1. Barriers to shale gas development in Europe: Universidade de Sâo Paulo - Instituto de Energia e Ambiente PEN 5028 - Regulaçâo e Politica do Petróleo e Gás Natural Professor: Hirdan Katarina De Medeiros Costa Student: Pol Oliva Martí - pol.oliva-marti.2015@ifpschool.com pol.oliva-marti.2015@ifpschool.com Exchange student - IFP-School “Petroleum Economics and Management”

2. Introduction and objective: To assess and analyze the reasons why European Union countries are generally reluctant to promote shale gas ObjectiveBackground Shale gas revolutionized the US energy sector & economy International competition to host the next shale gas revolution European economy still not recovering Some EU members banning or placing moratoriums on shale Europe heavily dependent on expensive Russian gas

3. Qualitative Methodology (I): Sections Inclusive approach: Identify & classify the barriers which are generally relevant for most of EU countries Section 1 Country-specific: Focus on relevant countries and provide an overview of the scenario and the main barriers Section 2 UKPoland France SpainE.U.

4. Discussion & Results: Section 1 (1/2) Politics Higher relevance of green parties in Europe · Fear of reducing electoral support · Reluctance to harm political relationships with Russia · Economycs 2014 did not provide the EU economical recovery · Financial difficulties of independent companies (25M$/well) · Social - Envirome ntal Higher population density and environmentally concerned · Potential groundwater contamination, flowback water disposal, high water consumption · Potential cause of tremblers and earthquakes · Sand consumption and silica pollution ·

5. Discussion & Results: Section 1 (2/2) Tech - geology Reserves located deeper and harder to extract · Reserves uncertainty and Low fracking experience and · Transport infrastructure availability at extracting site · Regulation Missing EU-wide regulation on shale gas activities · · Market & Competiti on Doubts on commercial feasibility considering current oil prices (Brent <66$) and reduction of LNG prices. · Lack of well-developed O&G onshore service industry · Lack of incentives and specific regulations (uncertainty) · Some countries set bans or moratoriums. · The state and not the land-owner holds the mineral rights

6. Section 2 (1/5): EU regulation on shale gas European Union Absence of a EU-wide common legal framework Regulartion on Hydraulic Frackturing Proposal to require Environmental Impact Assessment (2013) · Some countries leaded by UK opposed to the amendment and succeeded on halting it. · EC Recommendation on minimum principles for exploration of hydrocarbons using high-volume hydraulic fracturing · Non-binding suggestions on how to regulate shale gas; EIA, risk management, restricted areas, flow-back fluid disposal ·

7. Section 2 (2/5): SPAIN Technoogical - Geological Low reserves: EIA estimation on technically recoverable reserves: Oil: 100 million barrels · Gas: 8 tcf · Social - Environmental Strong social opposition strengthened by past unsuccessful energy policies: Prestige (2002), Castor (2014) Regulation 4 regional governments tried to ban hydraulic fracturing · Non-existence of fiscal incentives but open framework · Political risk: Uncertainty upcoming elections 2015 ·

8. Section 2 (3/4): UK Technoogical - Geological Uncertainty on technically recoverable reserves levels: EIA: 700 million barrels and 26 tcf · BGS: 1300 tcf only at Bowland · Strong social opposition Social - Environmental After placing and retrieving a moratorium on shale, there is now a clear governmental support to shale gas development · Implementation of important tax breaks for shale gas activities · Community incentives to overcome local opposition: 1% production revenues and initial contribution 100.000 GBP · Regulation

9. Section 2 (3/4):France 2011: Hydraulic fracturing ban and revoked exploratory licences previously granted 2013: Constitutional Court reaffirmed the ban · Social - Environmental Strong social opposition Regulation · President Holland promised to maintain the ban during his mandate (elections 2015) · Technoogical - Geological Uncertainty on technically recoverable reserves levels. EIA: 4700 million barrels and 137 tcf · ·

10. Section 2 (3/4): Poland Technoogical - Geological Intense decrease of the reserve estimates: Exxon Mobil, Talisman Energy & Marathon Oil returned exp. licenses · · 2011 EIA: 187 tcf (300 times national consumption) 2012 PGI: 12-27 tcf (-90%) · Not a single well reached commercial production yet Regulation Current framework: high-tax regime, high governmental control, regulation uncertainty & excessive bureaucracy · 2015 framework: lower tax regime, no need to enter JV state- owned company, single license exploratory-exploitation license ·

11. Conclusions Importance of the UK case: its outcome will strongly influence the future social and political position on shale · Difficulties for shale implementation: Important barriers challenge even shale contributing significantly to EU national production: · Country-specific outlook: Spain: “Market follower” UK: Best shale development prospects in EU France: Hydraulic fracturing ban set to last Poland: Pessimistic even with new regulatory framework

12. Thank you for your attention! Any question?