Shale gaS in Bulgaria, the CzeCh repuBliC and romaniaPOlITICal COnTExT – lEGal STaTuS – OuTlOOk

Tomasz Dąborowski, Jakub Groszkowski

Shale gaS in Bulgaria, the CzeCh repuBliC and romania political context – legal status – outlook

tomasz Dąborowski, Jakub groszkowski

WaRsaWsepteMBeR 2012

© copyright by ośrodek studiów Wschodnichim. Marka karpia / centre for eastern studies

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isBn 978-83-62936-15-1

Contents

MAIN POINTS /5

I. BULGARIA /8

1. Production potential – deposits and corporate interest in shale gas /82. Legal status – the ban on hydraulic fracturing and its modification /93. The shale gas debate /104. Outlook /13

II. THE CZECH REPUBLIC /14

1. Production potential, legal conditions and progress in prospecting /142. The shale gas debate. Social and political reactions; legal consequences /153. Outlook /19

III. ROMANIA /22

1. Production potential – deposits and corporate interest in shale gas /222. Legal regulations /233. Shale gas in public debate and local politics /234. Outlook /25

TABLE. Shale gas companies awarded exploratory licences in Bulgaria, the Czech Republic and Romania (updated August 2012) /27

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MAIN POINTS

• Over thepast twelvemonthsBulgaria, theCzechRepublic andRomaniahavemade aU-turn in their approach to shale gas exploration andpro-duction.Untiltheendof2011,thegovernmentsofthesecountriesshowedapositive(Bulgaria)orneutral(Romania,theCzechRepublic)attitudebothtoprospectingfordomesticdepositsandthepotentialproductionofshalegas,whichresultedinlicensesbeinggrantedtocompaniesspecialisinginthefield.(ComparedtoPoland,however,thenumberoflicencesawardedinthesethreecountrieswasnegligible.Romaniaissuedmostbuteventherethetotalnumberdidnotexceedten).A wave of criticism from local so-ciety and environmentalists – often backed by interest groups – con-tributed to a shift in the position the countries’ governments took on the issue. In early January 2012,Bulgaria introduced a completebanonshale gasprospecting andproduction,while thenewRomaniangovern-mentannouncedamoratoriumonallprospectingworkinMayandplanstoextenditforaperiodoftwoyearsifitwinstheDecemberelection.Asimi-larmoratoriumiscurrentlybeingpreparedalsobytheCzechgovernment.

• The sudden change of tack observed in the three countries stems fromacombinationofanumberofsocioeconomicandpoliticalconditions, in-cludingwidespreadfearsoverthepotentialenvironmentalimpactofhy-draulicfracturingusedinshalegasprospectingandextraction.The gro-wing distrust within society, based on real concerns expressed by local communities, has given impetus to highly effective campaigns launched by local environmentalists (whoseactivismisrelativelywell--establishedinthethreecountries).The change in attitude was also af-fected by the lack of information both about the benefits and the po-tential risks of shale gas production. Noneofthecountrieshasreliableestimatesoftheamountofshalegastheycouldextractatitsdisposal.Thisinturnmakesit impossibletoestimatethepotentialprofitthecountriescouldgeneratebytappingintotheirdeposits.Itshouldalsobenotedthatthesuspensionofprospectingworkwaspartlylinkedtothelackoflocalregulationsthatcouldaddressthespecificityofshalegasproduction.

• Theshift in thegovernment’spositionwasalso influencedby theirpoli-tical situation. In all three countries, parts of the political class saw the growing public concern over the production of shale gas as an ef-fective tool for the consolidation and mobilisation of the electorate, or even as an asset in on-going political battles with their opponents.

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Meanwhile,thediscussionsaboutthebenefitsoftheproject,particularlywithregardtotheenergysecurityofthecountriesconcerned,provedinef-fective.Thedynamicsofthedebateonshalegashavebeenfurtheraffectedbythefactthatitcoincideswithelectioncampaignsinallthreecountries.

• The foreign companies interested in the production of shale gas have failed to establish united and effective interest groups.Thecompaniesdid not launchmedia campaigns capable of counterbalancing the objec-tions raised by the environmentalists, and their actions did not suggestthat theirpresence inthesecountrieswasofstrategic importancetothecompanies.Inaddition,littleinterestinthematterwasshownbylocalpro-ductioncompanies.

• ThegovernmentsinBucharest,SofiaandPraguehaveoptedtowaitouttheperiodofuncertaintyanditappearsthatinthemediumtermtheyarelike-lytousetheirinfluencetobothformallyandinformallystalltheprospec-tingandpotentialproductionofshalegas.Thisdoesnot,however,ruleoutthepossibilityof future explorationandproduction.One of the factors which could lead to the review of this approach could be the potential success of the shale gas industry in Poland. What happens in Poland is particularly significant since the on-going discussions about shale gas in Bulgaria, the Czech Republic and Romania have been making repe-ated references to the decisions taken by the government in Warsaw.

