The Price of Gas Has Been Halved by Fracking
In recent months the issue of shale gas has been widely debated on media and in symposia discussing energy and country competitiveness. Shale gas is non-conventional gas, trapped underground in clay rock at 2000-to-4000-meter depths. Because of its geological characteristics, extraction is more complex that in the case of conventional gas, since it requires two specific technologies: horizontal drilling and so-called fracking, i.e. hydraulic fracturing, the process by which high-pressure water in injected into the soil to crack the rocks and free the gas trapped inside.
Why all the clamor around shale gas? The sheer strength of US numbers makes us understand why. Due to technological innovation and lower extraction costs, production of shale gas has jumped from 7% of total gas production in 2007 to 41% in 2013 (it's projected to hit 50% by 2025), turning the US into the first gas producer of the world. Within three years, it is estimated the US will become net exporters of natural gas for the first time in its history. As far as economic indicators are concerned, considering the whole value chain of the non-conventional gas industry, employment has more then doubled, reaching over the 2 million mark. According to an IHS study, the growth in jobs will continue, to reach 3.9 million in 2025, and this will have generated a cumulative tax windfall of $1,6 trillion. Thanks to expanded supply, the price of gas has decreased from $8.2/MBtu (million British thermal units) in 2005 to $3.7/MBtu in 2012, a 54% drop.
Shale gas is present in significant amounts also in Europe, particularly in France, Germany, Poland, and England. In the light of the American example and the fears over security in the gas supplied by non-European powers, it is understandable that European governments are now seeking to commercially exploit their shale gas deposits. However, according to many observers, the shale gas boom will never occur in the EU. The reasons are many, including the lack of infrastructure, a less generous tax treatment, a less abundant water supply, and the absence of a property law regime according to which land property translates into the owner also having mining rights. Also, public opinion is concerned by the undeniable environmental impact of the new gas extraction technology. For instance, in Germany the beer industry is among those lobbying most strongly against fracking, because it fears pollution of underground aquifers.
Even if you want to rule out a European boom in shale gas, the phenomenon remains significant. Although the first exported molecule of American shale gas won't reach European markets before 2018, the impact on EU prices has already been felt: due to lower gas prices, US power stations have reduced their consumption of coal, which has thus been diverted toward European (and Asian) markets, ultimately providing an incentive for its use in electrical power generation, thus undermining official EU targets for the reduction in CO2 emissions.