Do these facts indicate the fragility of the American shale boom, don’t they?
If so, what does that mean for Europe?

The technology of hydraulic fracturing has been known for many decades. The first experimental hydraulic fracturing treatment took place in the United States in 1947 on the Hugoton gas field in Kansas. However, at the time due to low gas prices this technology was considered too expensive for shale deposits. The situation changed in the 2000s, when gas prices grew significantly arousing interest among mining companies to start fracking of shale formations. It is important to recall that new technologies for drilling long horizontal wells hit the market at the same time. All of these stimulated a rapid development of shale resources in the US and a steep rise in production of shale gas. Exploration and production of oil and gas from shale are conducted currently in many regions of the US.

The largest and most productive shale deposits are the following:

● the Marcellus Shale gas play extends throughout much of the Appalachian Basin primarily in Pennsylvania, West Virginia, New York, and Ohio;
● the Haynesville Shale play underlies large parts of Southwestern Arkansas, Northwest Louisiana, and East Texas. Some experts believe the Haynesville shale could ultimately produce as much as 0.85 to 1.13 tcm of gas;
● the Fayetteville Shale play stretches across Arkansas;
● the Barnett Shale play extends over Northern Texas.

The Marcellus Shale gas play is the largest shale formation in the US occupying a total area of about 95 thousand sq. miles. By early 2015, the Marcellus Shale was yielding about 40.8 mcm of gas per day. At that time, the Marcellus was the source for over 36% of the shale gas produced in the US. According to expert estimates, it is more than enough to supply gas to a half of gas-fired power stations in the US.

The average thickness of the productive layer ranges from 15 to 60 m. and the depth ranges from 1.2 to 2.6 km. Technically recoverable gas resources amount to 7.4 tcm. Over 8,000 wells were drilled for gas extraction from the Marcellus Shale play and about one hundred new wells are added each month.

According to extraction technology after a vertical drilling to a depth of around two-kilometer each well turns for another kilometer inside the shale formation into a horizontal direction.

There are more than 30,000 wells drilled at above-mentioned four major shale plays, which in total produce two-thirds of shale gas in the US.

The volume of shale gas production in the US reached the highest level of about 275 bcm in 2012.
The forecasts of the Energy Information Administration in its Annual Energy Outlook 2014 were based on the expectation that natural gas prices would gradually rise, but remain relatively low, predicted US gas production growing until 2040, driven by large increases in shale gas. It is shown in the graph below.

However, actually expert opinions about the prospects of shale gas production in the US differ dramatically. Official EIA forecasts are criticized that they insufficiently take into consideration the factors capable of undermining the predicted upward trend.

Alternative forecasts of future development of shale gas in the U S developed by a team of geoscientists, petroleum engineers and economists at the University of Texas at Austin had a wide recognition. These forecasts resulted from three-year studies of the major shale plays in the US. The research appeared in some academic journals such as "Proceedings of the National Academy of Sciences". The Texas team predicted that production from the major four plays would peak in 2020 followed by downturn. As shown in the graph below, in 2030 these plays would be producing only about half as much as in the EIA forecast.

Experts indicate much more detailed analysis conducted by the University of Texas. The EIA research breaks up each shale play by county, calculating an average well productivity for that area. But counties often cover more than one thousand sq. km, large enough to hold thousands of horizontal fracked wells. Compared with that of the Texas team splits each play into blocks of one square mile (2.6 sq. km) that is at least 20 times finer than the EIA's.
Experts have noted that the level of detail is of great importance, since the distribution of shale gas over the deposit area is not homogeneous, and accordingly, the performance of the wells may vary significantly. Researchers from the University of Texas found that the major shale plays included into the studies do not have so many spots with really high production potential, which will be sufficiently profitable. Moreover, as it turned out, shale formations are rather rapidly exhausted. Therefore, the life of shale wells usually does not exceed a maximum of 3-4 years.

Under conditions where wells are losing their performance rapidly, companies need to step up drilling activities to support further growth in shale gas production. In comparison the US companies drilled in total 12,000 wells in 2005, but in 2013 the same number of wells were drilled already over a period of less than one month.

It is important that such a dramatic increase in drilling operations leads to the growth of capital and operating costs of shale plays development, which appear significantly higher than with conventional gas production. As a result, shale gas cannot compete on equal terms with the natural gas produced by traditional technologies. It is obvious that due to objective reasons the opportunities for increasing the number of wells are not unlimited.

The results are “bad news”, said Tad Patzek, head of the University of Texas at Austin's department of petroleum and geosystems engineering, and a member of the team that was conducting the studies. With companies trying to extract shale gas as fast as possible and export significant quantities, he argues, “we're setting ourselves up for a major fiasco”.

The United States is still seeking to promote shale gas exploration and development to Europe. However, such diverging opinions regarding the future of the US shale industry now more and more curb the EU enthusiasm for developing these alternative energy technologies.

Recently the new regulation has been adopted by the German government that fracking should be prohibited in so-called sensitive regions such as nature parks or water bore areas, and in depths above 3,000 meters. The measure still needs to be passed by the Bundestag when it goes up for a vote in May.

With all of these going on, why not take the plunge in all countries of the EU and completely bury a utopian idea of shale gas production in Europe?
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Why the promises of Energy Union developers to draw lessons from the Nabucco project is not yet convincing?

In an interview with the Turkish publication Hurriyet on March 14 Vice-President of the European Commission Maroš Šefčovič in charge of Energy Union promised to draw lessons from the past and not repeat mistakes of the Nabucco project planned to transport gas from Azerbaijan and Turkmenistan through Turkey to the EU countries.

The story of this project really deserves to be remembered today. Preparations for the Nabucco project started in February 2002 and lasted more than a decade. It was finished on 26 June 2013 when the Austrian company OMV Gas GmbH (Gas Connect Austria GmbH), which had led a consortium for the construction of the Nabucco gas pipeline, officially announced the cancellation of the project.

One of the reasons for the cancellation of the project was that there were different opinions concerning its feasibility. Nevertheless, as it turned out, after almost two years the attitude to this project still widely differ, and there are those who even declare their intention to revive it. During the recent talks in Sofia, President of Azerbaijan Ilham Aliyev and Bulgarian Prime Minister Boyko Borisov agreed on a strategic partnership in order to resume the gas pipeline project Nabucco.

