Wednesday, February 6, 2013

Financial Times: Romania and Lithuania back fracking

By Neil Buckley, East Europe Editor
Romania and Lithuania have followed Ukraine in giving high-level backing to shale gas exploration, in a sign the political tide may be turning as central and eastern Europe looks to break free from reliance on Russian energy.

Romania last week reversed a de facto freeze on “fracking”, the controversial technology used to exploit shale gas, after Victor Ponta, the prime minister, bolstered by a December election victory, said he supported shale exploration. It issued planning certificates to Chevron of the US to explore for shale gas in eastern Romania.
On Monday, Dalia Grybauskaite, Lithuania’s president, gave support to planned shale exploration, also by Chevron, despite opposition from some parliamentarians and environmentalists.

The developments came days after Ukraine signed a breakthrough deal with Royal Dutch Shell to explore for unconventional gas in the former Soviet republic – potentially the largest such investment in Europe to date.

Development of domestic gas resources could threaten the energy dominance Gazprom, the Russian gas monopoly, exerts over eastern Europe – which earns billions of dollars for the Russian budget. Analysts caution, however, that the projects are early-stage, with any production years away.

Central and eastern Europe are thought to hold some of the continent’s most promising shale reserves,prompting enthusiasm in recent years that the region could repeat North America’s shale gas “revolution” of the past decade.

Momentum was then lost after several countries followed France in imposing moratoria on fracking, often amid local protests. ExxonMobil of the US last yearpulled out of shale exploration in Poland, one of the biggest shale gas enthusiasts, after disappointing results from test wells.

But recent developments suggest the lure of lower energy prices and escaping Russia’s grip may be emboldening political leaders to try to win the environmental arguments.

“Romania’s decision has the potential to turn the tide and give European leaders the confidence to speak up in favour of shale gas,” said Kash Burchett, of IHS Energy, a consultancy. “Recession in Europe is prompting treasuries in different states to revisit the decision to impose moratoria, especially as the shale gas industry in North America is driving an industrial renaissance.”

Chevron, which has made a strategic push into shale gas in central Europe, won a tender to explore three shale gas blocks in Romania last spring. But work was suspended after environmental protests, and Mr Ponta’s party, then in opposition, proposed a fracking moratorium.

Though Romania’s upper house did not support the moratorium, the issue remained in limbo until December’s election. This month, however, Mr Ponta backed moving ahead with shale.

“Exploration, yes. Once it is confirmed that gas resources are or are not there (about five years) we will make a final decision to exploit shale gas, in compliance with all European and international environmental standards,” he told Romania’s Hotnews agency.

Mr Ponta warned Romania risked losing competitiveness against Poland – pressing on with shale exploration despite Exxon’s departure – and could not ignore the possibility of cheaper energy.

Lithuania, like Ukraine, gets all its natural gas from Russia, and complains it pays a higher price than many west European customers – which helped spark a potentially far-reaching European Commission antitrust probe into Gazprom last September.

It became even more reliant on gas after closing its Ignalina nuclear reactor in 2009. Some geologists estimate Lithuanian shale gas reserves could be enough to meet its needs for 60 years.

Ms Grabauskaite was quoted after meeting senior Chevron officials on Monday as saying Lithuania “must explore the depths of its land”.

Gilbert Ankenbauer, Chevron’s country manager for Lithuania, said both the president and prime minister had “acknowledged the importance of conducting exploration activities, so that Lithuania is able to understand more about its hydrocarbon potential”.

“However, they also stressed the importance of protecting the environment and working closely with local communities,” he added.

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