• ThecompleteabandonmentofplanstoprospectforshalegasinBulgaria,theCzechRepublicandRomaniawouldmeantheabandonmentofanop-portunitytoincreasethediversificationofgassuppliesandthusalsothepossibilitytoreducethesecountries’dependenceonRussia.Iflocaldepo-sitscouldyieldindustrialamountsofshalegas,theneedfortheRussiangaswouldbereduced,whichwouldbeparticularlysignificantforBulgaria(Romaniahaslargedepositsofconventionalgas,whiletheCzechRepublicimportsathirdof itsgasfromNorway).This is likelytobethemainre-asonwhypoliticians and businessmen with a vested interest in closer cooperation with Russia have been engaged in criticism of the plans for local shale gas production (such opposition has been particularly visible in Bulgaria, but less so in the Czech Republic and Romania). It is likely that these actors have been making other, informal, efforts to influence the debate in all three countries.

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• Nonetheless, theapparentreticenceoftherelevantauthoritiestogoaheadwithshalegasprojectsisnoindicatorthatthegovernmentsinthesethreecountriesareignoringtheneedtodiversifygassupplieswithaviewtoim-provingtheirenergysecurity.Bulgaria,theCzechRepublicandRomaniahavebeenactivelyexpanding their cross-bordergas transmission infra-structure,andhavenotabandonedtheireffortsto lookfor localdepositsofconventionalgas,ortosecureenergyresourcesotherthangas.BulgariaandRomania,forinstance,havebeeninvitinginvestorsinterestedinpro-spectingforhydrocarbonresources intheBlackSea;andall threecoun-trieshavebeenrunningtheirownnuclearprogrammes.Takingalloftheabove into consideration, the accusations that the respective govern-ments have been taking decisions favourable to the Russian state, or have ignored the opportunity to improve their countries’ energy se-curity, are rather isolated and are expected to have little impact on the on-going public debate on the matter.

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I. BULGARIA

1. Production potential – deposits and corporate interest in shale gas

Todate,nolarge-scaletestshavebeenconductedtoestimatethesizeofthecountry’s shale gas deposits. Prior to the introduction of the ban, theBul-garianEconomyandEnergyMinistersuggestedthat thesizeof thedepos-itsrangedbetween300bcmand1tcm.Theministerdidnot,however,citeanyofficialreportstobackuphisestimates.Sofar,similarfigureshavebeenproposedonlybytheUSEnergyInformationAdministration(EIA).TheEIAestimatesthatthetotalaccessibleshalegasdepositsspreadacrossBulgaria,RomaniaandHungaryamounttoaround538bcm.Atthemoment,theonlycompany confirming thepresence of shale gas inBulgaria isDirect Petro-leum(DP).InSeptember2010,DPreportedthataccordingtoitsinitialesti-mates,around300bcmofshalegasisavailableintheareacoveredundertheLovechlicence.

An exact estimate of the Bulgarian shale gas deposits is currently impossi-ble,sinceinearly2012thegovernmentimposedacompletebanontheuseofhydraulicfracturing-amethodusedbothinprospectingandextraction.Re-searchinstitutesarestillpermittedtocarryouttestsaimedatestimatingthesizeof thedepositsbutonlyontheconditionthat theydonotusehydraulicfracturinganddonotusetheirfindingsforcommercialpurposes.

In practice, therefore, further tests can be conducted only using geologicalanalyses(i.e.rocktesting).

Priortotheintroductionoftheban,overadozencompaniesexpressedinterestinprospectingforunconventionalgasdepositsinBulgaria.ThemostimportantofthemwasUSenergygiantChevron,whichinJune2011wonabidtosearchforshalegasattheNoviPazarfield(thefinallicenceagreement,however,wasneversigned).OtherenergyplayersinterestedintheprojectincludedCanada’sParkPlaceEnergyandtheabovementionedDirectPetroleum,bothofwhomholdprospectinglicencesinBulgaria(seeTable,p.27).Localenvironmental-istshavealsospeculatedthatamongthecompaniesprospectingforBulgarianshalegaswasRosgeocom(linkedtotheRusso-BulgarianOvergas),whichholdsalicenceforoperationsnearthevillageofRogozinainnorth-easternBulgaria.Thisarea,however,bordersontheNoviPazarfield,whichhadbeensecuredunderaseparatelicencebyChevron.Todate,Bulgaria’sstategascompanyBul-gargazhasexpressednointerestinsearchingforshalegas.

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AdiscoveryofsubstantialdepositsofshalegasinBulgariaandthesubsequentlarge-scaleproductionof thegaswoulddoubtless improve thecountry’sen-ergysecurity.Althoughnaturalgasaccountedforjust12%ofenergyresourcesusedbyBulgariain2011,thecountryisdependentalmostentirelyonimportedgas.Domesticgasproductionmeetsnomore than 15%ofBulgaria’sgas con-sumption,whiletherestofthedemandismetbyimportinggasfromRussia.

2. Legal status – the ban on hydraulic fracturing and its modification

Prior to the introduction of the ban on the use of hydraulic fracturing, theBulgarian companies interested in searching for shale gas operated underalegalframeworkregulatingtraditionalactivitiesinvolvedintheprospectingandextractionofhydrocarbons.ThischangedwiththeintroductionofabanadoptedbyBulgaria’sparliamenton 18 January2012whichprohibits alluseofhydraulicfracturing.Thenewregulationsaretoremaininplaceuntilfur-thernoticeandanyviolationof thebancould lead to the lossof the licenceandafine.Allcompaniesprospectingforgasoroilweregiventhreemonthstosubmitadeclarationoftheprospectingandextractionmethodstothelocaldirectorateofgeology.