Many of us were greatly surprised by the news. Anyway, it just indicates that the historical lesson on the importance of taking into account the positions of all potential participants in such kind of transcontinental projects is apparently ignored. As it already happened before, complex political and diplomatic maneuvers keep going on and that, sorry for the comparison, does not fit into rigid steel pipelines of gas infrastructure.
Nevertheless reaching the concurrence among the countries participating in such large-scale international projects is important, but it is not the only condition for their successful implementation. The story of Nabucco revealed that the initiators of that project could not sufficiently answer two fundamental questions, which define its viability and therefore attractiveness to investments. First question concerns conditions of the markets, where gas has to be delivered by the planned pipeline. Second one, not less important, is about the availability of the resource base consisting of those gas deposits, which will provide a constant load of pipeline capacity for many decades.

Correction of past mistakes on the Nabucco project promised by the European Commission deals with the Southern Gas Corridor, which the EU prioritized in the European Energy Security Strategy aiming at diversification of natural gas suppliers. It is commonly known that the Southern Gas Corridor highly ranked among prospective gas suppliers to the EU consists of three separate projects: the South Caucasus Pipeline (SCP) via Azerbaijan and Georgia, the Trans Anatolian pipeline through Turkey (TANAP) and its continuation within Europe - the Trans Adriatic Pipeline (TAP) via Greece, Albania and Italy.
Obviously, to take properly into account the lessons of the past, at first the European Commission needs to have full confidence in above mentioned key questions regarding the state of internal gas market and a guaranteed resource base for new pipelines.

Let us consider current information on these issues with regard to TANAP / TAP to understand how much it is possible to avoid project failure next time after Nabucco.

European part of the Southern Gas Corridor - TAP has a route length of 520 km through Greece, Albania and the Adriatic Sea (offshore part) and ends in Italy. TAP's initial capacity of 10 bcm of gas per year is distributed between three countries: the Italian natural gas grid will get 8 bcm, Greece and Albania will share the rest volume of gas by one bcm each. However, it is obvious that TAP will not be able to provide gas to most markets of South-East European countries, which are experiencing particularly high demand for energy.
It refers to the countries that counted on the South Stream pipeline construction, which envisaged deliveries of 63 bcm of gas from Russia to Bulgaria, Hungary, Serbia and Slovenia and some other countries. After the South Stream project had been cancelled last December, all these countries lost opportunities to get access to new gas supplies in the nearer future.

By the way, it is likely that just an awareness of such a loss made Bulgaria propose to revive the Nabucco project. Nevertheless, it is evident that neither future TAP nor Nabucco restored from the past would merely present any realistic prospect for meeting fully market demand in South-East European countries. The situation is coming closer to repeating old mistakes - these markets may be left without new gas supplies at least in the near future if ...

It can happen if the European Commission does not take proper care of the development of the internal gas transport infrastructure connecting South-East European countries' markets within the framework of future Energy Union. Although the European Energy Security Strategy envisages the construction of interconnectors, but its implementation will be dragged on for many years. In addition, Serbia and Macedonia should find their own funds and partners to develop their gas transportation infrastructure.
Therefore, the first key issue of providing the infrastructural integrity of national gas networks can be fulfilled, and it is expected that the European Commission and its future Energy Union will play a significant unifying and stimulating role.

However, there is still the second issue of the resource base - are there enough gas from the Southern Gas Corridor for all European countries concerned but not just for those countries that were originally identified in the TANAP / TAP project?
Let us recall that the TANAP pipeline is designed to transport from Azerbaijan an additional gas from the second stage of the Shah Deniz deposit on the route from the Georgian-Turkish border to the western border of Turkey. Azeri gas will be delivered to Turkey via new pipes laid alongside the South Caucasus Pipeline "Baku - Tbilisi - Erzurum" which was officially opened in 2007.

It is assumed that in parallel to the South Caucasus Pipeline with capacity of 8 bcm accommodating gas from the Shah Deniz Stage 1, there will be another pipeline in the same route. The new pipeline will have a capacity of 17 bcm per year, including 16 bcm reserved for the Shah Deniz Stage 2 and another 1 bcm as a technical reserve.

In turn according to the initial project design, the TANAP pipeline will have the capacity of 16 bcm, of which 10 bcm should be transported to Europe and 6 bcm - to Turkey.

However, in fact it is by no means enough to meet the needs of Europe. There is every indication that here is no way yet of getting away from the problem of gas availability for growing imports to Europe. Moreover, a ghost of Nabucco reminds us about it even more convincingly after the cancellation of the South Stream gas pipeline.

Apparently, to look for new ways of solving this problem in December 2014 the European Commission addressed to Azerbaijan with a request to double the capacity of the TANAP pipeline. In response Azerbaijan promised that the TANAP capacity would be increased to 23 bcm but only by 2023 (and in 2026 it would be increased to 31 bcm).

In the meantime, future implementation of such optimistic promises actually raises reasonable doubts. Actually, an increase in capacity would require significant changes not only in the working design of the TANAP pipeline project, but consequently in the planned new part of the South Caucasus Pipeline. In addition, such project upgrade would result in the necessity to attract new investments.

Even more importantly, there is no objective evidence that now and in the considered future the Caspian region really can provide availability of sufficient gas resources to fill the TANAP pipeline with doubled capacity. It is quite clear, that to fulfil these promises by means of gas from Shah Deniz only will not be enough.

Azerbaijan apparently hopes that additional gas resources can be developed. In December 2014, Company British Petroleum and Azerbaijan’s SOCAR (the State Oil Company of the Republic of Azerbaijan) signed a production sharing agreement (PSA) to jointly explore and develop potential prospects in the shelf area around the Absheron Peninsula in the Azerbaijan sector of the Caspian Sea. However, there are no certain estimates how much time it might take to start a new gas production.

Due to the limits of resource base in Azerbaijan to supply gas via the Southern Transport Corridor, the European Commission included into the short list of potential suppliers presented in the Energy Union strategy two other countries of the Caspian region - Turkmenistan and Iran.

