platform party, which won re-election, is now drafting legislation to regulate the industry in the light of that debate.

“One political party was saying to the government, ‘you’re giving away everything to foreigners.’ Politicians don’t want to do the wrong thing but they lack experience and this makes it difficult for them to be a partner with a strong industry,” Pawel Poprawa, until recently a shale gas expert at the Polish Geological Institute, said in an interview.

“It would be much better if this were an industry like the coal industry or food industry. There’s too much politics involved and the industry pays the price, Poprawa said.

Before Christmas, the country’s new Treasury Minister, Mikolaj Budzanowski, gave an indication of the government’s thinking when he wrote to the country’s largest state-controlled companies — natural gas company PGNiG; refiners PKN Orlen and Grupa Lotos; utilities PGE and Tauron; and copper miner KGHM –urging them to enter into partnerships for shale gas exploration. Some of those companies are now finalizing the details of a partnership to develop PGNiG’s Wejherowo shale gas license area in Pomerania, in northern Poland.

PGNiG has 15 shale gas concessions in the country’s Ordovician and Silurian shales, the highest number held by a single company. PKN Orlen has six, while the remainder have none.

No Polish company has the resources to fund the intensive exploration campaign shale gas requires. In Poland, each vertical exploration well costs around $10 million and each horizontal well $15 million, up to three times the cost in the US.

In January, it was reported that months of talks about a partnership between PKN and Canada’s Encana, which would see PKN gain access to Encana’s North American acreage in return for investment in its Polish shale gas concessions, were halted because of an alleged decision by Warsaw to prioritize domestic tie-ups.

One official from a non-Polish shale gas operator in Poland said the division into “them and us” was extremely damaging and was driven by politics.

“In the beginning, foreign companies were made to feel extremely welcome — now there’s a lot of talk about foreign companies coming to exploit us,” the official said.

“The issue here is not about money, it’s skill and know-how. Companies like PGNiG have no experience in shale gas and it was madness to stop the tie-up between Encana and PKN. The signal seems to be that Polish companies should start producing shale gas by the next election [scheduled for 2015]. I can understand it as political propaganda and as a signal to the Russians, but it makes no business nor technological sense.”

Mostly foreign operators have drilled 23 exploration wells since 2010 and are contracted to drill 49 new wells this year. None has yet proved economic, but operators are optimistic that it is only a matter of time.

Although exploration costs are high, a huge incentive is the fact that gas prices are up to seven times higher in Poland than in the US.

So far each operator has adopted a step-by-step approach. They drill a vertical well, analyze the data and then decide whether to fracture the well.

If the results are promising, they may drill a horizontal well, So far, just two horizontal wells have been drilled, both by the Isle of Man-registered independent 3Legs Resources.

PGNiG appears to be considering a different approach. There’s talk it is planning to build a wellpad for 12 wells in its Wejhorowo license area.

“This is a political decision motivated by getting production going as quickly as possible. The problem is PGNiG lacks experience, it doesn’t know how to do shale gas. They had people queuing up to go into partnership with them. But a decision has been taken to try to do it with Polish companies. I’m sure they will learn from their failures,” one industry participant said in an interview.

Piotr Wozniak, the country’s Chief Geologist and deputy environment minister, denies any such decision has been made.

“There is scope for everyone. The Treasury Minister will probably try to incentivize the two or three Polish companies that have the strength to invest because this requires a lot of money. There is not enough money to be leveraged by a Polish company. They are too weak. If we really want to develop these resources we need foreign investors. I don’t think it is a decision by the minister to repel investors from PGNiG. Sooner or later we will see partners with PGNiG, Lotos and PKN Orlen,” Wozniak said.

An atmosphere of uncertainty has arisen just as Wozniak and other ministers are about to announce the first details of new regulations for the industry, including a new hydrocarbons tax set to take effect when first production starts in 2015-16.

Currently Poland has no specific fiscal regime for shale gas. The tax rate for conventional oil and gas production is less than 21% and consists of a corporate income tax, an exploitation fee and a property tax.