The introductionof thebanresulted insignificantconfusionwithin theex-tractive industry. In February 2012, the BulgarianMinistry of Energy andEconomyreportedthattheframingofthebaneffectivelypreventstheextrac-tionofconventionalgasfromdeepdeposits,aswellasmakingitillegaltousethecountry’ssolegasstoragefacilityatChiren(wheregaswaspumpedathighpressure).Consequently, the government setup a temporaryparliamentarycommitteetaskedwithamendingthebantoensurethattheproductionofcon-ventionalgaswouldnotbeaffectedandthattheChirenstoragefacilitycouldstayopen.ThechangeswereapprovedbyParliamentinmidJune.Theoriginalclause,settinganupperlimitof20atmospheresontheinjectionofchemicalsubstancesunderground,wasremoved.Theamendeddocumentdidhoweverretainacompletebanontheuseofhydraulicfracturingandallothertechnolo-gieswhichbreakuprockstoextractgasoroil.

ThebanapprovedbyParliamentwashoweveronlya resolution (‘reshenie’),rather than a statutory decision. Thismeans that the restrictions could bechangedorwithdrawnrelativelyquickly.ThelegalframingusedbyParliamentcameunder criticism from the opponents of shale gasproduction,whohadbeencallingforastatutoryban.Sofar,BoykoBorisov’sCabinethasrefusedto

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meetthisdemand,claimingthatthecurrentregulationsaresufficient.None-theless,thepossibilityoffuturechangescannotberuledout.InApril2012,thegovernmentsetupatemporaryProspectingandExtractionCommittee.ThecommitteedrewuptherequiredchangestotheJanuarydraftbut,althoughitfulfilleditsobjective,itwasnotdisbanded(inJuneitsmandatewasextendedforanotherthreemonths).

3. The shale gas debate

PublicdebateabouttheextractionofshalegasinBulgariabeganinearnestinJune2011whenUSenergygiantChevronwonitsbidtoundertakeprospect-ingactivitiesattheNoviPazarfield.Thefactthatthelicencewasgiventooneofthebest-knownenergycompanies,forwhichitwaswillingtopayarecordUS$30million,broughttheissuetopublicattention.Therisksassociatedwiththeextractionofshalegasbecameoneofthemostfrequentlydiscussedtopicsinthepress,ontelevisionandaboveallontheInternet.Localmediareportedwidelyontheworkdoneinthisareainothercountriesbutmostreportsfo-cusedonthenegativeaspectsoftheprojects(includingearthquakesinthevi-cinityofshalegasextractionoperations,orthecorruptionscandalsurround-ingthegrantingoflicencesinPoland).

Thisledtotheformationoftwocamps–thesupportersandtheopponentsofshalegasproduction.Untiltheverylastminute,thesupporters of the projectincludedBulgaria’sminoritygovernmentformedbytheCitizensforEuropeanDevelopmentofBulgaria(GERB).TraichoTraikov,thecountry’sEconomyandEnergyMinister,washighlyvocal inthepublicdebateonshalegasproduc-tion,whilePrimeMinisterBoykoBorisovtriedtoavoidpublicdeclarationsonthematter.Supportfortheprojectwasofferedalsobytheright-wingBlueCoa-lition–asmallpoliticalcircleofaformeranti-Communistmovement,aswellasagroupofscientistsandenergyexperts.Amongthebestknownof themweregeologyprofessorKristalinaStoykovafromtheStateGeologicalInstitute,andenergyexpertIlianVasilev,theformerBulgarianambassadortoMoscow.TheUSembassyinSofiaalsoplayedanimportantroleinthedebate;Ambas-sadorJamesWarlickmadefrequentcommentstothemediahighlightingthebenefitsofshalegasproduction.Whatwasstriking,however,wasthefactthatthepublicdebatewasnot joinedbyrepresentativesof thecompanieswhichhadbeenengagedinprospectingforshalegasinBulgaria.

Thesupportersoftheprojectstressedthatshalegascouldplayacentralroleinincreasingthecountry’senergysecurityandwouldstrengthentheBulgarian

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economy.EnergyandEconomyMinisterTraichoTraikovsuggestedthatanyfutureproductionofshalegasinthecountrywouldtranslateintolowergasprices,adiversificationofsupplysources,newjobs,andwouldgenerateaddi-tionalcorporatetaxrevenueforthestate.Theactionstakenbythegovernmentfocusedexclusivelyonhighlighting thepositive impactof shalegasproduc-tioninthecountry,andeschewedthemostcontroversialissueswhichgener-atepublicconcern–namely,thepotentialenvironmentalrisksoftheproject.Theineffectivenessofthegovernment’sinformationpolicywasexemplifiedbythelackofpublicconsultationonthematter,andthefactthattheonlyparlia-mentarydebateonshalegasproductioneverheldinBulgaria’sParliamenttookplaceontheeveoftheintroductionoftheban.ExpertsremaineddividedontheissuebutmostagreedthatthegovernmentshouldfirstmeasurethesizeoftheBulgariandeposits.

