Deutsche Bank – Responsibility
July 29, 2013 | Frankfurt

US shale revolution addressed at German energy security conference

Vice Chairman Caio Koch-Weser participated in a panel discussion on the implications of the US shale oil/gas revolution at a recent energy security conference in Frankfurt. Organized by the Munich Security Conference Foundation and the F.A.Z. Forum, the conference brought together governments, business, academics and NGOs to discuss the economic, environmental and security policy issues surrounding energy security.

Caio Koch-Weser said that the shale revolution is a net positive development economically, environmentally and geopolitically provided that appropriate policy and regulatory frameworks are implemented. Notably, US institutional investors continue to file shareholder resolutions calling for improved risk identification and mitigation for shale extraction practices. This is encouraging some companies to commit to greater transparency, ending the environmentally damaging practice of gas flaring and implementing better operating practices. There is variation in US states’ regulation and enforcement of shale extraction practices and this may explain some of US stakeholder concerns about the industry. Responsible development of shale oil/gas resources requires further private sector and government action to maximise the benefits and minimize drawbacks.

While the shale energy industry and lower energy prices are encouraging US re-industrialisation, they are only one major factor and the competitiveness threats to Europe should not be overstated. The overall investment climate, wage rates, productivity and exchange rates are much more important for the vast majority of companies. The potential impact on energy intensive industries should be examined. Overall, the shale oil/gas development has contributed to greater stability of energy supplies and reduced threat of a Gas OPEC.

Shale gas is one option to reduce global carbon emissions. For instance, expansion of US shale gas production has lowered US emission but also contributed to lower US coal prices and more exports to Europe. For this reason, it is important that Europe fix the EU Emissions Trading Scheme by restoring market scarcity and setting longer term carbon reduction targets. Governments and industry also need to make more effort to reduce methane leakage to ensure that shale gas creates a net reduction in greenhouse gas emissions.

The first US new natural gas export facility (LNG) is currently under construction but significant new exports from the US to Europe or Asia will take longer and volumes will likely be limited. This is likely to be the case irrespective of how quickly the US government grants further export licenses.

Against the backdrop of the US likely becoming an exporter of oil and gas in the years to come, Caio Koch-Weser and other participants voiced questions regarding the geopolitical implications in the Middle East. What happens if the US will not have the same security interests as today? Some expressed the expectation that Europe might be asked to play a larger role in the Middle East.

Other participants on the panel included Elmar Brok (Chairman Foreign Affairs Committee, EU Parliament), Dr. Ashti Hawrami (Minister for Natural Resources, Kurdistan Regional Government, Iraq), Peter Reitz (CEO, European Energy Exchange), and Professor Wang Zhongying (Deputy Director General, China Energy Research Institute).

Germany’s Energiewende was frequently raised during the conference as a positive initiative with respect to improving energy security. However efforts have to be stepped up for the Energiewende to be implemented in a cost-efficient way.

Other participants agreed that the precise implications of the US shale revolution for other jurisdictions is hard to assess as there are too many unknowns. It is hard to project how the shale revolution could be replicated elsewhere in the world due to differences in the natural resource base, population density, environmental concerns, water supply, property rights, local infrastructure availability and industry’s technical skills.

China's efforts to step up the use of renewable energy and other actions limit CO2 emissions and air pollution were welcomed. However, against the backdrop of the rapid economic development (also in other Asian countries such as India) fossil fuels will be indispensible for the time being and will continue to make up the overwhelming share of primary energy consumption. However, a reduction in the rate of coal use is likely and this could lead to an earlier peaking of China’s coal consumption.

Caio Koch-Weser, Vice Chairman of Deutsche Bank

“The shale revolution is a net positive development economically, envi­ron­men­tal­ly and geo­politi­cally provi­ded that appro­pri­ate policy and regu­latory frame­works are implemented.”

Caio Koch-Weser Vice Chairman of Deutschen Bank

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