RPT-Shale gas, energy costs vex EU leaders

Wed May 22, 2013 2:57am EDT

* Energy trade deficit is 400 billion euros

* Shale gas complicated in EU, could weaken Russian position

* Single energy market should improve cross-border flows

By Barbara Lewis

BRUSSELS, May 21 (Reuters) - European leaders will discuss plans to exploit shale gas in summit talks on Wednesday as part of a decades-long quest to develop more secure and competitive energy supplies.

The 27-nation bloc finds itself looking on with envy as its biggest economic rival, the United States, exploits vast reserves of shale gas, delivering drastically reduced fuel costs.

While Europe has shale plans of its own, there is as yet no unified EU policy. The reserves will be far harder to extract than in the United States and the final cost to consumers is likely to be substantially higher so Europe will not be able to free itself of dependence on gas imports from Russia any time soon.

"Already in 2012, industry gas prices were four times lower in the U.S. than in Europe," Commission President Jose Manuel Barroso said in a speech on Tuesday. "For electricity prices, the EU is almost twice as expensive as the U.S. So this is above all a debate about our energy security and our competitiveness."

Draft documents prepared for the five-hour summit, which will begin Wednesday afternoon in Brussels, list energy costs as a prime concern in the EU quest for competitiveness, jobs and growth.

Apart from completing the single energy market, proposed solutions include developing "indigenous energy resources" - Commission code for shale gas, as well as green sources.

Ireland, which as the rotating presidency of the EU leads debate until the end of June, said the challenge is to combine the bloc's long-term carbon-cutting goals with affordability.

"There are member states who under no circumstances want their eye taken off the decarbonisation agenda," Irish Energy Minister Pat Rabbitte told reporters.

"It (shale gas) will be more problematic in Europe than it has proven be in the United States. There are all kinds of cultural and other reasons for that."

OVERLY HOPEFUL?

Lithuania, which takes over as EU president on July 1, is among the EU member states most dependent on imported Russian gas for which it pays far more than the EU average.

Its energy minister, Jaroslav Neverovic, is looking for opportunities to develop Lithuanian shale gas, while also hoping that the United States will eventually export shale gas to Europe cheaply.

For the European Union, dependent on Russia for around a quarter of its natural gas, such imports could improve its negotiating hand when agreeing supply contracts.

Yet Russia is unconvinced, saying shale gas is unrealistic for Europe, in part because of ownership rules, and would require more expense than long-term contracts indexed to oil.

"Russia offers a perfect bargain," Sergei Komlev, head of contracts structuring at Gazprom, said in one of a series of Reuters interviews on gas, estimating that European shale gas will be three times more costly than in the U.S.

The European Commission says it is up to member states to decide which forms of energy they choose to use. But it has rules to ensure extraction does not damage the environment and it is working on framework for the shale gas industry.

"For the short term, the only real answer is energy efficiency," Environment Commissioner Janez Potocnik said in Reuters' series of themed interviews.

The green community largely agrees. Luxembourg green member of the European Parliament Claude Turmes, who led last year's parliamentary debate on a new Energy Efficiency Directive to encourage energy saving, says the shale gas debate is an instance of the European Union "following blindly" a myth.

Energy saving through measures such as better building is a more certain route to cutting the EU's huge fossil fuel bill.

"This (energy) trade deficit has reached 400 billion euros," Turmes said, citing official figures. "The single biggest transfer of wealth from one economy to other economies in the world."

Energy CEOs are also frustrated that EU leaders are focused on the wrong thing, with a fixation on comparative costs when the energy business needs vision and long-term investment if it is to deliver reliable and affordable supply.

A group of eight, including the bosses of E.ON and ENI, has written to EU leaders and some are debating their own plan of action to strengthen energy policy.

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