German doubts about fracking could prove costly

Reuters News
Posted: Feb 18, 2013 12:41 PM
German doubts about fracking could prove costly

By Madeline Chambers

BERLIN (Reuters) - Opposition from Germany's powerful environmental lobby is dimming prospects for shale gas and sparking fears that major industries in Europe's largest economy will lose out to U.S. rivals tapping cheaper energy.

Those fears are piling pressure on German Chancellor Angela Merkel from both sides of the debate ahead of an election in September.

Opponents to hydraulic fracturing, or fracking, used to drill for shale are stepping up their arguments about the environmental risks it could pose while industry leaders urge the government to draw up rules to allow exploration.

Spurring the debate is the rapid expansion of fracking in the U.S. energy market, where it now accounts for roughly a third of the gas sector.

Energy-intense sectors such as chemicals which are important to Germany's economy face paying three times what their U.S. rivals pay for gas through 2030, according to influential industry lobby group BDI.

"If we immediately reject this, we will end up as international laggards," BDI chief Ulrich Grillo said this month regarding shale gas.

Industry's voice counts in Germany, where manufacturing accounts for at least 25 percent of the economy, with top employers that include BASF, Bayer as well as the steel and heavy engineering sectors.

There is already widespread dissatisfaction over surcharges which industry and consumers pay on electricity to fund government subsidies for renewable energy expansion.

Germany plans not only more renewable energy from wind and solar, but the phasing out of nuclear by 2022 and a swing away from polluting coal to cleaner natural gas.

Ironically, these plans could tip the balance in favor of fracking, albeit on a modest scale, say some industry and environment experts.

That is because without nuclear Germany will need an alternative source of stable, clean energy to complement intermittent renewables.

"It is becoming a very potent issue in Germany," said Miranda Schreurs, director of Berlin's Environmental Policy Research Centre and a member of the German Advisory Council on the Environment which advises Merkel's government.

"The reality is that the rising costs of the energy transition will probably mean the issue will have to be looked at seriously."


Germany's politicians have been busy arguing the merits and dangers of drilling. Security experts discussed the issue at the Munich Security Conference and the BND intelligence agency has analyzed its geopolitical impact.

Only Merkel, famous for fence-sitting, has stayed mum.

The Greens, Europe's most successful ecological party, have grown into a political force with some chance of a return to government this year after ruling with the Social Democrats (SPD) between 1998 and 2005.

The Greens also share, or are about to share, power in six of Germany's 16 federal states, including North Rhine-Westphalia (NRW) and Lower Saxony, home to Germany's biggest shale gas reserves.

In both, the Greens are partnered with the centre-left Social Democrats (SPD), who also have reservations about shale gas.

Individual states are responsible for issuing fracking permits and NRW's environment minister, a member of the Greens, has imposed a de facto moratorium on licenses due to public concerns.

Critics fear that fracking, which involves pumping vast quantities of water and chemicals at high pressure into rock formations to release trapped gas, could increase seismic risks or contaminate drinking water.

"There is a need for further investigation and research to understand it and come up with a (regulatory) framework," the minister, Johannes Remmel, told Reuters.

He did not rule out shale gas as a transitional energy source while renewables are built up, but said NRW would not approve drilling for three to four years.

Lower Saxony is set to adopt a similar approach while the Greens and SPD have increased pressure on Merkel by passing a resolution in the Bundesrat upper house urging her coalition to tighten rules on fracking.


One alternative for Germany would be to import. Poland aims to develop shale gas, as does Britain, and Ukraine recently signed a $10 billion deal with Shell to push forward its shale plans.

"Germany is quite likely over time to import either shale gas or electricity produced from shale from other countries such as Poland or Ukraine," said Nick Butler, a visiting fellow and chair of King's Policy Institute in London.

Butler, a former UK government adviser, estimates that imports could allow shale gas to make up a little under 10 percent of Germany's energy market in the next decade.

Germany itself could extract 0.7 trillion to 2.3 trillion cubic meters of shale, the BGR Institute for Geoscience and Natural Resources has estimated. That compares to 125 billion cubic meters in conventional gas reserves.

"The numbers show the huge contribution it could make," said Miriam Strauch of the WEG gas association, arguing Germany should look to its own resources instead of imports.

Germany currently produces just 14 percent of the gas it consumes while relying on Russian imports for about 40 percent.

Schreurs at the Environmental Policy Research Centre argues that shale gas at the very least could help before Germany's "green revolution" takes full hold.

"It could be a transition energy. As you build up more renewable energies you need a baseload that is stable. Natural gas could give that," Schreurs said. "(Shale) may save the energy shift because it could be a way to make it still affordable to industry."

The BDI estimates Germany's nuclear phaseout and switch to renewables, which need subsidies to operate profitably, will cost up to 350 billion euros ($467 billion) by 2030.

Firms such as Exxon and BASF unit Wintershall are looking at the possibilities for shale, though they acknowledge the battle they face in convincing the public and politicians.

"I don't really see substantial quantities of shale gas production in this decade in Europe," said Rainer Seele, chief executive of Wintershall, which has two concessions in NRW. "The potential is there, but we have to see whether it will work."


With an absence of EU-wide guidelines, the next step for the German government is to reform the mining law covering licensing decisions. Those changes are likely to outline environmental controls required for drilling to start, say experts.

The ever-cautious Merkel, a physicist and former environment minister, is unlikely to tackle such a controversial issue before the election, meaning the new rules will likely depend on the composition of the next government.

A repeat of Merkel's center-right coalition would offer the best chance for moving ahead with exploratory drilling.

An alliance of her conservatives with the SPD would pose more obstacles.

Yet even within Merkel's coalition there are divisions, with conservative Environment Minister Peter Altmaier at the weekend again taking a cautious line, reiterating he wanted to limit fracking.

Economy Minister Philipp Roesler, head of the pro-business Free Democrats (FDP), has meanwhile courted his core supporters by fighting the corner of German industry.

"Many German firms have opted for (relocation to) the United States, saying energy prices were the decisive factor. We are already suffering with our higher energy prices, it affects our own competitiveness," he said at a conference this month.

There is little evidence of companies shifting production to the United States yet, but many are warning that future investment is headed that way.

($1 = 0.7490 euros)

(Additional reporting by Vera Eckert, Christoph Steitz in Frankfurt and Barbara Lewis in Brussels; editing by Noah Barkin and Jason Neely)