The big fracking chill in Eastern Europe

by Tomasz Daborowski and Jakub Groszkowski | 10 December, 2012

To the surprise of many observers, Bulgaria, Romania and the Czech Republic have fairly suddenly joined the group of shale gas sceptics. For various reasons they have decided or they are planning to ban fracking for the time being. Tomasz Daborowski and Jakub Groszkowski of the Centre for Eastern Studies (OSW) in Warsaw explain why they did so an...

Why Bulgaria, Romania and the Czech Republic have turned against shale gas

In January Bulgaria imposed an indefinite fracking ban. A few months later the new Romanian government followed suit by introducing a six-month moratorium on exploration and also announced a plan to extend it by another two years following the country's parliamentary elections in December. In the autumn, the government in Prague finished preparations for a shale gas exploration moratorium.

All these moves were a big surprise to most observers. One would think that countries in Central and South-Eastern Europe – a region strongly dependent on Russian natural gas supplies and struggling to reach ambitious EU climate policy goals – would grab the opportunities that shale gas provides. Indeed, all three countries initially were favourably disposed towards shale gas and granted several exploration licences. However, poor communication, a complex political situation and strong activity from anti-shale groups forced them to reassess their positive attitude. And it looks unlikely that Bucharest, Sofia or Prague will change their mind in the near future.

Until about a year ago, prospects for shale gas in the three countries looked fairly positive, certainly in Bulgaria. Romania and the Czech Republic had taken a neutral stand. International companies like Chevron, Cuadrilla from the UK and Canada-based Park Place Energy had been granted exploration licenses. Additionally, shale gas has become a focus of interest for other companies in the region, such as MOL from Hungary and state-owned Romgaz. Canadian East-West Petroleum had also expressed interest. All these developments were slow and could not be compared to the shale gas fever in Poland, where the government has given out over one hundred exploration licenses. Nevertheless industry interest in tapping shale reserves in the region was an undeniable fact.

So why did Sofia, Bucharest and Prague make a U-turn in their shale policy? The reasons were different in each case. In Bulgaria the persistent opposition from environmental groups and local communities played the key role.

None of the countries has reliable estimates of shale gas reserves. Even general estimates of potential profits and risks connected with shale gas production are problematic.

Their protest was additionally supported by strong resistance of some political groups and business lobbies with pro-Russia inclinations. The Romanian moratorium was mostly the consequence of a harsh political fight and had to do with a change in government. The introduction of a shale gas moratorium was rather a symbol of a new political programme than a carefully thought out idea. In the Czech case the debate had a strong local dimension. The main division line ran between regional authorities and the national government. Eventually, environmental concerns initially ignored by the cabinet in Prague led to the draft moratorium.

The original sin: trust and information deficit

Despite these differences, it is possible to find some common patterns as well. The first reason behind the growing skepticism towards shale gas in the region is a lack of information about potential risks and benefits from shale gas. None of the countries has reliable estimates of shale gas reserves. As a result, even general estimates of potential profits and risks connected with shale gas production are problematic.

Another challenge is the lack of a comprehensive regulatory framework that could address the specific issues of shale gas exploration and production. Licensing procedures are outdated and rather unfriendly to local communities. This all taken together hampers a proper public debate. Myths and fears tend to replace facts.

Moreover, governments have made many communication mistakes. The Romanian government for some time strangely maneuvered not to disclose its exploration licence agreement with Chevron, even though the American company suggested unveiling the document in order to stop the rumours of corruption and conspiracy theories.

In Bulgaria, the cabinet for a long time made sensational claims of record-high gains and energy independence, while neglecting the need for a broader debate on environmental concerns. Bulgarians, used to corruption scandals, tend to treat this kind of behaviour as evidence that shale gas is not a fair business.

In the Czech Republic the situation was not much different. Parts of the areas which were opened up to mining companies overlap with protected environmental areas and mineral water deposits. Local authorities find it difficult to understand why the government agreed to risky drilling activities in these parts of the country,especially as local businesses have to wait years to obtain permission to carry out any activities.

Policymakers were not the only ones to blame for poor communication. The shale companies did not make much effort to launch effective information campaigns capable of counterbalancing the objections raised by environmentalists.

In Bulgaria the presidential candidate of the socialist party used a shale gas ban as one of the key electoral messages.

There were too few public hearings and consultations with local communities. The companies made the impression that they were looking for a "Wild East" adventure rather than a long term commitment with strategic importance. For example Chevron for a long time did not even establish an office in Sofia. Local companies also did not engage the community. Nor did shale gas companies make common cause. As a result environmental activists easily dominated the public debate with slogans saying that hydraulic fracturing means "poisoned drinking water, tap water on fire and earthquakes".