In July 2013, a framework agreement was signed between the governments of Turkmenistan and Turkey on cooperation in deliveries of Turkmen gas to Turkey and to Europe. Turkmenistan's President Gurbanguly Berdimuhamedov paid an official visit to Turkey on March 3, where the discussion of Turkmen gas supplies for TANAP pipeline was continued again. Meanwhile a desire alone cannot lead to success, as well as "a good will" of the parties, even in this case with the active support of the EU. That is why it is too early to talk on any concrete date of commencing Turkmen gas supplies.

In reality, there are problems, which people are trying to ignore. First of all, Turkmenistan's gas resources are currently fully focused on the Chinese market and no radical changes are in sight.

There are issues, which have not been regulated yet, of which the laying of the offshore Trans Caspian pipeline is the main one. As we know, the coastal states have not determined the Caspian Sea's status. At the same time, all the countries have their own interests. For example, Iran demonstratively demands the strict compliance with environmental regulations, which shows that this country is taking advantage of the situation, not wanting any partnerships without its participation.

Tehran seems to be in no hurry to give a "green light" to the development of cooperation between Ashgabat and Baku. Iran is thus promoting its export opportunities, suggesting Azerbaijan and Turkmenistan use its own transport infrastructure for subsequent transit of gas through Turkey to the EU.

However, all this only prolongs time for an indefinite period, since, despite the intentions of the European Commission, Iran is far from ready to draw up concrete plans to supply gas to Europe. In this case, the situation is directly connected with the complex problems of Iran's relations with the US and Israel. Iran's inclusion in the list of prospective gas suppliers to Europe is rightly seen by the world as a political move, which will not be followed yet by real gas projects. As the sanctions against Iran, motived by its nuclear programme, remain in force, and Israel protests sharply against any hint that they may be relaxed.

Thus, the opportunity of Iranian gas imports proposed in the Energy Union strategy raises rather hard political dilemma for Brussels and Washington, which requires to choose what is more important - to maintain the direct and indirect sanctions imposed on Russia including the policy of curbing gas supplies or to continue the sanctions regime against Iran. The intrigue may turn out to be that neither Iran nor Russia have anything crucial to lose in this situation.

Why does the European Commission persist to prove the possibility of replacing Russian gas while at the same time referring to the willingness to take into account the lessons of the past? Why is it less important to keep in mind the mistakes with the South Stream project too that happened after a failure of the Nabucco project? Indeed, history shows that hoping for time will judge everything by itself could cost us too much.
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Why is it not worth regretting the fact that US companies are terminating its projects to extract shale gas in Europe?

According to the US Energy Information Administration, France has the largest deposits of shale gas in Europe, located mainly in the basin of Paris and the Rhone Valley. Perhaps that is why with this country US companies intended to begin development of European resources of this unconventional energy. However, France became the first country in the world where 13 July 2011 the Senate legally banned a mining method using the so-called "hydraulic fracturing."

Following the ban, US company Schuepbach Energy, which had two exploration licenses cancelled in southern France, appealed on several counts. But the Constitutional Court rejected these complaints and upheld the 2011 law banning the hydraulic fracturing in the country. France's Energy Minister Philippe Martin called the court ruling "a legal victory, but also an environmental and political one".

Meanwhile it was only the first victory. At the same time, it may happen that somewhere such a reasonable opinion can retreat under pressure of shale technologies image actively promoted in society and political circles. Not everywhere in Europe yet people are aware that environmental risks associated with development of shale deposits will be too high. After all, Europe is of particular ecological vulnerability because of a very high population density in most countries, against which a fragile environment, as it is, often barely withstands.

For many of us in Europe it is even difficult to imagine how the horizontal drains are kicked off at the base of a vertical hole at a depth of 1,500 to 3,000 meters and can extend over a distance of 1,000 and 2,000 meters underneath village houses or city blocks. After that, multiple fractures are created by injecting a very high-pressure mixture of water, sand and several hundred different harmful chemical additives. Routinely on existing technologies, the operations of hydraulic fracturing should be repeated in the same production area up to 10 times a year.

How the density of the drilling sites in the fields of shale deposits looks like one can see in the photo made in the Jonah Field - a large natural gas field in the Green River Basin, Wyoming, in the United States. At the sight of this photo, all of us might wonder if there will be anyone in sound mind, who can combine this half-Mars picture with our European landscape?

Staying in one of the first places on the estimated reserves in Europe, particularly Poland has been in a deep conflict regarding shale gas exploration in recent years. Among other problems of shale gas development had arisen in Poland there was the fact that this technology leads to a high consumption of water, which can be a very harmful to the country's agro-industrial sector.

Besides there is always the danger that huge volumes of fracking mixture will uncontrollably be spilled over the ground surface, infecting everything around. According to the evidence of Polish farmer from the village Żurawlów, close to the town Zamość, when the US company Chevron conducted seismic surveys "water looked like the oil slush. And before that it was crystal clear".

Confrontation with Polish farmers in Żurawlów lasted more than a year. During that time, activists of environmental organizations from the United States, Czech Republic and Latvia arrived in Żurawlów sharing their experience in the opposition against fracking in their countries. As a result, Chevron terminated its activities in the Lublin province, and later on in January it completely stopped exploratory drilling in Poland. Before that, within three years the US companies ExxonMobil and Marathon Oil, and the Canadian Talisman Energy Inc. also had left Poland. This year in February Chevron announced that it would give up shale gas exploration plans in Romania.

Huge amount of water mixed with sand and different chemicals that is pumped deep into the earth for fracking poses is a real threat not only because it causes a very dangerous environmental pollution. In the United States, where the development of shale gas production has already reached a very large industrial scale, there is another serious problem. Modern fracking technology provokes artificial earthquakes.

According to the US Geological Survey, published by the Washington Post, an unprecedented increase in the number of earthquakes was recorded in Oklahoma, where a big part of the Caney and Woodford Shales is located occupied by sites of drilling and fracking. As of 2012, there were an estimated 11,000 private and commercial injection and disposal wells in Oklahoma and the number of earthquakes has been accordingly growing. In 2014, the US Geological Survey data showed there had been 585 earthquakes with magnitude 3.0 or greater in Oklahoma that is more than three times the number of earthquakes as in California.

