Prospects for a shale gas revolution in the EU and China: Implications for energy geopolitics and climate security

Author: Diarmuid Torney This publication has been produced with the assistance of the European Union. The contents of this publication are the sole responsibility of ECRAN and can in no way be taken to reflect the views of the European Union. Executive summary • The exploitation of unconventional fossil fuels, particularly shale gas, has been one of the most significant developments in the global energy landscape in the past five years. While extraction techniques have attracted controversy due to concerns over environmental impacts from environmental groups and the public, shale gas has transformed the US energy market. • The US experience has led to strong interest in Europe and China, and several assessments indicate large shale gas reserves in both regions. Neither region has so far seen any commercial shale gas extraction, however, and future exploitation of estimated reserves is subject to considerable uncertainty. • In the EU, shale gas extraction is likely to remain limited, at least in the short term. This is due to strong public opposition in many countries, land rights issues, the structure of the European shale gas industry and the geological characteristics of European reserves. • The Chinese government intends to capitalise on the potential of shale gas, but here too a number of factors may constrain extraction in the short term. These include a lack of relevant technology and experience on the part of domestic firms, regulatory and infrastructural issues around gas prices and pipeline capacity, water scarcity in many shale gas regions, the geological characteristics of reserves and the potential for public protests over issues of pollution and land rights. However, technological innovation in the shale gas industry has been very rapid, and some of these constraints may be overcome in the years ahead. • A high shale gas scenario for China would benefit both China and the EU: China would gain greater energy security and lower dependence on coal, while the EU would benefit from reduced pressure on global gas markets and relatively lower Chinese greenhouse gas emissions. A low Chinese shale gas scenario would result in an increase in China's imports of natural gas, or in its coal consumption, or a combination of both. Increasing imports of Russian gas could strengthen Russia's hand as a swing supplier between the EU and China. Increased coal consumption, on the other hand, would lead to increased Chinese greenhouse gas emissions. • It is in …