2013-12-30 04:38:47 - Recently published research from Business Monitor International, "Germany Oil & Gas Report Q1 2014", is now available at Fast Market Research
We see only limited upside to the current bearish outlook for domestic oil and gas production in Germany. There are some areas of opportunity, yet the redevelopment of maturing sites or the potentially sizable upside from underexplored East Germany and the main source of upside risk - shale gas - is mired in political and environmental uncertainty. Following pressure from Germany's business and industry community it appeared that the government might take a more supportive position toward shale gas, yet current coalition talks between the CDU and SDP look set enact more restrictions on fracking in a debate that is certain to continue.
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The main trends and developments in Germany's oil and gas sector are:
* Natural gas consumption in Germany is under pressure from a glut of cheap coal and generous renewable subsidies. Supporting gas demand will be greater utilisation of gas as transport fuel, the phasing out of nuclear, and gas-fired power generation as a back-up to intermittent renewables. However, these upside factors will be kept in check by energy efficiency gains (which have seen gas consumption fall since the early 2000s), ambitious subsidised renewable projects and government targets, as well as cheap and abundant coal.
* While we see limited upside to conventional gas production, which looks set to continue its downward trend, there is some upside to oil reserves and production from new investments by independents targeting enhanced oil recovery utilising new technologies to recover previously uneconomic reserves. We also see possible gains from exploration of the former East Germany, where a lack of investment had stymied production previously.
* The primary upside to gas remains efforts to tap Germany's shale gas resources, yet even if the regulatory environment proves supportive, commercial production of shale gas is unlikely to occur inside our forecast period. The political debate continues its uncertain trajectory. In the latest developments, draft regulations that would permit hydraulic fracturing (fracking) were released by the government only to be put on hold until the conclusion of national elections in late 2013.
* With the election now over, and Merkel working to form a coalition government with the SPD at the time of writing, the outlook for shale gas is even more uncertain. Chancellor Angela Merkel's Christian Democratic bloc and the Social Democratic Party reportedly agreed to a temporary ban on exploring unconventional natural gas reserves in Germany until environmental issues are resolved. Deputy Environment Minister Katherina Reiche and the SPD's Ute Vogt told reporters in November that Coalition negotiators concluded that fracking could not be done safely in Germany given the risks of groundwater contamination.
* The Federal Institute for Geosciences and Natural Resources (BGR) issued a report which has upgraded Germany's shale gas potential to an estimated 6.8trn-22.6trn cubic metres (tcm) of reserves. The findings may have little impact on the parliamentary committee currently studying Germany's shale gas potential. The controversial fracking process has been in use in Germany at low levels since the 1960s, but increased public scrutiny has increased uncertainty over prospects for any large-scale effort to develop unconventional gas resources.
* Germany is also thought to have notable unconventional gas potential in the form of coal-bed methane. There is an absence of notable projects to monetise such reserves as part of wider debate over the environmental costs of unconventional gas production. However, a previous study put potential in place resources of coal bed methane (CBM) at 3tcm. Unlocking Germany's CBM potential is not just environmental complicated, but due to the depth of resources extraction is thought to be technically challenging. Improvements in technology and higher prices could make CBM a more attractive alternative should politics permit. In March 2013 the shutdown of operations began at Royal Dutch Shell's 100,000b/d Harburg refinery. The event is an ominous one for the European downstream, which has seen margins tighten under pressure from abroad and a growing competitiveness gap. Germany's large refining sector is at risk of further capacity rationalisations as the pressure on Europe's downstream continues
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