London, 5 October 2011

The French government has revoked three shale gas production licences as the battle for European policy on unconventional hydraulic-fracturing technologies heats up. No Backing for Fracking ...

The French government has cancelled three permits for gas exploration and production in the south of the country, citing the operators' intentions to proceed to drill the potential fields using hydraulic fracturing (or "fracking" ) technologies, despite a ban being imposed on the practice earlier this year. The rights to the fields are owned by French oil major Total (in Montelimar) and United States-based Schuepbach Energy (around Nant and Villeneuve-de-Berg). Speaking to reporters, France's energy minister, Éric Besson, and environmental minister, Nathalie Kosciusko-Morizet, said that the three permits had been revoked because the companies maintained their plans to use hydraulic fracturing. This has caused some confusion in the industry, since Total explicitly stated publicly last month that it would not be using fracking techniques at Montelimar.

The day after the government revoked the licences, French president Nicholas Sarkozy reiterated his government's opposition to hydraulic fracturing and pledged that he would not allow drilling for shale gas until the technology is proven to be environmentally clean. Speaking at a conference in the Gard region, Sarkozy stated that "There won't be shale gas extraction through hydraulic fracturing in this territory”.

While maintaining its rhetoric on shale gas development in France, the government has also sought to allay fears concerning EDF's slow progress in developing the new nuclear reactor being developed at Penly. Last week the state-owned incumbent delayed public consultations necessary to secure the green light for construction, prompting French daily newspaper Le Monde to speculate that the project was being delayed as a result of public opposition to nuclear power in the wake of the Fukushima Daiichi nuclear disaster in Japan. However, on Tuesday (4 October) a spokesperson for the Energy Minister denied the reports and suggested instead EDF had merely been preoccupied with the carrying out of safety "stress" tests.

Penly will be a third-generation European Pressurized Reaction (EPR), the second to be built in France after Flamanville. The French government (and EDF) are sensitive to the negative publicity concerning delays, not least because additional safety requirements in the wake of Fukushima have pushed back Flamanville's construction by two years already. Suggestions that Penly is "frozen" are particularly irksome to the French administration, after Total CEO Christophe de Margerie suggested the project was on hold before the Fukushima disaster even struck—a suggestion hotly denied by Energy Minister Besson.

Yet for all the pro-nuclear/anti-shale gas rhetoric, there are some small signs that unconventional hydrocarbons may yet have a future in France. To begin with, the comments coming from some parts the government are marginally less definitive than in the past, suggesting some parties may wish to keep the door ajar. For example, Budget Minister Valerie Pecresse was keen to add a caveat to statements regarding the fracking ban by noting that the country will still press ahead with research into the technology. "We had to cancel the permits but research must continue", Pecresse said in an interview on iTele television. "All big developed countries are trying to find non-polluting technologies to develop this incredible resource." This softer tone perhaps reflects recognition within the Treasury of the revenues that domestic unconventional hydrocarbon production could deliver—a boon in times of fiscal austerity.

Furthermore, it should be noted that only three permits out of some 64 have been revoked. Other operators that have committed to not using fracking technologies such as Toreador have retained their permits. Of particular interest is the permit currently held by Elixir Petroleum, in Moselle in the north of France on the German border. Earlier in September consulting reserves auditors, Netherland, Sewell & Associates, Inc. (NSAI) completed an analysis that suggested an unrisked gross unconventional undiscovered original oil in place (OOIP) and original gas in place (OGIP) best estimate (P50) within the Carboniferous section of the Moselle Permit of 164.7 billion barrels of OOIP and 649.7 tcf of OGIP. Such a staggeringly high figure has been greeted with derision in most of the industry but even if a fraction of these reserves are available, the French government will surely be tempted to at least revisit the issue in the future.

Finally, although the French government has imposed a ban on hydro-fracking, the independent scientific report that underpinned the legislation does not rule out the possibility of safely developing unconventional resources in the near future: "In two to three years, the acquired experience in our country as well as in Europe and in North America will allow to make rational decisions over the opportunity to extract oil and shale gas in France,", the report states.

Outlook and Implications

The position that the French government takes on unconventional oil and gas development matters at an EU level. Reports suggest that the French nuclear lobby (as well as certain external gas suppliers) has been pushing hard for the EU to consider regulating the practice of hydro-fracking across the bloc, apparently with some success.

This has of course angered Poland, which sees shale gas as a unique opportunity to reduce its dependence on Russia for energy, and prompted the Baltic state to issue several warnings against any EU attempts to regulate the industry. Only yesterday, the Polish permanent representation to the EU hosted a public event in Brussels to present a new study on shale gas, published by the Polish Institute of International Affairs, which argues strongly against EC intervention. Earlier PGNiG's Marek Karabula, the company's deputy chief executive in charge of upstream operations, asserted the rights of individual member states to determine the necessary regulations and the importance of respecting states' sovereignty when dealing with "energy security issues". Maciej Kaliski, head of the Department of Oil and Gas in the Ministry of the Economy made similar comments in an interview with a Polish newspaper in May.

Yet despite Poland's best efforts the debate appears to be gaining some momentum in the European Parliament. Yesterday German Green MEP Rebecca Harms stated in an interview with French newspaper La Croix, "We need to have obligatory European rules for shale gas exploration, and these rules must be based on an obligatory evaluation of the risks for the environment." Such comments, together with concerns regarding the climate change effects of potential methane emissions from hydro-fracking suggest further battles ahead.

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IHS Europe energy analyst Kash Burchett. If you have any questions or would like further comment, please contact Kash at +44 20 3159 3401 or at This e-mail address is being protected from spambots. You need JavaScript enabled to view it