Shale gas drilling is controversial but Europe is being warned it needs to develop a strategy to capitalise on reserves

Europe warned not to miss out on shale gas bonanza

Europe has been warned it must develop a strategy to tap shale gas resources, as production booms in the US.

Panelists at a weekend security conference in Munich warned European countries that they need to exploit their resources to keep energy costs competitive, or risk seeing power-intensive industries locate elsewhere.

Jorma Ollila, Chairman of Royal Dutch Shell, said: "The shale gas and oil boom is already underway. As Europe continues to debate it, North America is reaping the advantages.”

Just a week ago Shell signed a $10 billion shale gas deal with Ukraine - the biggest contract yet in Europe - which could help Ukraine ease its reliance on Russian gas imports.

Ukraine is said to have Europe's third-largest shale gas reserves at 42 trillion cubic feet (1.2 trillion cubic metres), according to the U.S. Energy Information Administration, but its reserves are dwarfed by those of France – estimated to be Europe's largest at 180 trillion cubic feet.

France has banned the procedure, known as fracking which is used to extract shale gas and which involves pumping vast quantities of water and chemicals at high pressure through drill holes to prop open shale rocks.

Environmentalists fear it could increase seismic risks and pollute drinking water but U.S. officials question this and say that thanks to the higher proportion of gas use the United States has had its lowest carbon dioxide emissions in 20 years.

Daniel Yergin, Vice-Chairman of IHS CambridgeEnergy Research, said: "Observing this from across the Atlantic it is really quite remarkable that there should be a ban or a go-slow on this development in Europe, really without any facts."

Fracking is used to produce a third of U.S. natural gas he said, showing the environmental impact can be managed.

World energy market flows already reflect North America's scramble to exploit shale oil and gas and highlight the potential prize Europe is ignoring.

Carlos Pascual, the U.S. special envoy for energy affairs, said: "The U.S. internal energy revolution and the radical increases in production of oil and gas have boosted gas production by 25 per cent and seen oil import dependence drop from 60 per cent to 40 per cent, and expected to decline further to 30 per cent.”

While Europe retains deep environmental concerns it also acknowledges that with the price of gas in the United States just a third of that in Germany, its industry is already suffering the effects.

German Economy Minister Philipp Roesler said: "Many German firms have opted for (relocation to) the United States, saying energy prices were the decisive factor...We are already seeing that we are suffering with our higher energy pricesit affects our own competiveness."

Addressing the panel in Munich European Union Commissioner Guenther Oettinger said Europe should be in a position to produce enough shale gas to replace its depleting conventional gas reserves, so as not to become more dependent on imports.

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