Incontrasttothecampaignlaunchedbythegovernmentandtheenergycom-panies,theopponents of shale gas productioninBulgariaorganisedahighlydynamic,professionalandinnovativecampaign.Thiscampconsistedofdoz-ensoforganisationsandenvironmentalgroups,aswellasnearlyalloppositionpoliticalparties (with theexceptionof theBlueCoalition). Initially, the leadwastakenbyenvironmentalists,whosetupthe‘CivilInitiativeforthebanontheprospectingandextractionofshalegasusinghydrofrackingacrossBul-garia’.Thenewgrouphelpedorganisedemonstrationsacrossthecountryandcoordinatedthecollectionofsignaturesunderaproposalforastatutorybanonhydraulicfracturing(collectingover50,000signatures).Atthepeakofpublicinterestintheissue–inJanuary2012–streetprotestswereattendedbyover10,000peoplein20citiesacrossthecountry.Thedemonstratorsusedcatchyslogansandprofessionallyproducedbannersandplacards,whichstressedtheriskofdrinkingwaterbeingpollutedandpotentialearthquakes.Thegroup’sleaders–BorislavSandovandMarianaHristova–madefrequentappearancesinthelocalmedia.Inaddition,theopponentsofshalegaswereveryactivealsoonline.Theysetupanumberofwebsites(includinghttp://www.zonabg.com,http://shalegas-bg.eu) andwerepresentonvarious socialnetworkwebpor-tals.TheirmessagefocusesontheriskofanenvironmentaldisasterandpointsouttheineffectivenessofBulgarianenvironmentalprotectionprocedures.Theactivistsalsolaunchedscathingattacksonlocalscientistswhosupportedtheplansforshalegasextraction,andsuggestedthattheindividualshadlinkstoUSbusinesscirclesandthesecretservice.

Theopponentsweresoonjoinedbyrepresentativesofpoliticalparties,particu-larlythepost-CommunistBulgarianSocialistParty(BSP).Theparty’spresidential

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candidateinlastOctober’selection,IvayloKalfin(wholosttotheGERBcandi-date),turnedoppositiontoshalegasproductionintooneofhismaincampaignthemes.BSPMPsalsohelpedorganise the early stagesofpublicprotests anddrewupabillwhichwouldintroduceastatutorybanonhydraulicfracturing.Theyrepeatedlystressedthattheuseofhydraulicfracturingcouldendangerthelivesofthelocalpeopleandcouldhaveadevastatingimpactontheenvironment.

Itwasalsosuggestedthatthisnewtechnologywouldbedevelopedattheex-penseofnuclearenergyprojects,whichBSPcontinuestosupport.Thosepoli-ticianswhohavebeenmostactivelyinvolvedintheanti-shalegascampaignareoftenseenasrepresentingtheinterestsofBulgaria’snuclear lobby,andarethereforebelievedtofavourcloserenergylinkswithRussia.AmongthemareEnergyMinistersintheBSPgovernmentRumenOvcharovandPetarDim-itrov,aswellasBSPMPPetkoKorumbashev.ThepublicdebatealsoraisedtheissueofhowtoprotectBulgaria’snational interestandhowtoprevent localenergyresourcesbeingexploitedbyforeigncompanies.Thisrhetoricwasusedmainly by the xenophobicAtaka (Attack) party,whose leader is known formakingfrequentanti-Americanstatements.

Apartfromthepoliticiansandenvironmentalists,highlyscepticalcommentsabout shale gas production have been coming also from Bulgaria’s well-de-velopednuclear industry.BogomilManchev, the chairmanof theBulgarianAtomicForumandanauthorityonnuclearenergy,stressedthatshalegasinBulgariawasnothingmorethanapoliticalprojectwhichposedarealthreattothelocalenvironment.HiscompanyRiskEngineering,whichoperatesin-ternationally,wasinvolvedintheimplementationoftheRusso-BulgarianNPPprojectinBelene.GERBabandonedplansfortheplantinMarch2012butBu-latom,withverystrongsupportfromBSP,hasrecentlylaunchedacampaignaimedatrevivingtheproject.

SustainedpressurefromenvironmentalgroupsandfromthemajorityoftheBulgarianpoliticalscene,coupledwithgrowingpublicoppositiontothepro-ject(inmid-Januarythereweredemonstrationsin20citiesacrossthecountry),werethekeyreasonsforthesuddenU-turninthegovernment’spositiononshalegas.PrimeMinisterBoykoBorisovstatedthathewouldnotpressaheadwiththeprospectingandextractionplansagainstthewillofthepeople,whiletherulingGERBpartyensuredaspeedyadoptionofacompletebanontheuseofhydraulicfracturing.Thesuddenshiftinpolicycameasabigsurprise.MrBorisov,however,isknownforhistendencytochangetackoncontroversialissues,makingsurethatheisseenasaleaderwillingtolistentohispeople.

