Russian energy giant Gazprom’s deputy chief executive, Alexander Medvedev, belittled the future of shale gas production, suggesting the break-even price for shale projects is too high to be commercially viable.

Well, he would say that, wouldn’t he?

Gazprom is the largest extractor of natural gas in the world and Russia’s largest company. The energy giant supplies about one-quarter of the European Union’s (EU’s) natural gas. For some countries, Gazprom has what amounts to a monopoly on energy sales. 97 percent of Bulgaria's gas, 89 percent of Hungary's, 86 percent of Poland's, nearly three-quarters of the Czech Republic's, 36 percent of Germany's, 27 percent of Italy's, and 25 percent of France's gas comes from Gazprom’s Russian wells.

With Europe’s already modest natural gas production currently declining, EU nations are in an extremely vulnerable position. Over the last several years, Russia has periodically cutoff gas shipments, a chilling reminder to European citizens of Russia’s continuing influence over European life.

Now, the situation is about to change. Gazprom’s decades-long monopoly on European gas production is being challenged on two fronts.

In a few years, it’s increasingly likely that Europe will have the option of purchasing gas extracted from the Marcellus shale fields of Pennsylvania and New York. And that’s not all: along with the massive shale gas reserves of the United States, geologists are discovering signs that shale gas deposits exist under broad swaths of Europe.

European gas companies are not currently in the best position to quickly exploit their gas reserves; they lag well behind American gas companies in mapping out potential fields and drilling test wells. The companies have little experience in shale gas exploration and lack both equipment and engineering expertise.

To try and jumpstart exploration, at least three major European energy giants have bought interests in oil and gas shale projects in the U.S. According to Don Hertzmark, an international energy expert, buying into in hydraulic drilling technology developed by American companies could spare European companies years of development.

Norwegian oil company StatoilHydro, British Petroleum (BP) and French company Total are aggressively entering the American gas market. In November, StatoilHydro bought into Chesapeake Energy’s Appalachian Marcellus shale project.

StatoilHydro Executive Vice President Rune Bjornson has said that his company wants to bring the new drilling technology to other regions of the world. "We look at shale gas as a potential game changer." Mr Bjornson believes that while the world waits for alternative forms of energy production to come on-line, gas could immediately deliver vast reductions in carbon emissions.

American companies are also jumping into European exploration. U.S. based ExxonMobil and ConocoPhillips recently announced that they are exploring for unconventional natural gas resources in Poland.

As in Pennsylvania and New York, environmental considerations could slow European shale gas exploitation. In Europe, where the Green political party flourishes, concerns over water and air pollution are significantly stronger than in the United States. Environmental issues will be examined under a very public microscope before drilling is allowed to begin in earnest.

Uncertainty is the enemy of business investment. Until the environmental costs of large-scale shale gas production can be estimated, the capital investment needed to make shale gas production soar will be lacking.

All the more reason for environmentalists---and gas companies---to push U.S. and European regulatory agencies towards establishing reasonable guidelines for gas extraction.

Until then, Russian and Middle-Eastern companies will continue to dictate natural gas prices for American and European consumers.

Links:
U.S. Drilling Methods Hot Item
Gazprom Dismisses Contract Requests
ExxonMobil Snaps Up Unconventional Gas Acreage in Poland

All Change as Gas Reserves Soar
Gasprom