Total's Shale Gas Well Could Unlock Nordic Potential
BMI View: Total's announcement that it will continue its shale gas exploration programme with an appraisal well could bring more certainty with regard to Denmark's shale gas potential. With shale exploration stalled in much of Europe on the back of environmental concerns, positive appraisal results from Total could unlock sizable investment into tapping the country's shale resources. Moreover, while downside risks to commercial production remain, we highlight the upside potential Denmark's shale gas could bring, given the country ' s declining natural gas reserves and production, which by the end of our forecast period in 2021 will allow for just 0.3bcm in exports.
Total ' s announcement that it will spud a shale gas well mark s the first significant move to tap Denmark's shale gas potential. The well, to be drilled in the 'next few weeks' , according to local media reports in November 2012, will target the North Jutland basin, part of what the EIA estimates may be some 644bn cubic meters (bcm) of recoverable shale gas resources in Denmark.
|Measuring The Scale Of European Shale|
|Technically Recoverable Shale Gas Resources (bcm)|
Declining Reserves Underscore Need For New Volumes
With our forecast for domestic consumption to reach 4.8bcm in 2012, Denmark's estimated shale reserves could meet domestic demand for 135 years. Although current figures are unproven and the amount of commercially recoverable volumes will depend on a number factors - both above and below ground - the upside potential from Denmark ' s shale resources is considerable.
Total ' s plans to appraise the nation's unexplored shale plays add greater certainty to the nation's shale potential . This comes at a crucial time for its energy industry , asf alling reserves of both oil and gas are erod ing the country's export capacity.
The most immediate impact will be felt in its oil industry, where we expect production to fall an average of 3.2% per year over the course of our 10- year forecast period to 2021. O ur current forecasts indicate that Denmark will cease to become an oil exporter from 2020 onwards and become dependent upon imports.
|An Unwelcome Transition To Importer Ahead|
|Denmark Oil Production, Consumption & Net Oil Exports ('000b/d)|
Wh ile developing the country ' s shale gas may do little to alter our forecast for oil imports, commercial production could shore up the prospects for its gas industry, which faces similar threats as reserves continue to decline.
|Reserves Set To Fall Without New Additions|
|Denmark Natural Gas Proven Reserves, 2010-2016 (bcm & % chg y-o-y)|
Although we expect production to continue to exceed domestic demand, Danish gas exports will fall from 0.6bcm in 2012 to 0.3bcm by 2021 under our current estimates . However, it could see a temporary boost from new production set to come online in 2014 , providing some relief to what would otherwise be a dismal outlook as output from Denmark's main production fields in the North Sea continue to decline.
Declining exports will not only hit revenues but will impact Sweden, which currently sources all of its gas imports from its Danish neighbour. Without significant new exploration to prove up dwindling production, Denmark itself could be forced to consider importing gas, although such a development would occur outside our 10-year forecast period. However, Total highlights on its local Swedish website figures from the Danish Energy Agency that forecast consumption will exceed domestic production sometime between 2021 and 2025.
|Gas Rises Only To Fall As Pressure On Exports Grows|
|Denmark Natural Gas Production, Consumption & Net Exports (bcm)|
Nordic Shale Powerhouse?
Total's decision to advance drilling in an effort to appraise Denmark ' s shale potential close ly follows an announcement from independent Gripen Gas , which reported positive results from a shale gas appraisal well in Sweden ( see our online service, October 31 2012, 'Promising Shale Results Face Uncertain Prospects ' ). The prospect of Sweden developing a shale gas industry would ease its demand for Danish gas, and extend the timeframe over which the country could meet domestic demand without the prospect of imports.
Moreover, with much of Europe's shale gas potential untapped due to environmental concerns, openness to potential shale gas extraction could see the Nordic region benefit from industry investment that may have gone elsewhere were the opportunity available . Total 's existing exploration program me in Denmark is set to continue until 2016, with an assessment of the commercial prospects of extraction to be made from 2014 onward , assuming positive appraisal results from the current program me .
Yet , the environmental activism which halted previous shale exploration work in Europe could also undermine developments in Denmark. Indeed, Royal Dutch Shell 's shale gas efforts in Sweden previously encountered intense environmental opposition from local communities and became a contested political issue. Therefore, T otal ' s plan to drill a well could draw attention to the industry and provoke an environmental backlash that would ultimately impede or prevent appraisal efforts in Denmark.