London (Platts)--7Sep2012/804 am EDT/1204 GMT

Exploration and development of shale gas in Europe could help the EU keep its dependency on gas imports at 60%, according to one of three studies commissioned by the European Commission that were published Friday.

The European Commission is neutral on whether EU member states should develop shale gas potential, but commissioned three reports to help inform the debate and help it ensure an appropriate legal framework is put in place and that any shale gas extraction is carried out in line with EU law.

"The studies look at the potential effects of these fuels on energy markets, the potential climate impact of shale gas production, and the potential risks shale gas developments and associated hydraulic fracturing ("fracking") may present to human health and the environment," the EC said.

The first of three studies, by the EC's Joint Research Centre, examines the potential impact of EU shale gas on the energy market in the light of unconventional gas development in the US rising dramatically to meet over 50% of domestic production in 2010.

It concludes that significant shale gas development in Europe could both lower gas prices and limit the EU's import dependency, but not make Europe self-sufficient, as has been the case in the US.

"Shale gas production will not make Europe self-sufficient in natural gas. The best case scenario for shale gas development in Europe is one in which declining conventional production can be replaced and import dependence maintained at a level around 60%," it said.

Europe's self-sufficiency in gas has fallen to around 40% as conventional sources, for example in the Netherlands and the UK North Sea, have depleted.

And it said that substituting gas imported from far away -- whether by pipeline or as LNG -- could lower the carbon footprint of the gas, even though shale gas production is more carbon intensive.

But it also warned there was still considerable uncertainty over recoverable reserves, technology development, public acceptance and access to land and markets.

Poland is thought to have the EU's largest shale gas reserves, but estimates of total accessible reserves vary widely and some initial exploration has not yielded the expected results -- with UK-based 3 Legs Resources relinquishing one of its Polish licenses in August after disappointing results.

ENVIRONMENTAL RISKS

The two other reports focus on potential climate and environmental risks, with one, by AEA Technology, focusing on the risks brought by fracking, the process used to extract the gas.

"The risks posed by high volume hydraulic fracturing for unconventional hydrocarbon extraction are greater than those of conventional extraction," it concludes.

It highlights the need for large volumes of water and access to land (with an impact on biodiversity), as well as noise pollution, potential chemical spills and releases of gas and pollutants to the air, and potential for surface and ground water contamination.

It said shale gas exploration and production would need to comply with aspects of 19 different pieces of EU legislation, but also identified gaps in current EU legislation especially with regard to environmental impact assessments and the EU's water framework directive. It sets out recommendations for changes and further research and consideration.

CLIMATE IMPACT

The third report, also by AEA, examined the potential impact of shale gas extraction on EU climate goals. It concluded that emissions from electricity generated by shale gas from EU production would be 2-8% lower than emissions from power generated with gas imported by pipeline from Algeria or Russia, and 7-10% lower than imported LNG, because of the transport factor.

"However the conclusion is far from clear-cut," it warned. "Under our worst case shale gas scenario where all flow-back gases at completion are vented, emissions... would be similar to the upper emissions level from imported LNG and from gas imported from Russia."

It said that if emissions from shale gas are not controlled there could be no climate benefits to the EU from using shale and, indeed, using shale could have a more detrimental impact than some pipeline gas imports.

The studies are all available on the EC website: http://ec.europa.eu/clima/policies/eccp/studies_en.htm

--Paul Whitehead, paul_whitehead@platts.com
--Edited by Jeremy Lovell, jeremy_lovell@platts.com

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