Unleash German shale to halt gas output decline, industry pleads

Thu Feb 6, 2014 7:34am EST

* German gas output falling

* Hostility to shale rubbed off on conventional gas

* Government committed to assessments

By Vera Eckert

FRANKFURT, Feb 6 (Reuters) - Germany's gas industry says it needs shale to halt a sharp decline in domestic output, but behind its pleas lies private acknowledgement that environmental and political opposition is just too strong.

Frustration is compounded by Germany's lead in fracking technology, which it has been quietly using for over 50 years.

At stake is the competitiveness of German industry - faced with rising energy costs, the opposite of shale-driven competition in the United States, shale proponents say.

"Currently, there is a decline in domestic production...a major share of planned investments in our industry is stymied politically," said Hartmut Pick, spokesman for the WEG oil and gas industry group that produces domestic gas worth 4 to 5 billion euros ($5.4-6.8) a year.

"If this trend is not countered, it will have negative consequences for jobs, mining royalties and the basis of service industries," he said.

Ten years ago, 20 percent of Germany's natural gas consumption was covered by its own resources.

Today it is just 12 percent. This raises not just the dependency on imports from Russia and Norway but also more carbon-intensive coal usage, even though gas would be cleaner.

Germany's Federal Institute for Geosciences (BGR) two years ago put shale gas potential between 0.7 trillion and 2.3 trillion cubic metres. A median exploitation rate could preserve the current 12 percent share of local gas use for 100 years.

"It would be foolish not to look," said spokesman Stefan Leunig of energy group Wintershall.

Despite suspected vast shale gas reserves in its north, Germany has not just passed up the chance to assess these, but also stopped expansion of its traditional gas technology two years ago, after local authorities and policymakers bowed to environmental concerns and refused new licences.

Short for "hydraulic fracturing," fracking pumps water and chemicals at high pressure through drill holes to prop open shale rock. Critics say it puts water supply at risk.

"While shale gas development through hydraulic fracturing is new to Germany, the technique has been used in the country since 1961 to allow gas production from low permeability, or "tight" sandstone reservoirs," said Ritva Westendorf Lahouse, spokeswoman for ExxonMobil's German operations.

Complementing fracking, horizontal drilling that makes it more efficient, advanced later, but has been in wider use to unleash local tight gas in Germany since the 1990s, unnoticed by the public.

NEW GOVERNMENT

As the new government in Berlin takes up its work, it acknowledges the need to determine if Germany has any chance of copying the U.S. shale revolution.

"The government will usher in scientific research to analyse the effects of fracking, integrating the states, academia and companies in the process," said Stefan Rouenhoff, a spokesman for the Economy Ministry.

He declined to give a time frame and stressed that mining licences are a domain of the state administrations.

Environmental opposition is powerful and influential. It is deeply committed to a renewable energy drive.

In any federal fracking law, Berlin could make environmental impact tests, as well as citizens' involvement, mandatory. This could free up the states that do want to support it.

But that likelihood is slim.

The anti-fracking Green Party shares power in six of Germany's 16 federal states, including North Rhine-Westphalia and Lower Saxony, which potentially house reserves.

The International Energy Agency warns industries employing 30 million people may quit Europe if local gas stays expensive.

"If Germany and other European countries do not try and tap their shale gas potential, they will likely have to pay higher gas prices in future than would otherwise be the case," Dan Yergin, a U.S. energy advisor and vice chairman of IHS Cambridge Energy Research Associates, told Reuters.

If, on the other hand, its shale resources were developed, German would be able to "maintain its competitiveness and export strength in the global economy, which is so critical to Germany's overall economic performance," Yergin said.

Kassel-based Wintershall is among those lobbying to maintain existing gas production and look for new domestic resources.

It provides oil and gas for its parent, chemicals group BASF, from international and German fields.

To obtain evidence that shale can be tapped economically - long before considering actual production - companies must be allowed to explore, said Wintershall's Leunig.

"We will not go for shale at any cost in Germany," he said, pointing to the group's alternative activities in Norway, Russia, Libya and Egypt, with Germany supplying just 5 percent of its global gas production.

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