Unconventional gas as a component of energy balance in Ukraine: The myth of the transition fuel

1. Unconventionalgas as a component of energy balance in Ukraine:The myth of the transition fuel 26/09/2013 Unconventional gas production in Ukraine Heinrich Boell Foundation Ukraine

2. Shale Gas / Fracking – Technological issue

3. Shale Gas / Fracking – Technological issue

4. Shale Gas / Fracking – Technological issue 75 miles X 50 miles - 3000 wells NG Magazine – March 2013

5. Shale Gas / Fracking – Technological Issue

6. Debunking the mythsShale gas as a “bridging fuel” - A climate non-sense • Once burnt, gasis 50% less GHG-intensive thancoal:  Assumptionthatswitchingfromcoal to gaswouldbe an improvementhelping to transition to a decarbonisedeconomy. • But misleading: Emissions also come from intentional or unintentional (fugitive) emissions of methane during well construction, gas production, storage & transport. • Evidence that hydraulic fracturing can induce underground release of methane by enhancing seepage, from imperfect well casings or older abandoned gas wells, or by natural pathways such as faults (Osborn et al., 2011)

7. Debunking the mythsShale gas as a “bridging fuel” - A climate non-sense The methanecontroversy: • Methane, a gassignificantly more potentthan CO2 (Shindell et al, 2009): • On a 100-year time scale: Global warmingpotential 25 to 33 times higher • On a 20-year time scale: Global warmingpotential 83 to 105 times higher • How much fugitive methaneleaks? – A controversialscientificdebate • Howarth et al, 2011: Between 1.4 to 3.6% of fugitive methane. • Alvarez et al, 2012: 2.1% for power plant use of gas & 3.0% for gas used in vehicles – No climate benefit for shale gas compared to coal if more than 3,2% of methane leakage, • Pétron et al, 2012: Between 2.3 and 7.7% of fugitive methane (best guess at 4%). • Karion et al, 2013: Between6 and 12% of fugitive methane (best guess at around 9%). International Energy Agency, Golden Rules for a Golden Age of Gas, 2012 “The Golden Rules Case puts CO2 emissions on a long-term trajectory […] consistent with a probable temperature rise of more than 3.5°Cin the long term, well above the widely accepted 2°C target” No bridgingfuel if climatechange impact comparable to coal

8. Debunking the mythsShale gas as a “bridging fuel” – An economic non-sense The Resources/Reservesambiguity Shale gas, a short-term capital-guzzler option: • A short-term option: • Inherent steep decline of the productivity: Well productivity declines between 63% and 80% in the first year, and up to 85% after 36 months. • 88% of US shale gas is produced in just 6 fields • 4 of these fields (68% of the production) are now plateauing or declining • A permanent ‘treadmill’: 30-50% of the production must be replaced each year • A capital-intensive option: • 30,000 new wells drilled each year in the US (one well every 18mn) • ~$4 millions per well in the US, up to $15 millions per well in Europe • Requires to build an extremelyexpensive network of pipelines connectingdozens of new gas power stations (up to $700.000 to build a 400km pipeline line)

9. Debunking the mythsShale gas as a “bridging fuel” – An economic non-sense An option directlycompetingwith RES: • In the US, fossil fuels industries receive 5 times more federal subsidies than the renewable energy industry (US Government Accountability Office) • However, RES industry is almost cost-competitive: The cost of onshore wind power in the US is now very roughly at the same level as gas generation (US Department of Energy) • Investments made to develop shale gas are investments which will not finance the RES sector: • 2012: U.S. investment in renewable power and energy efficiency fell 54% • 2013: 16 of the 29 US states with renewable portfolio standards are considering legislation that would reduce the need for wind and solar power.

10. Debunking the mythsShale gas as a “bridging fuel” – A political non-sense • Will governments and gascompaniesreallyagree to close new gas power stations for the sake of the transition? • Will gasreally replace coal ? Will the coalindustry let thishappen ? Won’tgassimplyadd up to coalinstead ? Shale gasis not a transition fuel, but a direction and diversion fuel

11. Shale Gas / Fracking – A European issue

12. Shale Gas / Fracking – A European issue

13. Unconventionalgas as a component of energy balance in Ukraine:The myth of the transition fuel 26/09/2013 Unconventional gas production in Ukraine Heinrich Boell Foundation Ukraine

14. Differences between conventional and unconventional techniques • Difference between hydraulic fracturing and high volume of hydraulic fracturing (HVHF) • Relatively new technology: • First horizontal drilling: 1991 • First « slickwater » fracture: 1996

