Economics and Politics of Shale Gas in Europe

In the wake of the dramatic growth in shale gas production in the United States, interest in shale gas exploration in Europe has been driven primarily by concerns over industrial competitiveness and energy security. A number of studies have been carried out to understand the success factors underpinning the US shale gas revolution and how this success could be replicated in Europe. Most of these studies focus on the macroeconomic and energy market impact of a possible shale gas production in Europe. These studies are in general sceptical about the prospects of shale gas development relative to other gas supply options to Europe. By considering the other options available in greater detail and exploring the stochastic nature of shale gas exploration and production as they apply to production economics, we conclude that this scepticism may be overstated. Apart from political opposition that has shut down shale gas exploration in a number of European member states because of concerns over environmental risks, in some countries notably the UK, the combination of political support and a large, liberalised gas market may offer at least a plausible case for shale gas production. To properly assess the potential for shale gas though, a more rigorous, probabilistic analysis of the associated production economics will need to be carried out.