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Thespeedymannerinwhichthebanwasintroducedledtospeculationsthatboththeenvironmentalgroupsandtheentirecampaignhadbeensupportedby‘hiddenexternalactors’.ThesekindsofaccusationshavebeencomingmainlyfromTraichoTraikov,theEnergyMinisterintheGERBgovernment,whohassuggestedthatthecampaignlaunchedbytheopponentstotheshalegaspro-ject inBulgariahadbeencoordinatedbya foreignPRcompany.Meanwhile,suggestionsthattheopponentstotheprojectwereactingintheinterestoftheRussianstatehavebeenmadebytheBlueCoalition–theonlypoliticalpartytovoteagainstthebanonfracking.Theparty,nonetheless,remainscompletelyisolatedinitssupportforshalegasproductioninBulgariasincethereisnowgeneralconsensusonbothsidesofthepoliticalspectrumthatthebanontheprospectingandextractionofshalegasinthecountryshouldremaininplace.

4. Outlook

PublicdebateonshalegasproductioninBulgariahasbecomefarlessheatedaftertheintroductionofaparliamentarybanontheuseofhydraulicfractur-ingandisnownolongercentredonthejustificationofthebanbutratheronensuringitseffectiveness.Theoverwhelmingmajorityofthepoliticalactorsin the country remainadamant in their opposition to the shalegasproject.WhenBulgaria’snewEnergyMinisterDelianDobrev(whoreplacedTraikovinMarch2012afterhisdismissal)announcedthatthebanonfrackingneededtobeamended,hestressedthatthechangeswouldnotpavethewayforshalegasextraction.Nonetheless,opponentsofshalegasaccusedthegovernmentoftryingtoabandonthenewrestrictionsandwarnedofnewprotests.TheCivilInitiativesetupbythoseopposedtofrackingalsocontinuestocallforthein-troductionofthebanontheprospectingandextractionofshalegasintoBul-garia’sgeologicalandmininglegislation.Itthereforefollowsthatthecurrentdebateaboutshalegas inBulgariadoesnotrevolvearoundwhetherthebanshouldhavebeenintroducedbutratherwhetherthepresentregulationsoffersufficientguaranteesthatnofurtherprospectingandextractionofshalegaswillbeattempted.This would therefore suggest that, at least in the me-dium term, there is no real chance that Bulgaria will lift its ban on the prospecting and extraction of shale gas.

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II. THE CZECH REPUBLIC

1. Production potential, legal conditions and progress in prospecting

A report issued by theUS Energy InformationAdministration in June 2011mentionsthepresenceofshalegasdepositsintheCzechRepublic,butdoesnotspecifyhowlargetheyare.TheCzechGasUnion(aunionoflocalgascompa-nies),whichsupportsshalegasproductioninthecountry,hasestimatedthattheproductionlevelscouldmeet5%-10%ofannualdomesticgasconsumption(400-800mlnm3),butdidnotmentiontheestimatedsizeofthedeposits.Localenvironmentalists,whohavebeenoppositiontheproject,claimthatshalegasdepositsinthecountryaremuchsmaller(neithersidehoweverhasbeenabletoprovideverifiableevidencefortheirestimates).

The general opinion in the CzechRepublic is that any future production ofshalegasinthecountrywouldhaveanegligibleeffectontheoverallenergybalance.ThisopinionisalsoheldbytheMinistryofIndustryandTrade,whichhasexcludeddomesticdepositsofshalegasfromitsenergystrategy,whichiscurrentlybeingupdated.

Currently,over90%ofnaturalgas,whichaccountsforabout20%ofthecoun-try’senergybalance,isimported.AlmosttwothirdsofthegascomesfromRus-sia,whilerestissuppliedbyNorwayunderabilateralcontractorpurchasedattheGermangasexchange.

In the spring of 2011, Cuadrilla Morava (owned by Britain’s Cuadrilla Re-sourcesLimited)andBasGasEnergia (ownedbyAustralia’sHuttonEnergy)appliedtotheCzechEnvironmentMinistryforshalegasexplorationlicencesforthreesitesselectedbythecompanies.Attheendof2011,BasGasEnergiawasgrantedafive-yearlicencetoprospectforshalegasoutsidethetownsofTrutnov,BroumovandNachod, locatednear thePolishborder,whileCuad-rillaMoravawasgiventhegreenlighttostartitsoperationsinthevicinityofHranice,KoprivniceandValasskeMeziriciineasternMoravia.ThethirdlicenceappliedforbyBasGasEnergia,whichincludedpotentialdepositsnearCeskyKrasand the townofBeroun,around30kmoutsidePrague,hasnotyetbeenprocessedforproceduralreasons.AnalysesconductedbytheCzechGeological Institutesuggest thatshalegasdepositsmightalsobe located insouthernMoravia,nearHodoninandBreclav,aswellasintheCarpathiansinthevicinityoftheSlovakborder.

