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European shale gas development unlikely to match the dynamic expansion seen in the US

By Francis McGowan

August 18 - The rapid development of shale gas has had a dramatic impact on the US market and changed the dynamics of international trade in LNG.

In Europe, the view is that shale gas will not change European energy markets dramatically, nor should it change the balance of energy policy.

Yet a resource that improves Europe's energy security may prove the factor that tips the policy balance from the recent trend towards increased interventionism back to market forces.

With recoverable reserves estimated at around 475 Tcf, and production likely to exceed 10 Bcfd this year, shale gas is set to become a mainstay of US gas supply.

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Unconventional natural gas has had a dramatic effect on the US gas market and, amongst other things, has undermined the expected rise in imported gas in the form of LNG.

Despite concerns that the output expansion cannot be sustained at current price levels, there is little abatement in the sector's development, while improving production techniques appear to be keeping costs low.

A more serious uncertainty, and one which could blunt the cost profile, relates to the resource's environmental impact.

The US media, from Vanity Fair to Scientific American, have highlighted the impact of shale gas development on the communities where exploration and production takes place.

Notwithstanding the economic advantages in terms of jobs and royalties, there have been concerns particularly about water use in the "fracking" process and the risks to local water supplies from the chemicals used in that process.

The industry claims that water requirements are being contained by recycling, that waste water is being managed safely and that drilling takes place far below the levels of aquifers used for water consumption.

At the moment, state regulators are struggling to catch up with the environmental consequences of the sector's rapid expansion.

And in the aftermath of the Deepwater Horizon spill in the Gulf of Mexico, sensitivity to environmental risks may result in tighter controls and/or higher taxes.

There are also uncertainties over the impact of shale on greenhouse gas emissions.

While the development of shale gas is generally seen as positive for the US carbon footprint -- based on the assumption that the gas produced will increasingly offset coal use in power generation -- there are doubts about the total lifecycle effects, particularly if methane emissions are not fully contained.

Yet despite these concerns, the momentum currently remains with shale development and the US experience is one which others are keen to replicate.

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