Shale Gas and the Energy Mix
Europe’s energy mix
Europe’s economy and its people need energy which is sustainable, affordable, secure and reliable. Maintaining this supply in a resource constrained world, from both domestic indigenous resources and from other international markets, is one of the most significant challenges facing Europe today and in the future. Governments must ensure that supply is adequate to meet demand whilst managing cost to the consumer and maintaining the competitiveness of our businesses and industries in an increasingly globalised market.
Where our energy comes from, and in what proportion, is commonly termed the ‘energy mix’. Within the European Union each Member State retains the right to determine what energy it uses and where it gets it from. The European Commission also confirms that Member States have the right to determine the conditions for exploiting their own energy resources, as long as they respect the need to preserve, protect and improve the quality of the environment.
This section looks at Europe’s current energy mix, its vision for energy in the future and how shale gas could help Europe achieve its energy goals.
Europe’s current energy mix
In 2011, the European Union covered its energy demand from oil (35%), gas (24%), solid fuels including coal (17%), nuclear (14%) and renewable energy (10%).
European gas consumption
- In 2012 the EU relied on imports for 65.6% of its gas consumption, increasing import dependency by 1.8% (Eurostat)
- Russia continues to be Europe’s largest supplier of natural gas, closely followed by Norway
European gas production
- 15 Member States depend on imports for at least 90% of their energy demand
- EU gas production saw a decrease of in domestic production by 5.5% from 2011 to 2012
- The UK saw a sharp decrease in production (-14%), followed by Germany (-12%) in the same year
- While “traditional” gas deposits may be dwindling, many countries in Europe have significant deposits of shale gas. According to the US Energy Information Administration, total technically recoverable resources could reach 18 trillion cubic metres (tcm)
- Since 2008, when the delivery of gas supplies to Europe was disrupted due to a transit disagreement between Russia and Ukraine, security of gas supply has been a major priority of EU energy policy
- In May 2014, the European Commission published its European Energy Security Strategy together with an in-depth study of Member States’ energy dependence. The document stresses that Europe is still vulnerable to external geopolitical issues and therefore the EU needs ‘a hard-headed strategy for energy security which promotes resilience to these shocks and disruptions to energy supplies in the short term and reduced dependency on particular fuels, energy suppliers and routes in the long-term’
Europe’s energy vision
In May 2013 the European Council stressed the need to diversify Europe’s energy supply and develop indigenous energy resources to ensure the security of supply, stimulate economic growth and reduce the Union’s external energy dependency.
The European Union is committed to decarbonising Europe’s energy mix and has therefore made significant commitments to renewable energy with clear targets of 27% of Europe’s energy supply by 2030 and reducing carbon emissions by 40% of 1990 levels by 2030. Europe is also looking to diversify the source of its energy supply and manage cost. One way it can do this is by reducing its dependency on imported energy and promoting domestic production.
However, Europe will still need to continue to rely on fossil fuels to ensure energy demands are met. With 27% of Europe’s energy set to come from renewable sources, 73% will need to be delivered from other parts of the energy mix. One policy option is to utilise natural gas as a less carbon intensive fuel to fill the gap until renewables gain a greater share of the energy mix and also reduce our increasing dependency on coal.
Natural gas also provides an ideal complement to renewable energy sources, being quickly adjustable to changing demand and compensating for the intermittent nature of renewable energy production (filling gaps caused by periods of low wind or sun, for example). This has led the Director General of the International Renewable Energy Agency to state that shale gas development can complement renewables and help create a hybrid system.
Former EU Director General for Energy discusses Europe’s energy policy
Achieving a greener future – Natural Gas vs. Coal
Natural gas is a less carbon intensive fossil fuel compared to other energy sources such as coal. Exact comparisons with coal depend on the types of power generation being used and the sort of coal being burnt. However, a study by the European Commission found that when emissions are considered for the entire lifecycle of each fuel, modern gas-fired power plants using shale gas have a carbon footprint that is 41 to 49% lower than that of coal-fired plants. Indeed, a recent report by the International Energy Agency shows that due to a major shift from coal to gas-fired power plants, the shale gas boom in the US has enabled a reduction in energy-related CO2 emissions, by 450m tonnes over the past five years.
Substitution of coal with gas will be a decisive step towards meeting Europe’s CO2 emission reduction targets and it is expected to drive up the demand for natural gas.
Europe’s need for gas
Natural gas is a vital component of Europe’s energy mix – not only electricity generation but also for heating and cooking. According to the European Commission’s landmark ‘Energy Roadmap 2050’ report, gas must play a key role in the transition to a greener energy future, and is critical for the transformation of Europe’s energy system from fossil fuel to renewables.
This was reinforced in the Commission’s Communication and Recommendation published in January 2014 on minimum principles for the exploration and production of hydrocarbons (such as shale gas) using high volume hydraulic fracturing. As the Communication states, ‘natural gas…accounts for one quarter of the EU’s primary energy consumption and could contribute to the reduction of greenhouse gas emissions in the short to medium terms, should it replace more carbon intensive fossil fuels.’
It also states that while the European Union will not be self-sufficient in natural gas, production from shale gas formations could potentially contribute almost half of the EU’s gas production and meet around 10% of its gas demand by 2035.
Substitution of coal (and oil) with gas will be necessary to reduce emissions until at least 2030 to 2035. Future technological developments, such as Carbon Capture and Storage (CCS), are likely to make gas a low-carbon technology in the future.
The European Commission estimates that commercial shale gas production could start in Europe between 2015 and 2017. Moving from exploration to production will allow natural gas from shale to play an ever increasing role in Europe’s future energy mix.
Developing Europe’s gas resources
According to a report by the European gas industry, the EU’s gas demand is expected to rise to 625 mtoe by 2030, an increase of 43% compared to today’s consumption levels. Recent policy changes in countries like Germany, where nuclear energy is being phased out, are likely to further drive demand for natural gas as a feedstock for electricity production.
A recent Poyry report on the macroeconomic effect of producing shale gas in the EU concluded that:
- “Indigenous gas production could reduce energy prices compared with a no-shale gas scenario”
- “Domestic production could reduce dependence on gas imports to between 62% and 78%, down from an otherwise predicted 89% of demand in 2035″
- “The less Europe spends on energy imports, the more it can invest internally…Between 2020 and 2050, investment in the EU could increase by 191 billion euros, while tax revenues could increase by 1.2 trillion euros”
These findings highlight the value in exploring the potential of Europe’s domestic shale gas resources. Securing new sources of gas supply has become critical to enabling continued economic growth in the EU-28. While ongoing infrastructure development projects to bring gas from new supply regions have an important role to play, the European Union cannot afford to turn its back on its indigenous resources.