15. Shale gas campaign at the EU level – FoEE • 2011 • First mobilisations in Europe – Beginning of the discussions at the EU Level • November 2011 • First meeting with FoE national member groups working on the issue (6 groups) • Beginning of 2012 • Building of a network of EU NGOs (HEAL, FoEE, F&WE, Greenpeace, WWF) and national groups • February 2012 • European Parliament work – Two new own-initiative reports • April 2012 • Publication of the first NGO joint statement, drafted by FoEE, HEAL, FWW and Greenpeace, and signed by more than 40 organisations • September 2012 • Publication of 3 studies commissioned by the European Commission • First global day against fracking (the ‘Global Frackdown’) – by F&WW • October 2012 • Publication of the first background report on shale in Europe - by FoEE • First European shale gas campaigners meeting (40 participants, 15 pays) – by FoEE • November 2012 • Final vote of the two EP own-initiative reports – ambiguous results

16. Shale gas campaign at the EU level – FoEE • January 2013 • New legislative initiative by the European Commission (results end of 2013) • Launch of European public consultation + 2 new studies • Review of the EU Environment Impact Assessment Directive • March 2013 • Beroun Conference (Cz) – Creation (?) of a European coalition against fracking • May 2013 • European Summit calling to explore the European indigenous potential of its unconventional resources • Organisation of a conference on the economics of shale gas – by F&WE and FoEE • Publication of two factsheets of the economics of shale gas – by FoEE • June 2013 • Publication of WWF’s EU position paper on shale gas • October 2013 • Second Global Frackdown (19) • December 2013 • EU Proposal to regulate the UFF industry

17. Shale gas – Economic and energy benefits • Shale gas = cheap energy • 2008: 10,4$/tcf (thousands cubic feet) • April 2012: 1,89$/tcf • Shale gas = long term energy security • Obama: “We have a supply of natural gas that can last America nearly 100 years” (January 2012)

18. Shale gas – Debunk the myths The cheap energy myth • Artificially low prices, result of an oversupply of gas, speculation and industry overestimates • “What I can tell you is the cost to supply is not $2.50. We are all losing our shirts today, we’re making no money. It’s all in the red” Rex Tillerson, ExxonMobil CEO (June 2012) • Producing shale gas is NOT cheap and in extremely capital-intensive (30,000 new wells each year in the US, one well every 18mn, ~$4 millions / well) • According to many experts, the breakeven price is around $8-$9/tcf • Important net losses: $9.3 billion in 2012 ($42 billion of annual capital investment to maintain production for $32,5 billion of benefits) • Since April 2012, the US gas price has more than doubled ($4,30/tcf) & continues to rise. • Cheap from whom? Where spot prices fell by 70%, this has only translated into a 10% gas price reduction for households

19. Shale gas – Debunk the myths The abundance myth – When the US dreams of energy independence • Confusion between resources et reserves • Sweet spots are declining  Need for more wells each year to maintain • 88% of US shale gas is produced in just 6 fields • 4 of these fields (68% of the production) are now plateauing or declining • The permanent treadmill: 30-50% of the production must be replaced each year

20. Shale gas – Debunk the myths

21. Shale gas – Debunk the myths The abundance myth – When the US dreams of energy independence • The myth of the US energy independence • Large-scale development based on high 2008 gas prices • US EIA – In 2012, estimates of “unproved technically recoverable shale gas resources” revised downward by 42% • Far from initial estimates… no energy independence possible.

22. Shale gas – Debunk the myths The myth of repeating the US example in Europe • Steep decline of the European conventional reserves • More complex geology – 50% deeper  Higher costs of production • Schlumberger (2011): Need to triple costs of production • KPMG (2012): Marcellus - ~$4millions per well, Poland – $10-15millions per well • Water costs x10 (source: KPMG) • Shale gas fields in urban areas (with very high population density) • Low development of infrastructures and know-how • 2500 drilling rig in the US – 72 in Europe • Transfer of know-how from the US to Europe not necessarily applicable • Impact on gas price: none or increase • Wood MacKenzie, Bloomberg New Energy Finance, Pöyry, Grantham Institute: available at current gas • prices at best, not competitive with cheaper imports, • ZEW – German economic research institute (2013): Viable if gas between $15,5 and $19,5 /tcf (today: $10,5/tcf) • Slow pace of development • In the US: Shale gas production rose by a factor of 20 in just 12 years • In Europe: Shale gas would not even manage to offset the decline of conventional reserves in 2020 • Pöyry: 1-4% of the UK gas demand in 2020 • AIE (WEO 2012): 2-3% of the European gas demand in 2030

23. Shale gas – Debunk the myths