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Thedecisiontoawardthelicenceswithoutconsultationwithlocalgovernmentled to a series of objections from local authorities. The subsequent appealsstalledprospecting activities in both areas coveredby the licences.Opposi-tionfromlocalenvironmentalistsandtheresidentsofTrutnovandNachodledEnvironmentMinisterTomasChalupatocancelthelicenceinApril2012andorderedareviewoftheapplication.BasGas’resubmittedapplication,whichiscurrentlybeingprocessedbytheMinistry,nolongerreferstotheregion’smostimportantenvironmentalareas.InAugust2012,theCzechEnvironmentMin-istryannulledalsothelicenceforoperationsineasternMoraviaandorderedareviewoftheapplication.

Inaddition to foreigncompanies, thepotential for local shalegasproduc-tionhasalsoattractedtheattentionofCzechenergyfirms.AmongthemisMND,ownedbybillionaireKarelKomarek,whichhasworkedwithseveralcompaniesexploringshalegasdepositsinPoland.IthasbeenreportedthatMNDisseekingapartnerinterestedinstartingexploratoryshalegasdrill-ingonMND’sconventionalgasdepositsinsouthernMoravia,neartheAus-trianborder.

2. The shale gas debate. Social and political reactions; legal consequences

The controversial plans for shale gas production in theCzechRepublic arenot seen as a topic ofnational importance; theprojecthashowever causedaheateddebate in theregionsaffectedby theplans.Thedebategained im-petusinMarch2012,afterthefirstpublicprotestswereorganisedbyshalegasopponents,leadingtogreatermediainterestintheissue.Thediscussioncontinuestobedirectedbylocalenvironmentalists,whohavebeencallingforanationwidebanontheuseofhydraulicfracturing.Theactivists(knownastheSTOPHFcoalition)havebeencooperatingwithmembersoflocalgovern-ment,supportedbynationalpoliticianswhooriginallycomefromtheaffectedregions.Theiroppositionmeanwhile ismadeupof thecompaniesawardedtheproductionlicencesandsporadicsupportfortheprojectfromrepresenta-tivesofthegasindustry.Thelocalelections,combinedwiththeelectionstotheSenate (1/3 of the seats) scheduled forOctober 2012,politicise the issueandmobiliselocalcouncils.Interestingly,theviewsonshalegasintheCzechRepublicdonotappear to followparty lines: opposition toprospectingandextractionactivitieshasbeenvoicedbyrepresentativesofboththerulingandtheoppositionpartiesintheaffectedareas–notasinglelocalpoliticianhasopenlysupportedthedrilling.

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ThegovernmentinPraguewaitedmonthsbeforejoiningthedebateandwasthereforeportrayedbyenvironmentalactivistsasasupporterofshalegaspro-duction.However,thesituationchangedinApril2012.ThedecisiontakenbytheEnvironmentMinistertoannulthelicencesandtoorderareviewoftheapplications, coupledwithplans foramoratoriumonshalegasprospecting,puts theMinister in anuncomfortablepositionbetween theopponents andthesupportersoftheproject.Meanwhile,representativesoftheIndustryandTradeMinistry,whohavebeenmorefavourablydisposedtowardspermittingshalegasextractioninthecountry,havebeenfarlessengagedintheon-goingdebate.PrimeMinisterPetrNecashasnotyetmadeanypubliccommentontheproductionofshalegasintheCzechRepublic.

Itshouldbenotedthatthecurrentpublicdebateaboutthepotentialenviron-mentalimpactofhydraulicfracturingfollowsalongseriesofenvironmentaldebatesthatfeatureregularlyintheCzechmedia.Publicopiniononenviron-mentalmattershasbeenstronglyshapedbytheenvironmentaleffectsofoverfortyyearsofuncheckedexploitationofmineralresourcesundercommunism.Thevalueofpubliccontractsavailabletocompaniesinterestedindealingwiththeconsequencesofthelastingenvironmentaldamagehasbeenestimatedat2.3 billion euros. Environmental issues are particularly important in placessuchasOstrava,whichisbelievedtohavesomeofEurope’shighestlevelsofairpollution,ornorth-westernpartsofthecountry,devastatedbylocalopencastlignitemines.MPsrepresentingtheseregions(regardlessofpoliticalaffilia-tion)havebeenhighlighting the importanceof environmental issues inpo-liticaldebate.Thehigh levelsof interest inenvironmental issuesamongtheCzechsisalsoevidentinthepoliticalsuccessoftheGreenParty,whichformedpartoftherulingcoalitionbetween2006and2010(andheldfourportfolios).Itspopularitycontinuestooscillatearoundthe5%electionthreshold.

Czechsocietyisalsocharacterisedbyhighlevelsofactivityamongnon-govern-mental environmental organisations,whose actions are regularly discussed innationaldebates.Theiractionsaddressbothpurelyenvironmentalissues(e.g.thefellingofbarkbeetlehittreesintheSumavaNationalPark),aswellasbroaderis-sues,suchastheconstructionofnewreactorsattheTemelinnuclearpowerplantorelementsofthemissileshield(i.e.aplannedradarfacilityattheBrdymilitarytrainingrange).Someoftheorganisations,particularlythoseopposingtheuseofnuclearpower,receivefundsfromAustriandonors(includingtheAustrianstate).