“The level of government take in Poland is extremely low and everybody, including investors, expects it to rise. In my opinion, the rise should be very, very moderate because we need those investors here. There are not enough companies; we don’t have an oil industry in Poland at all. It’s in our interest to incentivise rather than dis-incentivise,” Wozniak said.

Although the taxation rate is not yet known, the new fiscal regime will likely include a combination of an exploitation fee, CIT, and the new tax, Maciej Grabowski, deputy finance minister, told Platts.

Grabowski said a total government take of around 50% would be fair, without giving details. But that figure has already caused jitters among operators — head offices have been calling Warsaw asking whether such a tax rate is economical for them.

It’s too early to be talking figures, said Kamlesh Parmar, country manager for 3Legs Resources.

“We now need to look at whether or not any of these areas can be made commercial and that involves a lot more work, a lot more drilling, a lot more testing. That costs money in a global environment where money is difficult to come by. What I would really like to see is the authorities making an effort to encourage investment in this industry so that this potential can be made a reality,” Parmar said in an interview.

Source: Platts

Billed as the 21st-century equivalent of North Sea oil, with the potential to turn the Lancashire coast into an unlikely new ­Arabia, shale gas is said to be abundant under the Pennines, Wales, Scotland and Northern Ireland.

The Polish Geological Institute  (Państwowy Instytut Geologiczny) will publish its new report on shale gas reserves in late 2013.

Speaking to Natural Gas Europe, Poland’s Deputy Minister of Environment and Chief Geologist Piotr Woźniak emphasised that estimates will be based on data collected from exploratory wells drilled from 2010-2012, by international companies and Polish state-controlled firms.

The previous estimates published by the Polish Geological Institute in March put recoverable reserves of shale gas in Poland at between 346 and 768 billion cubic metres. However, the report was based on archival data, obtained in the second half of the previous century, from wells drilled between the 50s and the 90s.

Mr. Wozniak underlines, that the first PGI report was only a preliminary one. The Chief Geologist, who took the office several months ago adds, that the report “should have been published by his predecessors much earlier, three – four years ago”.

Mr. Wozniak indicated, that this time the Institute will use data from new wells. Under the exploratory concessions regime, companies must pass their data to the ministry till March 2013.

The Chief Geologist predicted that a new report, using those new measurements, will be ready for publication at the end of 2013. He added that in that new report, higher estimates should be expected.

Source: Natural Gas Europe

The Schuman Foundation conference on “Expectations and Reality: What’s next for Shale Gas ?” took place in the European Parliament Information Office in Warsaw on 16 April 2012. The main theme of the discussion was the future of unconventional gas in Poland and Europe following the recently published Polish PGI shale gas reserve estimates and the European Parliament’s Environment, Public Health and Food Safety Committee (ENVI) report on the environmental impacts of shale gas.

Among the experts invited were MEP Boguslaw Sonik  and MEP Boguslaw Liberadzki,  Professor Jan Lubal and Dr. Piotr Kasza of Polish Oil and Gas Institute, and Chemical Substances Inspector Jerzy Majka.

Referring to the ENVI report,  MEP Boguslaw Sonik, report rapporteur, explained that while the document had no direct legislative power, it was very important for the future of shale gas in the European Union. In his opinion, the unconventional gas debate in Europe, which started two years ago, is based largely on myth and fear, hence the need for the European Parliament to adopt an official stance on the issue.

MEP Boguslaw Liberadzki said that in terms of the energy industry’s needs, there were three key requirements to make the environment competitive in the European Union: sustainable economic development, the cost of energy production and, most importantly, agreement among the EU member states. He suggested that shale gas could bring member states together but appealed for the debate on this issue to be less based on emotion and more based on fact. Poland, he continued, should highlight that without shale gas it would be forced to rely on nuclear energy.

Speaking about the potential problems that may arise during shale gas extraction, Professor Jerzy Majka highlighted that accidents cannot be avoided making it necessary for appropriate safety monitoring systems to be put in place. He added that exploration companies should disclose the chemical used in hydraulic fracturing fluids to authorities.

