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Hi-tech drills unlock elusive energy veins

WITH one eye cast toward home, giant European energy companies are investing billions in US natural gas and oil fields where huge, hard-to-get reserves have been unlocked with new drilling technology.

That technology is the prize in Europe, where gas production has declined and where an international utility dispute recently left people in more than a dozen European countries shivering in unheated homes.

Europe's natural gas supply is routed through Ukraine from Russia. Russia supplies about one-quarter of the EU's natural gas, with 80 percent of it shipped through Ukraine. A rift between the two nations left more than a dozen European countries with little or no gas for two weeks in the cold of January.

Declines in European gas production have potentially made the new techniques used in the United States even more pivotal. At least three European oil and gas giants are developing or have bought interests in oil and gas shale projects in the US ?? Norwegian oil company StatoilHydro, the US unit of British oil company BP and French company Total.


StatoilHydro and BP have agreed in recent months to pay billions of dollars for stakes in shale gas projects from the top US producer of gas, Chesapeake Energy. Total has bought a 50 percent stake in a US company exploring for oil shale in the Rocky Mountains.

"Given the magnitude of oil shale resources we believe that this project has an important long-term potential for global energy markets," Yves-Louis Darricarrere, Total's exploration and production president, said in announcing Total's deal with American Shale Oil.

Shale is a kind of layered, sedimentary rock that exists in formations throughout the world. In the US, gas production from shale dates back to the 1800s. But the gas, tightly locked in rock formations, had been extraordinarily expensive to extract. That began to change about 15 years ago as producers developed new techniques such as horizontal drilling, where the drill is turned in a right angle to bore into a gas reservoir horizontally.

Gas from shale now amounts to about 5 percent of total US production, according to the Gas Technology Institute. If the same technology works in Europe it could free up an enormous amount of energy, and potentially provide a buffer against cross-border disputes to the east.

StatoilHydro bought into Chesapeake Energy's massive Appalachian Marcellus shale project for US$3.37 billion in November. Executive Vice President Rune Bjornson said at an energy conference last month in Houston that StatoilHydro wants to bring new drilling technology to other regions of the world.

If the race to duplicate drilling success in the US is on, few companies are talking about it.

Even Aubrey McClendon, co-founder and chief executive of Chesapeake, the largest natural gas producer in the US, said: "I doubt we will trumpet it as I think the combination of their international stature and presence, and our knowledge of gas shale would do nothing but attract competition."

But it has become abundantly clear since a chilly two weeks in January that Europe's energy security has been diminished.

Buying into the technology in the US makes sense and could spare European companies years of development, said Don Hertzmark, an energy expert.

"The Europeans never bothered to develop this stuff," he said. US companies stand to expand through new markets in Europe if the new techniques work, and many experts believe that they will.

European Commission President Jose Manuel Barroso said after the dispute between Russia and Ukraine was settled (the second dispute in recent years) that Europe must diversify its energy sources and supply route.

"It was utterly unacceptable that European gas consumers were held hostage to this dispute between Russia and Ukraine," he said.


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