Czechsupportersofshalegasprospectingarguethatlocaldepositswouldnotonlyimprovethecountry’senergysecuritybutalsostimulateeconomicgrowth

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intheaffectedregions.ACzechGeologicalSurvey(CGS)report,commissionedinJune2011bytheEnvironmentMinistry,recommendedthatprospectingac-tivitiesatthemostpromisingsitesbestarted.AccordingtoCGS,shalegasisanimportantdomesticsourceofeco-friendlyenergyandtheenvironmentalrisksassociatedwithitsproductioncanbedeemedacceptableiftheproductionpro-cessiscarefullymanaged.TheprojecthasalsobeenbackedbytheheadoftheCzechGasUnion,whoarguesthatthefinancialviabilityofdomesticshalegasproductioncanonlybedeterminedbyaseriesofexploratorydrills.Hethere-forebelievesthatitisill-advisedofthegovernmenttoblocktheworkofthosecompanieswhich arewilling to explore the deposits at their own expense.AsimilarpositionhasbeentakenbytheMinistryofIndustryandTrade.

Thesupportersoftheshalegasprospectinghavealsoarguedthatexperienceinothercountriesshowsthathydraulicfracturingdoesnotposeanyrisktotheenvironment.CzechMPs,however,arenotconvincedbythesestatements,andnotasingleoneofthemhasopenlysupportedplansforshalegasprospecting.VeryfewCzechpoliticianshavebackedtheconstructionofexploratorywells,including:twoODSMEPsHynekFajmonandOldrichVlasak.SupportforshalegasexplorationhasalsobeencomingfromsourcesclosetoPresidentVaclavKlaus, including theCentre forEconomicsandPolitics (CEP)– a think tankestablishedbythepresident.

EnvironmentMinister Tomas Chalupa has also endorsed exploratory drill-ingintheCzechRepublic.Inhisopinion,however,priortoanyworkstarting,thegovernmentneedstoamendkeylegislationtocreateanappropriatelegalframeworkfortheproject.InSeptember2012,theChalupaproposedamora-toriumonshalegasprospectingwhich,ifpassed,wouldremaininplaceun-tilJune2014.Duringthisperiod,theCzechgovernmentwouldclearlydefinetherightsandresponsibilitiesofthelicenceholderandlocalgovernment,andwouldadoptsolutionspreventinganydrillingactivity in thecountry’smostimportantnaturalareas.Thenewprospectingregulations,expectedtocomeintoeffectattheendofthemoratorium,wouldcontainaseriesofrestrictions.The EnvironmentMinistrywould only award prospecting licences to thosecompanieswhichareabletoguaranteethattheirtechnologywouldnotaffectundergroundwaterflowsandwouldnotrequirethedrillingofalargenumberofwells.Ifittranspiresthatthenewstipulationscannotbemet,theMinistryispreparedtodelayfurtherprospectingworkuntilnewtechnologiesbecomeavailable.Itremainsunclearwhetherthemoratoriumwouldbebindingalsoforthesecompanieswhichhavealreadybeenawardedprospectinglicences,orwhetheritwouldaffectonlynewpermits.

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Afterseveralmonthsofobjectionsagainsttheuseoffracking,firstraisedinMarch2012bylocalgovernmentofficialsandenvironmentalactivistsintheaffectedareas,theprotestwasmovedtoPrague.On14June,adraftbillpropos-ingtobanalluseofhydraulicfracturingintheCzechRepublicpasseditsfirstreadingintheSenatewithjustoneobjection–fromSenatorStanislavJuranek(KDU-CSL).ThebillwaspennedbySenatorsPetrPakosta fromNachod (in-dependent),JiriOberfalzerfromBeroun(ODS)andPavelTrpakfromTrutnov(CSSD)togetherwiththeleadersoftheSTOPHFcoalition.Itisworthnoting,however,thatduetolackofinterestamongthesenators,thevotewasnotpre-cededbyanydebate.InMay,adraftofasimilarbillwasannouncedbythegov-ernors(hejtmans)fromallCzechregions,ledbyMichalHasek,theheadoftheSouthMoravianRegion,anMP,andthedeputychairoftheoppositionCzechSocialDemocraticParty(CSSD).Unlikethebilldraftedintheupperhouse,thisproposalisclearlyananti-governmentpartyinitiative.Theplantosubmitthedraftfordebateinthelowerhousecanthereforebeseenasanattempttopo-liticisetheshalegasissuebytheoppositionCSSD.

Surprisinglyperhaps,localenergybusinessrepresentativeshavebeenratherreluctanttojointhepublicdebateonshalegas.InresponsetopublicsupportfortheprojectfromtheheadoftheCzechGasUnion,thedebatewasjoinedbyHugoKysilka–themarketingdirectorofgasimporterVemex(whichhaslinkstoRussia’sGazprom).Kysilkacitedconcernsaboutthepotentialenvironmen-talimpactofhydraulicfracturingandstressedthatsincetheexpectedsizeofthedepositsisquitesmall,domesticshalegasproductionwouldnotallowthecountry toend its relianceon foreigngas supplies.Healso remindedCzechpoliticians about the plans to construct new pipelines which are to supplymoregasfromtheEast.ThelowestimatesoftheamountofshalegasavailableintheCzechRepublicmightalsobethereasonwhytheheadsofthecountry’smajorenergycompanieshaveso far failed tocommentonthe issue.For thesamereason,plans fordomestic shalegasproduction in theCzechRepublichavenotfeaturedindiscussionsbetweenPrague,MoscowandWashington.