Politicians and lobbies

The political situation also played an important role in the introduction of bans and moratoriums. In each of the three countries the shale gas debate overlapped with different types of electoral campaigns. Some parts of the political class saw the growing public concern over the production of shale gas as an effective tool for the mobilisation of the electorate and an instrument in on-going political battles with their opponents.

In Bulgaria the presidential candidate of the socialist party used a shale gas ban as one of the key electoral messages. In Romania the liberal-left opposition used shale gas policy as one of the official reasons for a no confidence vote to the right wing government. This vote finally led them to power.

However, the division line concerning the shale gas dispute does not necessarily have to follow party lines. For example in the Czech Republic all the politicians from potential drilling areas are against prospecting. It was the mining companies together with the central authorities who served as their opponent.

The position on shale gas among Bulgarian and Romanian parties does not seem to be dogmatic either. The Bulgarian centre right government unexpectedly introduced a fracking ban mostly to counter the waves of criticism and anti-shale protests. A similar phenomenon was seen in Romania. Although the liberal-left coalition had announced a 'political' moratorium on shale gas prospecting and extraction after it came to power, it stopped short of introducing legislation to this effect.

The hand of Moscow

It is a widespread media cliché that anti-shale sentiments in the region are somehow supported by Russia.

It is not likely that particular business lobbies were the key drivers for shale scepticism. Weak communications and political factors were much more important.

It is true that Moscow is critical about shale gas and is certainly interested in maintaining its position as dominant gas supplier in Europe. If local deposits in Bulgaria, Romania or the Czech Republic could yield substantial amounts of shale gas, those countries' need for Russian gas would be reduced. This is likely to be the main reason why politicians and businessmen with vested interest in closer cooperation with Russia have been engaged in criticism of the plans for local shale gas production. Such opposition has been particularly visible in Bulgaria, but not in Romania and the Czech Republic.

It cannot be ruled out that Russia and pro-Russia lobbies in the region have been making other, informal, efforts to influence the shale gas debate. Incidentally, Gazprom is not the only actor who has an interest in blocking shale drilling: it could also be a problem for the local nuclear industry as well as for renewable energy producers. But on the whole it is not likely that particular business lobbies were the key drivers for shale scepticism. Weak communications and political factors were much more important.

Outlook

So what will happen next? Governments in Bucharest, Sofia and Prague have opted to adopt a wait-and-see attitude. Most likely they will not change this in the near future. This is mostly because reversing shale gas policy now, would be a big political risk. The image of shale gas is poor and a lot of effort will be needed to change it. For Sofia, Bucharest and Prague it is more convenient to promote less controversial projects and to follow established energy policy priorities rather than new adventures.

For example, Bulgaria, the Czech Republic and Romania have been actively expanding their cross-border gas transmission infrastructure. They are also looking for local deposits of conventional gas, or to secure other energy resources. Bulgaria and Romania, for instance, have been inviting investors interested in prospecting for hydrocarbon resources in the Black Sea. All three countries have been running their own nuclear programs too. These developments can be an obstacle for future shale development because they also need substantial financial investments.

Nevertheless it seems that sooner or later governments in Bulgaria, the Czech Republic and Romania will turn to shale gas again. The best indication for this is that even Gazprom is reassessing its critical attitude towards domestic unconventional resources. One of the factors which could lead to a review of the shale approach could be the potential success of the shale gas industry in Poland. What happens in Poland is very significant, since the ongoing discussions about shale gas in Bulgaria, the Czech Republic and Romania have been making repeated references to the decisions taken by the government in Warsaw.

What should also be noted, from a European perspective, is that the governments of the three countries have only come out against domestic drilling and have no plans to promote the idea of an all-European ban on shale gas. They apparently still entertain the hope, that just like in the US, cheap shale gas will change the European gas market. It just seems that they are unwilling to take the risk and costs themselves.

Tomasz Daborowski and Jakub Groszkowski are analysts at the Centre for Eastern Studies (OSW) in Warsaw. Daborowski is an expert on political and economic affairs in South-Eastern Europe and the region's energy policies. Groszkowski specialises in the domestic and foreign policy of the Czech Republic, Slovakia and Slovenia, with a strong focus on the economic and energy policies of these countries.

They are the authors of a recent study, on which this article is based: Shale gas in Bulgaria, the Czech Republic and Romania. Political context - legal status – outlook.