Fracking in Germany?

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The recent proposal by members of German coalition to reconsider fracking, as a potential solution to the coming gas crunch, re-ignited discussions about fracking in the country.

What is Hydraulic Fracturing?
Hydraulic fracturing, also called hydraulic stimulation, fracking or hydrofracking is a well stimulation technique that involves fracturing of the gas bearing formation with fracking fluid injected into the wellbore (typically a horizontal well – Figure 1) under high pressure. The purpose of injecting the fluid under high pressure is to create fissures in rock formation and significantly improve hydrocarbons flow into the wellbore and to surface. The fracking fluid typically consists of water mixed with proppant (sand grains or ceramic material) and chemicals. The use of chemicals which could contaminate aquifers, and large quantities of water in fracking is the reason for environmental concerns and heavy criticism, as well as potential seismicity around the wellbores. While these risks exist, their occurrence is extremely rare with modern techniques. Fracking was banned in Germany in 2017.

A hydraulic fracturing campaign in detail. A horizonal well is drilled, cased and cemented and then a sand containing fluid enables the flow of gas and liquids. Source: ERIG

Is fracking feasible in Germany?
Most of the gas consumed in Germany is imported, while only about 5% is produced domestically from conventional gas reservoirs (not fracked shale gas). However, there is a potential to increase domestic gas production from shales several fold. This could improve energy security of the country and reduce vol-umes of more expensive imported LNG (liquefied natural gas).

Resources
The German Federal Institute for Geosciences and Natural Resources (BVEG) estimates prospective resources of shale gas in Germany at approximately two trillion cubic metres, which is around twenty times German annual consumption. However, without further exploration and drilling it is not clear how much of the resources can be converted into commercial reserves. BVEG estimates that potential production could be 10 bcm (billion cubic metres) per year, or 10% of current German consumption.
The majority of the resources are in northern Germany
(Figure 2), but there has been very little exploration drilling of unconventional resources done so far. It would take years, maybe more than five years, before commercial production of fracked gas in larger volumes could be achieved.

Areas in Germany where the exploration for hydrocarbons in tight, shale reservoirs is allowed. Source: BGR

Regulation
Germany has very stringent regulation for fracking, and also a very well organised and large opposition. It is a densely populated country where it is difficult to imagine hundreds, or potentially thousands of wells being drilled and fracked without major opposition from the public.

Technology
German exploration companies have not been involved in shale gas drilling and fracking, so do not have the required experience. Oil majors, like ExxonMobil, could use their expertise from the US to explore and produce shale gas in Germany, but that also has a lead time of several years.
There are no fracking crews (frac spreads) available in the country and more importantly it would take a stable and regulatory regime friendly to fracking and to oil and gas drilling, for new companies to commit to fracking in Germany.

Conclusion
The shale gas extraction holds great promise in Germany, which could have significant impact on the country’s energy security. The alternative is to import US shale gas (from fracking of US shales) in LNG form at a higher price, and to produce more power from renewables and potentially nuclear power plants.
But even if the fracking ban was lifted immediately, which is not expected, that would not be a quick fix to the current energy crisis, because given lack of exploration, lack of expertise in the country and viable operators, it would take years to prove up reserves and develop gas fields. However, all of that can be developed over time.

While fracking in Germany is in theory feasible technologically, the biggest obstacle probably is a well organised and large opposition in the country, as well as very stringent regulation. Hence, fracking in Germany on a commercial scale will most likely not happen.
The Earth Exploration Fund UI is not invested in any companies involved in fracking in Germany, but is invested in American and Canadian mid and large-cap fracking companies, which have strongly outperformed the market. These companies continue to trade at very attractive valuations and offer free cash flow yields of 15% to 30%.