It is important that the greatest impact, causing movements of the earth's crust, resulted not from the fracking process but mostly due to associated deep geological disposal of sludge water, which pumped back into specially drilled wells. According to various estimates, there are about 30 thousand disposal wells in the United States. Numerous facts point at a direct link between the injection of fracking wastewater into the earth and the increase in seismic activity, since the latter more occurs around disposal wells. Thus, according to the Earthworks report released in March 2014 there are more than 1,500 wells for the disposal of wastewater in California. Over a half of these wells is within ten-mile zone of the earthquake epicenter, and 6% or 87 wells - within one-mile radius.

It seems that everybody has already aware of that fracking technology carries various threats such as contamination of groundwater, earthquakes, enormous water consumption, and risks caused by improper disposal of flowback water.

However, despite how much fracking supporters wanted to wave it away European countries should draw attention to the existing experience and make the right conclusions that their plans for a widespread use of fracking technologies in Europe intended for shale gas production do not have any proper environmental as well as economic feasibility. Before everything else such plans are motivated by unreasonable ambitions of policy makers and reckless commercial interests of international oil companies, which are promoting all over the world the shale technology a little worrying about the consequences.

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Unfortunately, the doors for the shale gas exploration and production technology are open in most European countries yet. According to the article published on April 5, 2014 in the Economist, as shown in the map above, there is a ban on the production of shale gas only in five European countries, including France, Luxembourg, the Netherlands, the Czech Republic and Bulgaria. Meanwhile in February Germany proposed a draft law that would allow commercial shale gas fracking at depths of over 3,000 meters in this case removing a moratorium that was imposed several years ago
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Anyway, the hope is necessary that a careful attitude towards ecology conservation in all European countries will adjust their shale policy and will be reflected in the priorities of the future Energy Union.

When would it be possible to expect that our politicians and lawmakers will definitely say goodbye to a troublemaking dream of inspiring a dangerous shale boom in Europe? Otherwise, do they still need for that real earthquakes and a special smell of oil in a sauna?

Why do waves of the U.S. shale gas revolution not cross over the Atlantic at least until the end of this decade?

In March last year, speaking at a press conference in Brussels after the US - EU summit, the U.S. President B. Obama told European leaders that the US could provide all of the natural gas Europe needs on a daily basis . Obviously, these promises, as the US had expected, should strengthened the EU intentions to boost the energy security by reducing Europe's dependence on Russia. A significant decline in Russia's market share in Europe was one of the main objectives of the EU Energy Security Strategy adopted in the late spring of last year.

The spring will come soon again; a whole year is nearly over after these events. Let us look at what has changed in favor of ensuring the European energy security for the period from the spring of last year.
Among the practical steps completed last year against Russian gas imports to the EU it especially stood out that Bulgaria did not give construction permits to build the South Stream pipeline seriously affecting the European energy security but, unfortunately, not for the better.

Now the fact that some of the most vulnerable South East European countries lost an opportunity of obtaining in the end of this year Russian gas by first of four lines of the canceled pipeline South Stream with an annual capacity is up to 16 bcm has far-reaching consequences, which are considered differently. This gas will not come to Bulgaria. Moreover, the former risks of energy security for the country remain, because 85% of the gas consumed by Bulgaria, imported from Russia through the Ukraine's war-torn territory.

Cancellation of the pipeline South Stream made the EU initiate a special working group to discuss what actions the countries - former participants of the South Stream project might undertake in the present situation. Although following the results of its first meeting in Sofia it was not clear what Bulgaria would receive instead of lost opportunities to strengthen its energy security as well as missed investments into the Bulgarian section of South Stream project and foregone earnings from gas transit. The European Commission promises to Bulgaria only legal and expert support in future gas projects, which, as the Vice-President for Energy Union Maroš Šefčovič pointed out at the working group meeting, can occur within two to three years.

In the meantime, the US openly celebrate their victory over the South Stream project. "The battle was won," the US Secretary of State John Kerry told the staff of the American Embassy in Sofia. "And here we are today in 2015, and Russia is still trying to impose on people its will."

However, such an enthusiasm does not correspond to what has been expected by Europe and what Europe is waiting for now. Indeed, it is unlikely such "victories" somehow can help European countries to make progress in achieving strategic goals of energy security. Therefore, in this situation, Brussels has even more actively to look for opportunities for enhancing energy security in two main directions: firstly, substantive constraints on the overall demand for fossil fuel like natural gas and, secondly, a significant increase in supply from alternative sources.

At the same time, we must realize that both search logic of such alternatives and identification of best options for energy supplies should be based on the principles of competition so highly respected in Europe as cradle of the market economy. As we may see in current reality, the EU energy market has turned into one of the arenas of confrontation between the US and Russia, which is now openly declared by the US officials. This indicates that Washington is openly taking control of the future of the European energy market. Amos Hochstein, the US State Department’s special envoy for international energy affairs has recently said that the U.S. would like to see a 20 percent slice cut out of Russia’s current share of the Eastern European gas market by 2020.

In fact, with the absence of "the spur of competition" between gas suppliers at the European energy market our consumers would lose benefits of better prices, attractive commercial terms of delivery and much more. It is not difficult to see that the US competition with Russia for the European gas market does not comply with the traditional model, which should be aimed at the interests of end users of gas in Europe. According to this model, only Russian side presents such usual evidences of competitiveness for consumers, as many years’ experience in supplies of gas to Europe, security of supplying extended volumes based on huge gas reserves in Siberia and on the continental shelf in the Arctic. It might be well to add the rejected investments of the Russian company "Gazprom" into the South Stream gas pipeline now went off the prospects for development of Eastern European gas transport infrastructure.

What do the US competitors undertake in the rivalry for European gas market from their side? In the first instance it is a political pushing through Brussels, and, if necessary, directly through the governments of the EU Member States such bureaucratic decisions that should hinder the activities of their competitors.
Besides, probably for maintaining the competitive image, it was promised that American companies would bring to Europe new investments and technologies on waves of the US shale boom, which will cross the Atlantic approaching European gas market rather soon.

Unfortunately, the role of Brussels in the US competition with Russia is often not consistent with vital economic interests of European gas consumers - both business owners and households. As usual agreeing with the Atlantic allies, Brussels without hesitation accepts the proposed transition to much more expensive North American shale LNG even though the starting date of its supplies to European market has not conclusively determined yet.