Germany and the U.K., Europe’s two largest consumers of natural gas, are likely to lean ever more heavily on the fuel to meet energy needs in the coming years, as the expansion of low-carbon nuclear and renewable power falls short of their needs.

This extra demand would probably be met by high-priced imports, such as gas brought in from Russia via pipelines or liquefied natural gas from the Middle East and Africa. For a continent already grappling with its long-term competitiveness, this could be bad news. “Low prices for natural gas offer manufacturing a powerful competitive advantage, potentially stimulating much broader economic growth,” said Mark Williams, downstream director for energy giant Royal Dutch Shell PLC.

The U.S. is enjoying just that, thanks to a boom in production of natural gas trapped in shale rock. In Europe, there are hopes that its shale-gas resources could eventually help it at least partially mimic the U.S. The big shift that is pushing the U.K. and Germany toward greater dependence on gas is the decline in nuclear power.

After the Japanese earthquake and tsunami triggered a meltdown at the Fukushima nuclear-power plant last year, the German government decided to close all of its nuclear reactors, which produce 13 gigawatts of power, or the equivalent of 8% of Germany’s energy-generating capacity, by 2022. This coincides with the end of life spans for all but one of the U.K.’s reactors by 2023 that will leave just 1.2 gigawatts of capacity of the 11 gigawatts that they currently produce.

Several European and British utilities have planned to build 16 gigawatts of new nuclear reactors, but some projects are now in doubt as their backers say it is uncertain that these plants can operate profitably given current electricity prices.

German utilities E.ON AG and RWE AG have abandoned a joint venture to build new nuclear plants with a combined capacity of 6 gigawatts because they lacked the capital to finance the work and external financing was scarce.

In February, U.K. utility Scottish and Southern Energy SSE.LN +0.23% PLC quit a consortium with GDF Suez SA and Iberdrola SA IBE.MC -1.59% to build plants with 3.6 gigawatts of planned new nuclear capacity in order to focus on renewable energy. GDF Suez and Iberdrola say they remain committed, but analysts say the projects are more doubtful. A major expansion of coal power would cause countries to miss their carbon-reduction targets, and it seems unlikely that renewable energy could quickly fill this gap. “Most clean energy technologies are not being deployed quickly enough, [and] are not on track to make their required contribution,” the International Energy Agency said in a report last month.

German Chancellor Angela Merkel has said an additional 10 gigawatts of gas-fired power plants will be built by 2022 to fill the gap left by shuttered nuclear plants. In the U.K., even the most optimistic scenario for the use of nuclear power leaves a 6-gigawatt hole to be filled, most likely by gas. Assuming the most efficient gas-fired power plants were built, replacing these reactors would add around 14 billion cubic meters a year to European gas demand, equivalent to almost 3% of 2010 EU gas consumption. This figure could rise further if the U.K. government can’t come up with stronger financial support for new nuclear projects.

Meeting this extra demand could prove expensive. Pipeline gas from Russia is priced on a formula tied to crude oil, so is relatively expensive. Goldman Sachs expects oil-indexed natural gas on continental Europe to sell at an average price of $13.60 per million British thermal units this year, a 24% premium to the market price in the U.K., which gets around half its gas from the North Sea. Rising demand for LNG from Asia is also pushing up prices.

The amount of LNG available to the U.K. in the first quarter of 2012 halved from the same period a year earlier, after the country was outbid by Asian customers, and it had to import more oil-indexed gas to compensate, said Barclays analyst Trevor Sikorski. “We expect the LNG market to increasingly tighten as we go through the next few years,” he said. However, recent developments in the gas industry mean this is by no means set in stone.

Many companies believe the U.K. and Germany’s neighbor Poland may hold resources that would enable them to at least partially mimic the boom in shale gas production that has pushed U.S. gas prices to 10-year lows. Industry analysts say there are still questions over how cheaply and quickly these resources could be tapped. “Forget about straight-line forecasts for natural gas demand and supply,” said Anne-Sophie Corbeau, a senior gas analyst at the International Energy Agency. Shale gas opens the way for “patterns [to] suddenly diverge from the conventional view in the most unexpected way.”

Source: The Wall Street Journal