China-Russia Gas Deal Should Unleash A Euro-Fracking Revolution

Forbes

Christopher Helman

Forbes Staff

Russia and China today cut a $400 billion, 30-year deal whereby Gazprom will deliver at least 1.3 trillion cubic feet of natural gas to China annually. Russia will build $55 billion worth of pipelines and processing plants to deliver the gas from Siberia.

This is a lot of gas, about one-fifth of China’s current annual demand. And it should be causing concern across Europe, which last year relied on Russia for about 30% of its gas supply, or about 6 trillion cubic feet.

With Vladimir Putin threatening to cut off gas shipments to Ukraine — the conduit for about half of Europe’s Russian imports — it should be patently obvious to all European policy makers that they must wean themselves off of Russian gas.

The answer for Europe is not more windmills and solar panels. The answer is fracking. Indeed, any European policy maker who cares about jobs, growth, and checking Putin’s territorial ambitions ought to be seizing on the China-Russia deal to push for repeal of wrong-headed bans by France, Bulgaria, Germany and elsewhere on the practice of horizontal drilling and hydraulic fracturing.

Energy companies in the United States have drilled and fracked thousands of wells in recent years. The result has been an unprecedented boom in oil and gas production. Just a decade ago America was worried about having to import natural gas to meet demand. Now we’re set to begin exports of LNG by 2016.

For the U.S., the benefits of the fracking revolution (more than 1 million jobs created, more than $200 billion in annual economic impact) have far outweighed any drawbacks. Out of thousands of wells, there have been only a handful of serious mishaps. Compare that to the omnipresent degradation of rivers and streams caused by the run off of fertilizers and pesticides used in the agriculture industry.

Is there really any doubt that Putin and his Russia Today propaganda machine has been supporting Europe’s anti-fracking activists precisely to keep them hooked on his gas?

After all, Matt Damon’s anti-fracking movie “Promised Land” was backed by money from the United Arab Emirates.

France has massive shale gas potential, with 137 trillion cubic feet of recoverable shale gas, as estimated by the U.S. Energy Information Administration. In Europe that’s second in potential only to Poland.

Now if only it would relax its ban on hydraulic fracking. The ban, put in place in 2011 with the support of President Nicolas Sarkozy, even withstood a court challenge last year and was found to be constitutional.

But an enterprising Texas oil man is trying to find a way around the ban, to help France (and Europe) help itself.

John Thrash is CEO of Houston-based ECorp, which holds several million acres of prospective drilling rights across the U.K., France and Switzerland. Last year, after several years of research and development, Thrash announced that ECorp had devised a new, more environmentally safe method of fracking shale wells. Instead of using water mixed with trace chemicals to break open the tight rock formations, Thrash proposes to use liquid propane. He’s successfully tested propane fracking in the Eagle Ford shale of south Texas, and last October he presented the technology to the French parliament.

“We want to show them it can be done,” says Thrash. He has the support of a number of business-minded French politicians, especially the Minister for Industrial Renewal Arnaud Montebourg. Critics see propane fracking as nothing but a trojan horse ploy to get around the ban.

Thrash explained to me that propane makes complete sense to use as a fracking fluid. First of all, propane is more compatible with gas reservoirs than water is, because propane is one of the natural components (along with methane, butane, etc) of the natural gas stream. It doesn’t require the addition of other chemicals (like lubricants and anti-bacterial “biocides”) because nothing can grow in it. What’s more, unlike the flow-back water recovered from a well after fracking, the propane doesn’t need to be treated or disposed of — it simply goes into the pipeline along with the gas.

It is flammable, of course, but Thrash insists that shouldn’t be a concern. After all, 120 million households in Europe use propane and 11,000 trucks carry it around safely, and ECorp has devised an enclosed system to keep the propane compressed in liquid form and inject it down a well at high pressure, without exposing it to any possible ignition sources. In the United States, a company called GasFrac, using technology developed in part by ECorp’s engineers, has used propane in more than 1,000 fracking operations.

All Thrash wants is the opportunity to try it. Eventually, that opportunity may come. President Francois Hollande has said that although the ban on fracking with water and chemicals is absolute, the law does allow for experimentation with alternative technologies, which he might consider.