Brussels in turn has recently reminded the US of the necessity to implement the idea of supplying Europe with North American LNG. “Energy needs to be a key part of Trans-Atlantic Trade and Investment Partnership discussions” the EU Climate Action and Energy Commissioner Miguel Arias Cañete said at the Atlantic Council meeting in Washington. “We need gas to be traded freely across the Atlantic”.

Meanwhile there is no any certain reaction to this reminder. The problem obviously is that the promises made by President B. Obama have proved difficult to implement in practice. Actually now there are real obstacles to shale LNG exports from the US to Europe. First, American companies should be allowed to deliver shale LNG to Europe, since now it is banned. The “Export American Natural Gas Act of 2015” was assigned to the US congressional committee on January 21, 2015 and it was made not for the first time. The initiators of the bill point out that it should speed up the procedure of permits for export of LNG assigned to the US Department of Energy.

Apparently, opponents of the bill, including experts from the Department of Energy, who have held up this legislation up to now, better aware of the complex problems in the US shale industry, which are hiding behind the facade of diagrams showing an optimistic growth in shale gas production. There are serious concerns that the export of shale LNG can only aggravate the problems, which have long been objectively increasing within upstream sector of the US shale industry.

In the meantime, due to the unique character of the US shale industry and the extent of its influence on the international energy market, the existing problems in the upstream sector deserve special consideration that is better to do separately but now let us turn back to the prospects of the shale LNG supplies to the European market.

Apart from the above-mentioned absence of the legislation, next barrier existing on the route to Europe concerns a delay in development of the transport infrastructure needed for shipping LNG from the US. In this case, the problem is that construction of LNG terminals in the US is losing its investment attractiveness because of the drastic drop in oil prices. Now more than 14 projects of LNG terminals in the US happened to be under the threat of suspension of construction.

A low level of oil prices undermines both prospects of shale gas production and development of infrastructure for the transportation of LNG from the US. Contracts for North American LNG are closely correlated to the price of gas in the Henry Hub - а distribution hub on the natural gas pipeline system in Erath, Louisiana, where the nine largest interstate pipelines converge together. At the same time, LNG prices of competing suppliers from Australia, Qatar and other countries are calculated based on oil quotations.

When oil quotations were over 100 USD per barrel LNG export from the US had certain advantages over competing supplies from terminals in other regions of the world, but in consequence of collapse in oil prices to a level of 55 USD per barrel for WTI and 60 USD for Brent these advantages disappeared. Changes for the better are not expected. Moreover, a new report of Citigroup, published in February this year predicts that "West Texas Intermediate Crude, currently trading at about 52 USD per barrel, could fall to 20 USD “for a while” until the current supply glut is worked off".

With regard to the readiness for unloading the North American LNG on the European continent, here the situation is not much better. Only Western European countries possess the necessary LNG terminals and regasification facilities. As to South East Europe, in these countries the LNG infrastructure is completely missing because initially a local gas transportation system was intended for the consumption of pipeline gas from Russia.

It is planned that the first LNG terminal in South East Europe will be Adria LNG Project in Omisalj on the northern Adriatic island of Krk that will has a regasification capacity of 10 bcm per year. According to the EU Energy Security Strategy, adopted in Brussels, this project is expected to launch in about five years in 2019.

Thus, the facts indicate that the US LNG might actually appear at the European market and particularly in South East European countries only to the end of this decade.

Why do politicians urge us to believe on their bare words that despite the existing problems the North American shale LNG will be able soon to put competitive pressure on Russian gas at the European market?

Why is it a big surprise to Brussels that Russia will stop gas transit via Ukraine?

It is better for comparison to start with considering surprises caused by natural disasters. Perhaps this is what it is the most difficult to predict and to prevent. As you may know, all over the world considerable resources are spent on current monitoring and assessment of the impact of various natural hazards on energy markets, from a sharp drop in temperature in winter to a catastrophic earthquake and tsunami that could radically change the concept of energy development of entire countries. So as it happened in Japan after the Fukushima nuclear disaster.

However, it is not always possible to avoid the consequences. In January severe storms in the North Sea caused a nasty surprise - three major gas fields were shutdown facing a high danger of short circuit in power supply. Statoil was forced to stop production at the largest gas field Troll, which accounts for 60% of all gas on the Norwegian shelf. Production outages triggered by bad weather resulted in a sharp drop of about 40 percent in Norway's gas exports. Obviously, it is impossible to foresee these kind of surprises.

Nowadays in the 21st Century climate change and political tensions are having significant implications on the energy market. Nevertheless, often the events taking place in this area, firstly, are not always, and, secondly, are not so straightforward perceived by everybody as something extraordinary. In general, there is a common opinion now that it is hard to find any big surprise for us.

Arguably, the cancellation of the South Stream gas pipeline project became a real sensation. Many observers and experts noticed that President Vladimir Putin's decision to abandon the South Stream announced on December 1 actually stumped politicians in Brussels. There were no clear comments of the EU leaders even on the next day. The arguments appeared later that Russia allegedly was required to negotiate for many weeks in order to denounce the interstate agreements on the construction of the pipeline. Although for everyone who had ever followed just a bit of the South Stream project development, it was obvious that because of a growing political pressure from Brussels and Washington Bulgaria would never give permission for the construction, and therefore further implementation of the project would be impossible.

Maybe then, for somebody it was a real surprise. However, interpreting the well-known saying "Sawing off the branch they're sitting," we can point out that in this case the surprise was that partly sawed off branch collapsed at UNPREDICTABLE TIME, but it was not the fact of the collapse itself.

In other words, it is unlikely a surprise that the project, which had been "sawed off" so diligently for several years, collapsed. Europe should be much more surprised if the project somehow would hold out under such conditions, should not it?

If we reject unserious versions trying to explain the expression of surprise in the reaction of European politicians, then it remains only to assume that they expressed an outwards demonstrative amazement. And indeed there was no surprise to those who deliberately and openly led the situation with the South Stream project to such an outcome.

It is in the past already, in the history of the EU's relations with Russia, where in the future a separate chapter will be devoted to the unfulfilled South Stream project. It would make sense for all of us to see the hidden intrigue of this past story in order to recognize correctly what real and, especially, what alleged surprises further await the European energy market. After all, there will be still other causes yielding new surprises.

