Bloomberg

Exxon, Chevron ‘Land Grab’ for Europe Shale Gas, JPMorgan Says

By Dinakar Sethuraman

Feb. 11 (Bloomberg) -- Exxon Mobil Corp. and explorers including Chevron Corp. are securing land in Europe to exploit shale gas, a hard-to-extract deposit that could reduce global demand for liquefied natural gas, JPMorgan Chase & Co. said.

Exxon has shale areas in Germany, Hungary and had applied for permits in Poland while ConocoPhillips and Chevron are in Poland and Royal Dutch Shell Plc in southern Sweden to exploit gas trapped in rock formations and impervious to conventional drilling techniques, JPMorgan said in a Feb. 9 report.

“A land-grab has occurred in Europe over the last two years with majors such as Exxon, Conoco, Chevron and Statoil ASA all participating, not willing to miss out as they did in the U.S.,” said Mark Greenwood, a Sydney-based analyst with JPMorgan. “While it’s still early days for European and Chinese shale gas plays, its potential is yet another threat for the LNG supply-demand balance.”

The International Energy Agency said in November the world may have an “acute glut” of gas in the next few years because production of so-called unconventional fuel, which includes shale gas, is set to rise 71 percent between 2007 and 2030. Shale is a rock comprising layers of sediment from which oil and gas can be extracted.

The success of shale gas extraction in Europe and China may sap global LNG demand, reduce Europe’s dependence on Russian natural gas and force new Russian gas projects and Qatari LNG to compete with Australian LNG projects for Asian customers, Greenwood said.

Rising Supplies

Western Europe may have held 510 trillion cubic feet of shale gas as of 2007, JPMorgan said. That’s adequate to feed Germany for 175 years, based on BP Plc’s data.

European shale could be sufficient to displace the equivalent of about 20 million tons a year LNG by 2015, and about 60 million tons a year of capacity by 2020, JPMorgan said. Japan, the world’s biggest LNG buyer, consumed 67 million tons of the fuel in 2008, according to the BP Statistical Review of World Energy.

“U.S. shale gas could grow by 2015 to a similar scale as the entire global LNG market currently and has the potential to displace significant LNG volumes,” Greenwood said.

Exxon agreed on Dec. 14 to acquire XTO Energy Inc. for $31 billion for its shale gas expertise and assets, while OAO Gazprom and its partners delayed the planned start of natural- gas output at the Arctic Shtokman field by three years because of lower demand and growth of shale areas in the U.S.

Qatar had earmarked 25 million tons a year of LNG for the U.S., which doesn’t “appear” to need the gas, according to the JPMorgan report.

Exxon, BG Group Plc and Chevron may invest billions of dollars in LNG ventures in Australia and Papua New Guinea, targeting Asian buyers for the fuel. JPMorgan remained “overweight” on Oil Search Ltd. and Santos Ltd., which are planning LNG ventures in Australia and Papua New Guinea.

--Editors: Jane Lee, Alex Devine.

To contact the reporter on this story: Dinakar Sethuraman in Singapore at +65-6212-1590 or dinakar@bloomberg.net.

To contact the editor responsible for this story: Clyde Russell at +61-2-9777-8624 or crussell7@bloomberg.net.