“It’s strictly a matter of authorization,” says Thrash. “There’s precedent for this. The French nuclear program happened despite early outrage,” and now its a model for the world.

He proposes that ECorp be allowed to start off by drilling a simple test well in an already disturbed area, such as a rock quarry. He would drill a vertical well and take a core sample of reservoir rock for geologists to study.

“It would be a miscarriage of reason to not go biopsy this basin,” says Thrash, talking like the former medical doctor he is. “If the diagnosis is poor, we walk away.”

Thrash doesn’t think France fully appreciates the massive potential that successful development of even a portion of its shale resources could bring. Assume that there’s 100 trillion cubic feet of recoverable gas in the southeast French basin. At the European price of some $10 per thousand cubic feet, that would work out to 1 trillion euros worth of gas. France could siphon off, say, 10% of those gas revenues into a fund for alternative energy development it could amount to 100 billion euros over several decades. ”A lot of people doubt that the reserves could be that big,” he says. “But we won’t know until we look.”

Thrash is also hoping to make some fracking breakthroughs in the United Kingdom, where in January he forged a partnership with France’s Total to start drilling on nearly 60,000 acres ECorp assembled in Gainsborough Trough in the east of England.

Fracking continues to be hotly debated in the U.K., but it’s not banned, and Prime Minister David Cameron helped its popularity immensely with a scheme to allow communities near drilling sites to receive upfront payments from drilling companies, plus 1% of all oil and gas revenues.

Thrash would like the partnership to perfect the propane-fracking technology in the U.K., but Total will likely insist on more conventional techniques. CEO Christophe De Margerie has repeatedly insisted that fracking can be done safely and effectively.

It won’t be easy to replicate the U.S. fracking boom in European countries where landowners don’t own title to the minerals under their feet. Texas ranchers who own their mineral rights are accustomed to receiving a 25% royalty on oil and gas recovered from their lands. “In Texas we would laugh at a 1% royalty,” says Thrash. “Dealing communities into the reward is the fair and appropriate thing to do. If there’s no reward then why should they bear the impact?”

Perhaps the European nation that has been quickest to embrace the potential of shale gas is Poland. Stuck between Russia and Germany, and having learned from experience to be wary of both, Poland recently announced tax breaks for shale gas developers. Chevron CVX -0.21% continues to drill exploration wells into Poland’s shale formations, and has teamed up with state oil and gas company PNGiG. Another U.S. driller, San Leon Energy (backed by George Soros and Blackstone), completed its first successful well there earlier this year.

If only Germany would see the light.

Germany’s quest for green energy followed by an insane shift to coal has turned its power grid upside down in recent years. Subsidies for expensive solar projects have caused the price of electricity there to double, while the intermittancy of solar and wind generation has injected massive instability (in the form of sudden blackouts) that has caused energy-intensive manufacturers to relocate.

Germany also boasted a fleet of reliable, zero-emissions nuclear power plants, but in a hysterical over-reaction to the Fukushima disaster Berlin decided on a nuclear phase out. Natural gas could have helped replace that nuclear power, but German politicians enacted a ban on fracking — despite the fact that drillers in the state of Lower Saxony had been using the technique for decades to go after tight gas.Politicians from Lower Saxony seeking to talk sense into Berlin have been given the brush off. So Germany’s gas-fired power plants go under-utilized.

Instead of pursuing low-carbon natural gas, Germany has instead dramatically stepped up its mining and burning of low-rank lignite coal. Although Environment Minister Barbara Hendricks supports a continued ban on fracking, she said earlier this year, “We must not demonize coal.”

It’s nonsensical to think that the environmental damage from fracking could possibly be worse than coal mining, especially when mining companies in eastern Germany have been wiping village after village off the map in order to make way for massive strip mines.

In a losing cause, Exxon Mobil XOM -0.18% has even touted the development of a new generation of non-toxic fracking fluids, especially suited to German geology.

Meanwhile, Putin must be laughing, as Kremlin-controlled Rosneft and partners Exxon Mobil and BP prepare a campaign of drilling and fracking across Siberia, determined to find gas to send not to Europe, but to China.

Thrash hopes Europe will join the fracking revolution before it’s too late. “Russia couldn’t care less about environmental standards,” he says. “So better to do it in Europe, and really ride natural gas as a bridge fuel.”