The EU looked like very much surprised again when the Russian Gazprom announced its intention to redirect in the near future its natural gas transit, which goes to Europe via Ukraine. The Vice President of the European Commission, in charge of Energy Union Maroš Šefčovič was informed about it during a one-day visit to Moscow on January 14. At the meeting the head of Gazprom Alexey Miller said: "The project (South Stream – ed.) is closed. The gas pipeline Turkish Stream is the only route by which can be supplied 63 bcm of Russian gas going now while in transit through Ukraine. No other options. Our European partners informed of this, and now their task is to create necessary infrastructure from the border of Turkey and Greece".

Maroš Šefčovič commented that he was “very surprised” by Alexey Miller’s statement, adding that such a decision could have a negative impact on Russia's reputation as a reliable supplier of gas.
However, underlining the reliability of Russian gas supplies, Maroš Šefčovič perhaps unintentionally got directly to the point. That is it because Russia has already explained not once that the decision to build the South Stream pipeline bypassing Ukraine induced by the necessity to ensure security of gas supplies to Europe. After its cancellation, Russia again found the other route around Ukraine as "Turkish stream."

Obviously there is the only one reason in this case - it is a non-decreasing political and economic instability in Ukraine, which, unfortunately, the EU could not take under international control up to now. And many of us in Europe doubt that it hardly ever would be possible.
It is appropriate to recall how the supplies of natural gas to Europe were completely shut off twice in 2006 and 2009 because of a pricing dispute between Russia's Gazprom and Ukrainian gas monopoly Naftogaz.

First serious dispute began in March 2005 over the price of natural gas supplied and the cost of transit. Russia claimed Ukraine was not paying for gas. At the same time Ukraine siphoned off gas from the transit pipelines which was intended to be exported to the EU. Ukrainian officials at first denied the accusation, but later admitted that transit gas was used for domestic needs. When the negotiations came to a standstill on January 1, 2006 Russia cut off all gas supplies passing through Ukraine and only on January 4, 2006 Russia and Ukraine reached a preliminary agreement, and the supplies to Europe were restored.

The second shut down of gas transit to Europe via Ukraine happened in the most severe period of winter in 2009 and lasted for nearly two weeks. Because of the gas supply disruptions through Ukraine in 2009 Slovakia and a number of Balkan countries had to impose severe restrictions in gas consumption, many industrial enterprises stood still and electricity power supply was disconnected as well.

Now under a catastrophic mismanagement of the country and resumption of massive hostilities in the South-East of Ukraine, neither any Kiev's promises nor encouraging words from Brussels cannot reassure in the reliability of the Ukrainian gas transit route to Europe, it does not matter who will be trying to prove it.

Now let's imagine that in 2019 Russia will fulfill its intention not to renew the transit agreement with Ukraine and also will offer the EU to receive gas from other routes, primarily by the planned Turkish stream pipeline. It's hardly possible to allege that the construction of Turkish Stream pipeline can result in reducing the security of supply in the EU or will somehow influence negatively on reputation of Russian gas supplier. It shouldn't be surprising that now Russia itself as a reliable supplier openly suggests taking into account in advance these future gas route changes.

Ultimately, it comes as no surprise for Europe, but instead there will be the challenging task that should encourage the EU to implement the European energy security strategy with consideration of new southern routes of gas imports to the EU to be opened in the near future.

As it is correctly noted in the comments published by The Economist, with all its disadvantages a perennial contention over the construction of the South Stream, as well as the recent turn of events in the direction of the Turkish stream can positively affect the integration within the European energy sector. And besides, Russia's energy policy has actually given an additional impulse to accelerate the development of the project of the Energy Union.

However, the question then arises: whether all the countries in Europe are ready for such a development?

Why is it unlikely possible for Bulgaria to become a testing ground for the newly created Energy Union?

In the middle of the 20th century Sir Winston Churchill had already called the Balkans as "Europe's soft underbelly". Since then, unfortunately, little has changed, and these unflattering comparisons were already used countless times. Again, there is an article in such an authoritative source of international news as "Financial Times" under the same title:” The Balkans are the soft underbelly of Europe”. This time an old unpleasant epithet is applied to the Balkans in the article of Bulgarian political scientist.

Even so, it is doubtful whether the majority of the Balkan countries agree with this characteristic. As for Bulgaria, the political scientist is right saying so about his own country. Unfortunately, Bulgaria has turned out the weakest link in the chain of partner countries, which have taken a consistent position for several years pursuing their national interests in strengthening its own, emphasize once more, its own energy security by means of participation in the South Stream project.

Bulgaria experienced the most intense political pressure. There was no other partner country taking part in the South Stream project implementation visited by so many high-ranking policy makers from Brussels and Washington. Ultimately, Bulgaria did not sustained, turned backwards under that political pressure and blocked the South Stream pipeline by not issuing construction permits. Since then, the opponents of the South Stream pipeline are pleased to repeat that the cancellation of its construction reducing Moscow's influence.

But the problem is that this so-called "influence reduction" did not move the Balkan countries any closer to solving pressing economic issues, which require a drastic improvement in energy supply. The Bulgarian political scientist called the Balkans just a "EU's backyard" in his article in FT. Nevertheless, it should not mean that EU citizens living there do not need modern and stable lighting and heating, environmentally friendly transport, etc., do they?

Almost nobody conceals now in Europe that Russia's refusal to construct the South Stream gas pipeline came as a total surprise. As if the EU did not do its utmost to slow the commencement of its construction until the very last day apparently not expecting it really can happen. An awareness about what had really happened appeared only when Russian President Vladimir Putin stated about cancellation of the South Stream gas pipeline. Before that neither in Sofia nor in other European capitals, obviously, such a scenario was not considered.

That is why the Prime Minister of Bulgaria Boyko Borisov had urgently to leave for Brussels to consult with the European Commission Vice President Maroš Šefčovič. The Prime Minister brought to Brussels a proposal to build a gas hub in Bulgaria, which could be a part of the infrastructure necessary for implementation of plans for creating the Energy Union.

