European countries are looking hard at shale-gas potential within their borders, and seeking answers to substantial questions.

“Europe is in a head-scratching mode over shale gas,” affirmed Jan Panek, the European Commission’s head of the coal and oil unit, at the recent Global Unconventional Gas 2010 conference in Amsterdam, organized by the Gas Technology Institute.

This new class of resource is largely a research topic for curious European nations.

Currently, member states in the European Union use natural gas to generate a quarter of the power for their daily lives and economies. The continent’s unconventional resources are on the table as a partial solution to Europe’s declining indigenous supplies.

And yet, the embrace is tentative.

Concerns revolve around environmental footprints, sustainability and infrastructure needs of unconventional resources. “At the moment we are asking more questions than we are seeing answers,” said Panek.

Assuredly, the allure of natural gas is strong. The fuel is attractive and will remain so into the future. And, it is becoming cheaper. Spot markets are developing in Europe, and at present spot prices are much lower than oil-indexed contract prices. That’s because of the worldwide economic downturn, strong growth in worldwide LNG supplies and the explosion in U.S. production (driven by unconventional gas). Also, liquidity is growing in continental Europe, as more trading hubs are being established and markets continue to open.

“Long-term supply contracts are now being adjusted to market conditions,” said Jan Rune Schopp, vice president, natural gas, strategy and analysis, Statoil.

For unconventional gas, lower prices present an economic challenge. Unconventional resources in Europe are likely to be pricey to develop, and the economics are still an enigma, said Schopp.

Globally, in-place unconventional resources have been assessed at more than 32.5 quadrillion cubic feet. “It’s an astonishing number, and almost half of this is expected to be shale gas.” The big question is how much of this will be ultimately recoverable. “We don’t know the answer to this,” he noted. However, even if only a fraction of the potential is realized, implications are far-reaching.

“Personally, I don’t necessarily expect to see developments of unconventional gas in the rest of the world as we see in the U.S. Conditions are different.”

Nonetheless, unconventional gas will buttress the long-term future of natural gas by ensuring its continued availability and improving supply diversification and security. “If anything, the unconventional gas revolution will only add to the competitiveness of natural gas,” he said.

The scale of the potential resources is indeed huge, but economics vary enormously, said Rhodri Thomas, managing consultant, Wood Mackenzie. “Broadly speaking, economics are better in North America. European tight gas and shales are very challenging on economics.”

Furthermore, shale-gas and tight-gas developments in Europe are much more about the surface than the subsurface. It’s a densely populated region, and landowners have no economic interest in supporting exploration and production, since minerals are owned by the states. There can be significant delays between permitting and drilling, and regulations are not clear in many arenas.

Additionally, there are nuts-and-bolts problems. The types of drilling rigs and oilfield services needed for long horizontal wells and multistage fracture stimulations are lacking. And access to markets can be difficult, as European pipelines are not as easy to access as those in the U.S.

Several signposts can be used to measure shale-gas progress in Europe, Thomas said. Progress can be gauged by such steps as pilot projects that deliver wells with commercial flow rates; kick-off of large-scale developments (more than 50 wells); presence of a supply chain that supports unconventional drilling and completion operations; and presence of large companies that show sustained interest.

Additionally, it’s crucial for governments and local entities to support development. Finally, an unconventional A&D market needs to develop outside of North America.

“We need wells drilled, but progress is slow,” Thomas concluded.