7-17-13 Zawya Intel: There has been a subtle shift in Western energy policy in the past few years, new technology has meant that previously unobtainable gas reserves locked deep underground in shale rock formations across Europe and the US are now available through a technique known as fracking. This has been a feature of US energy policy for years and has rapidly increased the use of natural gas as a major energy provider. Now Europe is jumping in on the act.
While fracking has proven to be less popular on the continent of Europe, for example an EU report recommends that it is banned due to environmental dangers and it is already banned in Bulgaria and France, other countries have more of an open mind.
On a recent trip to Ireland, which reportedly has large shale gas reserves but also has some of the most picturesque countryside in the world, fracking is a divisive subject. Ireland could definitely do with the financial benefit that an on-shore energy industry would provide, it would create plentiful, long term jobs and benefits to the wider community, and it could help Ireland’s balance of payments. Although Ireland has a current account surplus, nearly all of the money that is brought into the country through tourism is spent on importing energy from elsewhere. If it didn’t have to spend the money on importing energy then Ireland could have an even larger capital buffer. Financial security is a hot topic in Ireland, especially after the country needed to be bailed out by the European Union, the IMF and the European Central Bank in 2010.
However, some people in Ireland are worried about the environmental impact from fracking and also how much money the country would actually receive. A common criticism in the Irish media is that energy companies would cream all of the profits and ruin the local environment, while leaving very little for the Treasury.
Similar environmental concerns threaten to block shale gas extraction across the UK. Local councils have threatened to stage prolonged battles with the government to ensure that natural beauty spots are not damaged. The UK has in excess of 1.3 trillion cubic feet of shale gas reserves, however, most of this is located in the countryside of Yorkshire and Lancashire, where there is fierce local opposition to fracking. However, if the government deems that fracking is in the national interest to help the UK become energy independent then it could force local councils to allow it to take place. Thus, shale gas extraction could be easier to get started in the UK compared to countries in the Eurozone, where political opposition is stronger.
The UK government is trying to reign in the UK’s enormous public debt, and a potential new lucrative industry that could boost tax revenue and make a welcome dent in the UK’s bills is, understandably, popular in parts of Westminster. The US, which has seen its oil and gas industry explode in recent years, has also seen a big recovery in its public finances. For example, the current account has recovered to its lowest level of deficit since 1999. This may improve further as the US is expected to increase its oil and gas output in the coming years, thus reducing its need for oil imports.
So what does this mean for the Middle East? The shale gas revolution still faces many hurdles, especially in Europe, however it is happening and if Ireland and the UK adopt these new energy technologies then it could gather pace.
Although the Middle East is still an important component of the global energy industry, it needs to keep abreast of developments elsewhere and make sure it doesn’t let its own plentiful energy reserves take its eye off the ball. The energy industry is changing, in future there could be much more energy available, which should naturally mean the price drops. This is both an opportunity and a challenge for traditional oil producers in the Middle East.