Chevron Corp. (CVX) is betting it can win over eastern Europeans with the idea of energy independence even after dry wells and government delays led Exxon Mobil Corp. and Talisman Energy Inc. (TLM) to scrap efforts to tap natural gas deposits in Polish shale.
Bringing shale drilling to Europe from North America promises to help the region ease years of dependence on Russian fuel and hurts the Kremlin’s ambition to secure the country’s future as an energy superpower. Use of hydraulic fracturing, or fracking, upended the U.S. gas industry, which overtook Russia as the biggest producer, driving prices to a decade-low.
“This resource could certainly enhance energy security within Europe and also bring enormous economic benefits,” said Ian MacDonald, Chevron vice president for Europe, Eurasia and the Middle East. “Chevron believes that upon learning how these hydrocarbon resources can be explored for and developed safely, the governments and citizens of central Europe will be supportive.”
President Vladimir Putin is pushing investment in Russia’s gas industry, with new fields and a pipeline to Asia planned.
Chevron has leased or licensed for exploration 5.6 million acres in Poland, Ukraine, Romania and Bulgaria, an area the size of New Jersey. Its joint venture in Lithuania has a license for about 600,000 acres, and Chevron is applying for another 450,000. In Ukraine alone it agreed to spend $400 million on exploration. Royal Dutch Shell Plc (RDSA) won rights to explore for shale gas in the Yuzivska field in Ukraine’s Kharkiv region in May 2012, and signed a production sharing agreement in January.
Doubtful Revolution
Yet the prospect of a European shale revolution is in doubt before it has begun. Exxon said in June 2012 it was pulling out of Poland after its first wells produced disappointing results, which was followed by Talisman. On May 7, Marathon Oil Corp. said it was quitting after failing to find commercially viable resources and it would seek to dispose of its 11 licenses.
In the U.S. in contrast, Exxon plans a $10 billion Texas export terminal to ship abroad excess domestic gas.
Deposits in Poland have turned out to be deeper and harder to exploit than those in the U.S. due to geology and poor roads to remote eastern regions. Estimated reserves in the European country were cut to 9 trillion cubic feet last year by the U.S. Energy Information Administration, from 44 trillion in 2011.
“Big companies like Shell and Chevron could become afraid to invest,” said Volodymyr Omelchenko, head of energy analysis at the Razumkov research group in Kiev and former director of shipments at Ukraine’s NAK Naftogaz Ukrainy. “Ukraine has an enormous potential but realization will be difficult because the legal system is governed by old Soviet traditions.”
Unlikely Alliance
Environmental campaigners, in an unlikely alliance of interests with Russian gas-export monopoly OAO Gazprom (GAZ), have also held up investment in the shale industry. Chevron had its license revoked in Bulgaria last year after hundreds protested in Sofia over concerns fracking would pollute water and land.
A report in the corporate Gazprom Magazine said prospects for shale are undermined by lower reserves estimates, green protests and the harm to profits of low prices. “Europeans have no real alternative to cooperation with Russia,” it concluded.
That possibility hasn’t stopped Chevron. On top of four wells in Poland, the second-biggest U.S. oil company plans an exploration well in Romania, has begun work in Lithuania and been awarded 1.6 million acres in Ukraine. Chevron also carried out its first central European fracking operation at a well in southeastern Poland.
Winning Support
“While the shale gas revolution may not be on the same scale as what we have seen in the U.S., we are still confident of the opportunities,” MacDonald said by e-mail. “Unlike the U.S., in central Europe there’s little pre-existing geological data. The exploration activities we are currently undertaking will be important in assessing the resource potential.”
Chevron will explore for as long as five years, he said. That commitment is winning support from some governments.
“Romania, Poland and Lithuania are in favor of shale gas as these countries see the natural gas problem as more than just an issue of getting cheaper energy,” Romanian Prime Minister Victor Ponta said on July 18. “It’s important for us to have cheaper energy, especially because of its impact on the economy and the population, but more so to stop relying on imports from Russia, from Gazprom.”
Romania ended a moratorium on exploration in December.
Gazprom, supplier of more than a quarter of Europe’s gas consumption, faces a “major threat” from the U.S. shale boom and an increase in trade in liquefied natural gas, Paul Vickars, an analyst at Societe Generale SA, said in a note on July 22.
Ukraine is considering following Romania’s lead in easing limits on prices gas companies can charge households. The Oleska area may hold enough gas to supply Ukraine for almost 60 years, said Dmitriy Marunych, chairman of the Energy Strategies Fund.
“The government has created favorable conditions for big international oil and gas explorers, perhaps too comfortable,” Marunych said. “I have no doubt that in the future shale gas will result in a reduction of imports from Russia.”
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