Meanwhile, there are still doubts that the idea of this gas hub originally belonged to Bulgaria since before that the country's leadership did not demonstrate enough initiative often proving appropriateness of Churchill's characteristic with regard to the Balkans mentioned above. However, it does not matter who invented the idea of constructing a gas hub in Bulgaria. Another thing is much more important. This idea resulted from the necessity of providing the society with convincing arguments that, despite the problems with the South Stream pipeline, there are some alternative projects for energy development and, therefore, the loss is not so great.

But there is an understanding as well as more or less concealed annoyance in the majority of the Balkan countries that in fact they will encounter a significant loss of future benefits because the project cancellation postpones real opportunities of increase in energy consumption by several years.

Meanwhile it is necessary to consider not only energy problems, but also missed out huge investment gains. Russian Gazprom invested in the Nord Stream pipeline through the Baltic Sea, and it was supposed to be with the South Stream as well.

Joint project companies were created for implementation of onshore part of the South Stream pipeline in all countries - partners of Central and South East Europe. For example, South Stream Bulgaria is a joint-venture company established to manage the project in Bulgaria, owned equally by Russia's Gazprom and the state-run Bulgarian Energy Holding (BEH). In August last year South Stream Bulgaria joint venture raised its capital to 397.6 million Levs (about 200 million Euro).
Having abandoned the South Stream project Gazprom stopped investing into development of the EU gas transportation infrastructure. More importantly, this decision marked the beginning of radical changes in the strategy of the Russian company, which before was primarily focused on gas deliveries to the countries of end users in the European market.

In this regard, the head of Gazprom Alexei Miller stated after the talks in Moscow with the European Commission Vice President Maroš Šefčovič on 14 January that the new Gazprom strategy in Europe would be built in compliance with EU plans for creation the Energy Union that envisage centralizing purchases of Russian gas. In this regard, Gazprom intends now to construct new pipelines for delivering gas up to Europe's borders only.

Especially it concerns a new gas pipeline Turkish Stream announced simultaneously with the cancellation of the South Stream, which is considered as its direct successor. The new pipeline to Turkey will have an annual capacity of 63 bcm and will include a gas hub on the Turkish-Greek border specially constructed for customers in Southern Europe.

It turns out that Russian Gazprom purposely changed the new gas transmission infrastructure to make it consistent with the model of the future Energy Union, which has become one of the top priorities of the new European Commission team. The European Commission Vice President Maroš Šefčovič said it is expected that the concept of Energy Union is to be presented in February 2015. The Concept of Energy Union will include infrastructure projects aimed at building a single internal energy market.

However the question is whether the gas hub proposed by Bulgaria is included in the Concept of Energy Union? Probably not, and in future Bulgaria will be receiving gas from the Turkish gas valve since an opportunity of taking a position of the major Balkan hub on the South East border of Europe was missed forever. Because without the South Stream there is no gas in Bulgaria to distribute and to transit. "Gas hub does not make sense without Russian gas, "- said the former Bulgaria’s President Georgi Parvanov on the construction in Bulgaria a gas distribution hub instead of the South Stream pipeline.

Obviously, the chances to build a gas hub in Bulgaria on the EU money are very weak. Furthermore, there will be no financial support from Washington as it became clear after US Secretary of State John Kerry's visit to Sofia, when he announced plans just to send the top US energy official and no more.

Therefore, Bulgaria is unlikely to become a testing ground for the implementation of a new model of the Energy Union, acting as a gas intake and transit facility for the EU gas imports. Now Bulgaria is offered another role clearly defined in the article of well-known American edition «Foreign Policy» on January 16 under the title: "Bulgaria Is the New Battleground in Fighting Russian Energy".

No wonder as far as Bulgaria has served against its own energy interests and now the country will be getting so called anti-gas bastion rather than a gas hub.

Why does it happen that actually the fight against real energy projects, which are capable to strengthening energy security, is presented as an undeniable option? 
Why did it suspend improving the quality of life especially by means of achieving for that a required level of energy consumption in EU countries?

Is there anybody who would be willing to invest in the Ukraine’s gas transportation system? Moreover, why is there actually no one at all?

Popular opinion has been spread for a long time, especially among European politicians, that the pipelines "Nord Stream" and "South Stream" had the only one goal - to punish Ukraine depriving this country of gas transit business. Of course, this point of view primarily reflects the Ukraine's interest in retaining of its transit revenues. This is a fact that now it is one of the few stable sources of foreign currency earnings, which are very severely lacking on urgent needs of the Ukrainian dented economy.

As well as everywhere in the energy sector now Ukraine is experiencing an acute shortage of funds for purchasing gas. Therefore, no wonder if the amounts received from Russia for gas transit services are paid back to the Russian company “Gazprom” for new gas deliveries. According to Ukrainian sources, in September 2014 Russia paid for the transit of gas 68 million USD and about 70 million USD in October. These, in terms of gas contracts relatively small amounts were included in 387 million USD that on 5 December the Ukrainian company “Naftogaz” transferred to “Gazprom” as an advance payment for the supply of 1 bcm of gas from Russia. Recently on December 31 "Gazprom" received 150 million USD from Ukraine’s "Naftogaz" as an advance payment for Russian gas supplies in January 2015.

At first thought, usage of transit revenues for gas purchase seems to be a common practice, and perhaps Ukraine has to be just satisfied with this possibility. However, if you look at this situation from our side taking into account EU countries' interests as importers of Russian gas transported through the Ukraine’s gas transportation system (GTS), the attitude towards this practice should be quite the opposite, because it is bad for Europe and even very bad!

The main problem here is that, as is widely common in energy sector, the calculation of gas transit tariffs is based on operating and investment costs. That means that revenues obtained from gas transit payments mostly should be directed to ensuring proper maintenance and technical condition of the Ukraine’s GTS.

Meanwhile, actually in Ukraine such basic requirements have been ignored for many years. It had taken place already at a time of the previous Ukraine's governments. And even more so under the pressure of severe fiscal deficit now nobody cares to use this transit money for its intended purpose of GTS maintenance. Ultimately, the Ukraine’s GTS keeps operating although a service lifetime stipulated by the technical regulations for the majority of pipes and equipment have been completely exhausted long time ago.

An excessive deterioration of the Ukraine's GTS caused an increase in number of technical accidents. Last summer there were two gas explosions in the Poltava region on the largest pipeline "Urengoy - Pomary - Uzhgorod", which pumps Russian gas to Europe. Later in autumn an accidental depressurization put out of order the pipeline “Brotherhood” in the Transcarpathian region on the section “Valley – Uzhgorod – Border”. It is not difficult to figure out that in all cases the main reason appeared an out-of-limit technical deterioration and lack of funding for necessary modernization.

