6/26/2014

Why is natural gas more expensive in Europe?

Natural gas costs much more in Europe than in the United States. This is because European gas deposits have been almost consumed, with the exception of the Norwegian sites.

The United States consumes a huge amount, and it is self-sufficient (it imports natural gas from Canada, and exports to Mexico, but the cross border trade doesn´t alter the fact that US gas reserves are sufficient to satisfy the country´s demand).

The main reason why the price of gas in the U.S. is lower than in Europe, is the US ability to produce its natural gas from fractured shales. In the U.S. oil and gas companies have turned to this business with enthusiasm, and today employ hundreds of thousands of personnel drilling  gas wells, fracturing the shales, and building the infrastructure to ship the gas from the wells to the consumer.

Photograph: Drilling for gas in the USA 

The level of activity in the last 5 years has been enormous. Fractured shale production has increased from almost nothing to constitute more than   40% of national consumption. A lot of natural gas that was imported from other nations is   now shipping to other countries (including Spain).

The large increase in gas production in the U.S. has caused increased competition, and this competition has reduced prices. Today the U.S. consumer enjoys much lower prices.
Chart: Gas Prices in the USA, Europe, and Japan

This is not seen nearly as much in Europe, where the gas comes from large monopolistic producers. The   Russian state controlled giant gas producer Gazprom is the one with the most weight, and so far the Russians insist on selling  gas at a very high price (it´s  linked to oil prices).   European countries have no alternatives,   so  they swallow hard,  and pay.

But Europe has a   potential medium term alternative, it  has shale gas deposits that can be fractured and produced. The technology exists, they have educated people, they can be trained, and in 5 to 10 years Europe can   organize a huge industry to produce shale gas.  This  may allow them to  negotiate harder and slow down increases in future consumer prices.

Why doesn´t Europe produce its deposits? Because the European Union is very concerned about global warming, they don´t know how much shale gas they can produce, or simply because environmental NGOs in Europe have been able to halt the development of the industry (I also read a recent article which explains the Russians are stealthily financing campaigns against shale gas developments in Europe).
See the map showing where shales have been identified that can produce natural gas:

 
Areas containing shale natural gas (in blue)


Some countries have possibilities, and others not. Spain has some. But the UK, France, Germany, and other countries may have a lot. And as the European gas grid is interconnected, production within the European Union would benefit the community because it would allow them to negotiate more reasonable import prices.

 I am convinced that the alleged environmental damage is mostly   noise made by individuals who don´t  understand the  technology, or visualize  how  governments can regulate the gas  industry. Europeans can produce their gas. If they don´t it will be produced in other countries, Europeans will   import it, and will pay exorbitant prices.

As for my readers in Russia, I think they should consider the future. Russia will not be a country that supplies raw materials and weapons forever. Russia must be developed like other countries. Russia has  an educated and hardworking population, and this means that if  Russia breaks  free from the oligarchs and their friends it will be a greater nation.  
Photograph: Happy Russians (from BolshoiMoscow.com)

And those in other countries, it is better that they find out what  they have, and consume it with caution. Burning natural gas is the best method we have to reduce CO2 emissions when it´s developed alongside wind power. And while global warming isn´t as terrible as some imagine, it's something we do need   to consider.

Some references




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