Bloomberg News

Shale Energy Splits French Government, May See Ban Lifted

July 19, 2012

Shale gas, an energy game changer in the U.S., is dividing the French government, raising the possibility the country may lift a ban on its exploration.

“It’s not a banned subject,” Industry Minister Arnaud Montebourg said yesterday in Paris. “We must confront it. For the moment, there is no government position.”

Montebourg, who is charged with reversing job losses and a decline in French industrial production, was speaking at a conference attended by top executives of some of the country’s biggest companies, including energy explorer Total SA, a shale gas producer in the U.S. whose permit was revoked in France by the previous government.

Montebourg’s comments contradict those of Environment and Energy Minister Delphine Batho, who told the French Senate earlier this week that a year-old ban on hydraulic fracturing, the technology known as fracking needed to extract natural gas and oil from shale rock deep underground, would not be lifted because of health and ecological risks.

France last year became the first country in the world to ban fracking, which uses water, sand and chemicals to open fissures in rocks and release gas and oil. Following passage of the law in parliament, the previous government suspended the rights of energy companies to explore for shale gas around Paris and in southern France. Oil companies including Total (FP), the nation’s largest, and Toreador Resources Corp. had been awarded licenses for exploration.

U.S. Prices

The new government will keep the ban because the drilling technique carries “considerable risks” and pollutes, Batho told senators. The ban is “not open” for discussion.

“That’s her opinion,” Montebourg said in an interview yesterday. “The debate will take place. It has consequences for the environment that we must observe, measure, evaluate and surmount. It’s a fundamental democratic choice for our country.”

U.S. energy companies are developing vast reserves of natural gas using fracking at a rate that’s filling up the nation’s storage depots earlier than usual this year. The output has sent gas prices down about 38 percent in the past year, benefiting industries such as chemicals manufacturers.

As French factory closures such as by PSA Peugeot Citroen (UG) grab headlines at home, French oil services provider Technip SA is buying Shaw Group Inc.’s energy and chemicals business in the U.S. to expand in the growing petrochemicals industry there.

Job Creation

“The U.S. has created 600,000 jobs in three years,” on the shale boom, Patrick Pouyanne, head of refining and chemicals at Total, said yesterday. “The petrochemicals industry has announced the creation of four giant new complexes that will get nearly $20 billion in investment. Within five years they’ll be exporting petrochemical products to Europe at competitive prices.”

Total explores and produces shale gas in the U.S. through its partnership with Chesapeake Energy Corp. (CHK:US) The French explorer had also planned to look for shale at home and Poland, the two countries in Europe with the biggest potentially recoverable reserves of shale gas, according to the International Energy Agency.

While Poland is speeding up shale gas exploration to lessen its dependence on Russian imports, the previous French government put on the brakes last year ahead of parliamentary and presidential elections.

‘Industrial Renewal’

The ban came after it awarded permits, most of them in 2010, for unconventional oil and natural gas exploration. More than half a dozen companies won the rights including Toreador Resources, which merged with ZaZa Energy Corporation LLC (ZAZA:US) in February, and Vermilion Energy Inc. in the Paris Basin and Schuepbach Energy LLC and Total in southern France. GDF Suez SA (GSZ) was in talks with Schuepbach on taking stakes in two permits.

Vermilion, based in Calgary, used hydraulic fracturing in two existing vertical wells in the Paris Basin before stopping the practice when the ban was imposed. Toreador, which billed itself as the “most aggressive” explorer in France, had said the region around Paris may have 100 billion barrels of oil and has geology similar to the Bakken Shale in North Dakota, where explorers used fracking to release oil from underground rock.

“How can we not want to know if our land has these resources? ” Total’s Pouyanne asked. “Our country may have these resources. If it does, it would indisputably represent industrial renewal. We must have confidence in the ability of our country’s industry to develop these resources and respect strict environmental rules.”

Opening Dialogue

French energy executives including Total Chief Executive Officer Christophe de Margerie and GDF Suez’s Gerard Mestrallet have criticized the French ban because it took effect before anything was known about the potential in domestic shale.

The French law banning fracking allows for experiments into the procedure overseen by a national commission that must report back to the government annually. It’s not clear whether the new government will install this commission.

The French ban came at a politically sensitive time when lawmakers feared local protests against shale drilling would hurt their chances for re-election. Anti-shale campaigners including Greenpeace and activist Jose Bove criticized the attribution of exploration permits without public consultation.

The new government has promised a national debate will begin as early as September on energy including shale oil and natural gas as well as the country’s dependence on nuclear power.

“We are very far from a major policy change on shale,” Jean-Louis Schilansky, head of Paris-based Union Francaise des Industries Petrolieres, or UFIP, which represents companies including Total and Exxon Mobil Corp., said in an interview. “For the moment, all we are asking for is dialogue.”

To contact the reporter on this story: Tara Patel in Paris at tpatel2@bloomberg.net

To contact the editor responsible for this story: Vidya Root at vroot@bloomberg.net; Will Kennedy at wkennedy3@bloomberg.net


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Companies Mentioned

  • CHK
    (Chesapeake Energy Corp)
    • $26.07 USD
    • -0.30
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  • ZAZA
    (ZaZa Energy Corp)
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