The pipeline accident in the Poltava region apparently made the Ukraine's government pay attention to the pressing problem of deteriorating the GTS condition. As a result, last summer the Ukraine's government officially announced the beginning of a radical modernization of the GTS at its own expense, which, according to preliminary estimates of Ukrainian experts, would amount to 5.3 billion USD for 5-7 years.
Since there is no money in the country in August the Verkhovna Rada (the Ukrainian Parliament) at the third attempt adopted the law on modernization and operation of the GTS. It launched a procedure of attracting investors to the Ukraine’s GTS, where the state will own its share in a control package, and another 49% can be distributed only among an operator company or several companies from Europe or America.

However, so far the expectations of reconstructing the Ukraine's GTS by means of foreign investors have not been met at all. The Ukraine's Government attempts of attracting foreign companies and, in particular, the negotiations with Chevron, Statoil and other companies have not yielded any result yet. There are several reasons for a failure.

First of all, it is necessary to realize that, in spite of the Minsk Agreement, Ukraine is still teetering on the brink of the renewal of hostilities which have already massively undermined the Ukrainian economy. Meanwhile artillery strikes and civilian casualties take place up to now.

In addition the US Congress passed the "Ukraine Freedom Support Act" on December 13 that would allow 350 million USD in lethal and non-lethal military assistance to Ukraine from 2015 to 2017. It should be quite clear to everybody that even promises of supplies for military use instead of private investments will not contribute to the stabilization of peace in Ukraine. Under such circumstances it is unlikely possible to find investors who would dare to invest heavily in a multi-billion project that should be fulfilled near half-ceased battlegrounds. Do they?

Besides that, we have to recognize a critical weakness in functional structure of the Ukraine’s GTS, which I described almost half a year ago in the end of June. It consists in the fact that the infrastructure of the Ukrainian transit pipelines simultaneously are in permanent and total use for meeting the needs of internal gas consumers in Ukraine. Direct access of local Ukrainian consumers to transit pipelines as well as an insufficient administrative control and corruption that all together make it easy to carry out an unauthorized gas offtake. Or by other words it means stealing a transit gas partly instigated by a severe energy shortage in the country.

Practically it will not change anything if European or American companies become co-owners of the Ukraine’s GTS. In such circumstances, they are unlikely to be able to ensure that Russian gas intended for Europe will not be pumped out on the territory of Ukraine. But in that case why should investors sustain such financial and image risks?

Finally, we need clearly to understand the consequences of recent events - namely, Russia's action of canceling the South Stream pipeline construction. Simultaneously Russia and Turkey completed an agreement on the construction of the other gas pipeline with the same capacity of 63 bcm, which is now called the Turkish stream.

The announcement that the South Stream would be halted caused a surge of enthusiasm in Ukraine. Ukrainian Prime Minister Yatsenyuk again repeatedly called foreign companies to invest in the Ukraine’s GTS. But at the same time almost nobody paid attention to the fact that, as well as the South Stream, the Turkish stream will provide a new route for gas supplies to Europe bypassing Ukraine. Therefore, redirection of the Russian gas pipeline to Turkey means only one thing: Ukraine will lose a status of gas transit country for the foreseeable future.

Nevertheless, the transit agreement between Russia and Ukraine will be valid for another five years until 2019. As long as there are no companies willing to invest in the Ukraine's GTS neither in Europe nor in the US, the financial burden of its preservation from a complete collapse rests on the EU itself. While politicians in Brussels and Washington go on talking about gas dependence on Russia, as you can see, the real threat to our security of gas supplies is much closer. It is right behind the EU borders and has a name that is known as "the Ukraine's gas transportation system."

An indirect recognition of this fact is that the EBRD extended a loan for modernization of the Ukraine's GTS in December. But the allocated amounts are much less than those required according to the calculations in Ukraine. It is 200 million USD intended only for the reconstruction of the Urengoy - Pomary - Uzhgorod pipeline.

Generally speaking now when the Ukrainian economy is sinking into deep trouble, this loan would be like "a drop in the bucket."

Obviously Europe launched its loan initiative too late spinning out almost until a middle of winter! Now Ukrainian media covers so-called rolling power cuts occurring every day in all the cities, which, by the way, a few of us in Europe can imagine. And what is more there was a nuclear power plant accident in Zaporozhye, which resulted in shutting down one of its generating blocks. Ukraine purchases coal from a far South Africa and negotiates about coal shipments even from Australia. Ukraine's government approved temporary electricity import from Russia.

It is paramount for European security of gas supplies that due to acute shortage of energy from the very beginning of winter Ukraine started increasingly pumping out gas of underground gas storages (UGS). There are 12 UGS in Ukraine with a total active capacity of 31 bcm. According to the Gas Storage Europe Association (GSE) data in 2014, the maximum filling volume of the Ukraine's UGS was recorded on October 19 and accounted for 16.759 bcm. As of January 10, 2015 this volume dropped by 37% to 10.615 bcm. Furthermore, from 5 to 6 bcm out of 16.5 bcm is a so-called inactive gas that in principle cannot be used at all.

As a matter of fact Ukraine does not have to use much of its storage volumes for the domestic consumption because these UGS facilities perform an important role of buffer stocks in the gas transit system, ensuring security of stable supplies to meet peak increases in gas consumption in Europe especially during a cold spell in January and February. Meanwhile, the Ukraine’s UGS now filled only to 33.51%.

For refilling the Ukraine’s UGS, it is necessary to import gas from Russia. But evidently Ukraine has no money for that. Instead, there is a multi-billion unpaid gas debt to Russia, which Ukraine hoped to pay off with the financial assistance of the European Commission.

In such a tense situation, why are our European politicians in Brussels and in other European capitals still urging to the accompaniment from Washington that Europe should cope with its gas supply without Russia? Why did the EU refuse a new gas pipeline to supply Russian gas bypassing the decrepit the Ukraine’s GTS? And ultimately why is Ukraine going to squeeze further out the EU to finance its GTS while, as we see, it is of no interest to investors?