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Can the US shale revolution be duplicated in continental Europe? An economic analysis of European shale gas resources

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  • Saussay, Aurélien

Abstract

Over the past decade, the rapid increase in shale gas and shale oil production in the United States has profoundly changed energy markets in North America, and has led to a significant decrease in American natural gas prices. The possible existence of large shale deposits in continental Europe, mainly in France, Denmark, the Netherlands and Germany, has fostered speculation on whether the U.S. shale revolution could be duplicated in Europe. However, a number of uncertainties, notably geological, technological, regulatory, and relating to public acceptance make this possibility unclear. We present a techno-economic model of shale gas production amenable to direct estimation on historical production data to analyze the main determinants of the profitability of shale wells and plays. We contribute an in-depth analysis of an extensive production dataset covering 40,000 wells and accounting for nearly 90% of shale gas production in the six main plays of the continental United States from 2004 to 2014. We combine this analysis with a discussion of the main differences between the American and European contexts to calibrate our model and conduct Monte-Carlo simulations. This enables us to estimate the distribution of breakeven prices for shale gas extraction in continental Europe. We find a median gross breakeven price before taxes and royalties of $10.1 per MMBtu. This would make extraction unprofitable in Europe in the current natural gas price environment, with <47% of the well distribution reaching breakeven at the mean 2011–2016 price. Sensitivity analysis reveals that the breakeven price is most sensitive to initial production rate, drilling and completion costs, and decline rates. We also find that the economic outlook would be slightly better if the productivity of European shale gas plays was comparable to that of U.S. plays of similar depth, but not significantly so. We conclude that under assumptions calibrated on existing shale gas production data, it is unlikely that the U.S. shale revolution can be duplicated in continental Europe.

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  • Saussay, Aurélien, 2018. "Can the US shale revolution be duplicated in continental Europe? An economic analysis of European shale gas resources," Energy Economics, Elsevier, vol. 69(C), pages 295-306.
    • Handle: RePEc:eee:eneeco:v:69:y:2018:i:c:p:295-306
    DOI: 10.1016/j.eneco.2017.10.002
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    Cited by:

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    2. Atkinson, Giles & Hamilton, Kirk, 2020. "Sustaining wealth: Simulating a sovereign wealth fund for the UK's oil and gas resources, past and future," Energy Policy, Elsevier, vol. 139(C).
    3. Bastianin, Andrea & Galeotti, Marzio & Polo, Michele, 2019. "Convergence of European natural gas prices," Energy Economics, Elsevier, vol. 81(C), pages 793-811.
    4. Atkinson, Giles & Hamilton, Kirk, 2020. "Sustaining wealth: simulating a sovereign wealth fund for the UK’s oil and gas resources, past and future," LSE Research Online Documents on Economics 103564, London School of Economics and Political Science, LSE Library.
    5. Wang, Qiang & Li, Shuyu & Li, Rongrong & Ma, Minglu, 2018. "Forecasting U.S. shale gas monthly production using a hybrid ARIMA and metabolic nonlinear grey model," Energy, Elsevier, vol. 160(C), pages 378-387.
    6. Delannoy, Louis & Longaretti, Pierre-Yves & Murphy, David J. & Prados, Emmanuel, 2021. "Peak oil and the low-carbon energy transition: A net-energy perspective," Applied Energy, Elsevier, vol. 304(C).
    7. Hu, Haiqing & Wei, Wei & Chang, Chun-Ping, 2019. "Do shale gas and oil productions move in convergence? An investigation using unit root tests with structural breaks," Economic Modelling, Elsevier, vol. 77(C), pages 21-33.
    8. Jong-Hyun Kim & Yong-Gil Lee, 2018. "Learning Curve, Change in Industrial Environment, and Dynamics of Production Activities in Unconventional Energy Resources," Sustainability, MDPI, vol. 10(9), pages 1-11, September.
    9. Alexander Malanichev, 2018. "Limits of Technological Efficiency of Shale Oil Production in the USA," Foresight and STI Governance (Foresight-Russia till No. 3/2015), National Research University Higher School of Economics, vol. 12(4), pages 78-89.
    10. Muhammad Ahmed & Sina Rezaei-Gomari, 2018. "Economic Feasibility Analysis of Shale Gas Extraction from UK’s Carboniferous Bowland-Hodder Shale Unit," Resources, MDPI, vol. 8(1), pages 1-17, December.
    11. Masih Mozakka & Mohsen Salimi & Morteza Hosseinpour & Tohid N. Borhani, 2022. "Why LNG Can Be a First Step in East Asia’s Energy Transition to a Low Carbon Economy: Evaluation of Challenges Using Game Theory," Energies, MDPI, vol. 15(17), pages 1-17, September.

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    More about this item

    Keywords

    Shale gas; Extraction cost; United States; Europe;
    All these keywords.

    JEL classification:

    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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