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Focus on Regulation

Shale gas exploration: European Commission launches stakeholder Consultation

The European Commission is completing a Consultation on the need for additional regulation of unconventional fossil fuel (e.g., shale gas) exploration and development in Europe. The Consultation period ends on 23 March 2013 and results will be made available on the Commission’s website and at a stakeholders’ meeting to be held by the Commission in April 2013.

The Consultation is the first step in what will most likely be a lengthy regulatory exercise. Existing and proposed regulatory regimes in the United States could provide some useful lessons for Europe. Presently in the U.S., tension exists between the exercise of regulatory authority by the states and local governments specifically impacted by oil and gas development and the emergence of federal regulation of hydraulic fracturing, including regulation of such activities on public lands. Following close of the Consultation period, Hogan Lovells will convene an international webinar, both to discuss the issues raised during the Consultation and to compare the U.S. regulatory environment with trends in Europe.

Background on the European Commission’s regulatory review

Based on a 2011 preliminary assessment, the Commission concluded that existing EU Regulation does apply to practices required for unconventional gas exploration and production, but that more information was deemed necessary to ensure the adequacy of the existing EU regulatory framework. In 2012, the Commission released three studies on shale gas, including one that raised several questions regarding potential environmental risks and the adequacy of existing EU Regulation, which the Commission then determined warranted further consideration. (See Support to the Identification of Potential Risks for the Environment and Human Health Arising From Hydrocarbons Operations Involving Hydraulic Fracturing in Europe).

The Commission’s initiative arises amidst a rapidly evolving situation in Europe, with potentially, significant implications for the continued development of unconventional hydrocarbons. Facing increasing reliance on imported gas supplies, several EU Member States are interested in exploring and developing shale gas resources, which preliminary studies suggest may be extensive throughout Europe, including in Poland, UK, Germany, Netherlands, Spain, Romania, Lithuania, Denmark, Sweden, Hungary, Bulgaria, and France. However, given public concerns around unknown environmental impacts some Member States (including France, Bulgaria, and the Netherlands) have imposed temporary or indefinite moratoria on the use of hydraulic fracturing practices necessary to extract unconventional hydrocarbons, while others such as Denmark have initiated, or are poised to initiate, reviews of the adequacy of their domestic legislation and the need for additional regulation or guidance. Consequently, high volume hydraulic fracturing has not yet been used to any great extent in Europe, and the practice has been limited primarily to lower volume fracturing of tight gas and conventional reservoirs offshore and onshore in Germany, the Netherlands, Denmark, and the UK.

The Commission believes that these developments support the need for a clear, predictable, and coherent approach to the development of unconventional hydrocarbons across the EU.

Experience gained in the United States

In many ways, the European situation parallels the development of unconventional hydrocarbon resources in the U.S. In less than a decade, technological advancements and the integration of horizontal wells with hydraulic fracturing practices have enabled the rapid development of domestic shale gas resources, to the extent that the U.S. has evolved from an overall importer of natural gas to an exporter of this now-abundant commodity. As of 2012, current or prospective shale gas development projects were extant in at least 31 states.

Although regulation of oil and gas production has traditionally been the province of the states and local government, the proliferation of new projects and use of advanced technology have given rise to a clamor for uniform federal regulation of shale gas production. This is especially true of development on public lands, which are managed by the federal government. The regulation of unconventional hydrocarbon development (of both private and public mineral interests) covers dozens of elements, including those relating to air and water quality, disposal of flowback/process water, identification and disclosure of process chemicals, surface access, location, site development and preparation, ecological and socio-economic considerations, well plugging and abandonment, and well inspection and enforcement, among many others. The U.S. experience with these complexities will undoubtedly prove relevant to the evolving situation in Europe.

Following publication of the Commission’s Consultation findings Hogan Lovells will host a stakeholder webinar on unconventional hydrocarbon development in the U.S. and EU.