The limited interest in the domestic shale gas deposits have not howeverstoppedtheCzechsfromanalysingtheimpactunconventionalgasdepositsinothercountriesarehavingontheEuropeanenergymarket.Someeconomistshavesuggestedthatlarge-scaleproductionofshalegasacrossEuropecouldpre-cipitateadropinthesharevalueofthestateenergygiantCEZ.LargeamountsofcheapgasinEuropewouldalsoraisequestionsaboutthefinancialviabilityoftheplantoconstructtwonewreactorsattheTemelinnuclearpowerplant,sinceinvestorsmightbemoreinterestedinputtingtheirmoneyintogas-fired

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powerstations.Noneofthis,however,canbecontrolledbythegovernmentinPrague.TherearealsomanysignalssuggestingthatPraguemightsupportthedevelopmentofshalegasproductioninPoland,sincethiswouldfacilitateitsaccesstocheapgaswithouttheneedtopaythesocialandenvironmentalcostsoftheproject.

3. Outlook

ItisratherunlikelythattheCzechparliamentwillapproveacompletebanontheuseofhydraulicfracturing;amoreprobablescenarioisthatMPswillpassthemoratoriumonshalegasprospectingdraftedbytheEnvironmentMinis-try.ThegovernmentinPraguehasbeenverycautiousabouthowitdealswiththeissue,tryingveryhardtofindthegoldenmean.Ontheonehand,thegov-ernmentagreeswiththeopponentsoffracking,rulingoutthepossibilityofallowingexploratorywellstobedrilledinareasofoutstandingnaturalbeauty.Ontheotherhand,itappearstoaccepttheargumentsproposedbytheCzechGeologicalSurvey,whichfavourtheuseofexploratorydrillstoestimatethesizeoftheavailabledeposits.Atthesametime,theministerhasbeenkeentostressthatthereisnoneedtorush,sincethedepositswouldnotdisappear,andtheintroductionofamoratoriumwouldnotdecreasethepotentialforfutureprofit.Itisreasonabletoassume,therefore,thatone of the objectives of this strategy is to wait and see how the shale gas issue is dealt with in Poland.

UndertheEnvironmentMinister’sproposals,Parliamentwouldusethetimeofferedbythemoratoriumtoadoptamendmentstothelawongeologicalworks,mininglawandtheenvironmentalimpactassessmentregulations.Thedoubtsabout shalegasgohand inhandwith thehighlycontroversialdebateabouttheso-calledterritoriallimitsforlignitemininginthenorthwestofthecoun-try.UnderpressurefromastrongcoalitionofMPscomingfromtheaffectedregions(particularlyMilanStovicek), thegovernment isplanningtoamendmininglawtopreventlandexpropriationforminingdevelopment.Thepass-ingofsuchchangeswouldsignificantlyrestrictthedevelopmentofanynewdeposits,includingshalegasdeposits.

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APPENDIX

The situation in the individual areas of the Czech Republic which are likely to hold shale gas deposits

• Trutnov

The most serious protests against the use of hydraulic fracturing tookplaceattheTrutnovfieldlocatednearthePolishborder,whichwasawardedtoBasGas.Membersoflocalgovernmentraisedobjectionstoprospectingac-tivitiesmainlydueto fears that the technologycouldpolluteundergroundsources of natural mineral water, coupled with the negative experiencesofthelocalpopulationlinkedtotheenvironmentaldamagecausedbyyearsofcoalmininginthearea.LocalpoliticiansstressedthatuntilnowtheEn-vironmentMinistryblockedorrestrictedallkindsofconstructionorinfra-structural projects in the area, citing environmental concerns. Therefore,when the central government issuedapermit for shalegasprospecting inthe region,withoutanyconsultationwith local councils, the residents feltunabletoacceptthedecision.Hopingtoreceiveadditionalbackinginitsfightagainsttheproject,NachodTownCouncilsoughtalliesacrosstheborderinPoland’sKudowa-Zdroj.

Protests across the Trutnov site were led by Lubomir Franc, the governor(hejtman)ofHradecKraloveregionrepresentingCSSD,whichislinkedtohisre-electionambitionsintheOctoberpolls..On6March,thegovernorinvitedrepresentatives of regional government to come toNachodwhere theyheldameetingwithdelegatesfromtheEnvironmentMinistryandtheenergycom-panyBasGas.Duringthemeetingthelocalgovernmentofficialssignedthe‘Na-chodDeclaration’inwhichtheyofficiallyvoicedtheirobjectiontotheuseofhydraulicfracturingintheregionandofferedfullcooperationateverystageof theprocess.The local councils thenappealed thedecision to issue the li-cence,forcingBasGastosuspendallworkatthesites.Withoutadoubt,theac-tionstakenbythecouncillorsfromTrutnovandthesurroundingareasinflu-encedtheEnvironmentMinistry’sdecisiontakeninApriltoannulthelicenceandreviewBasGas’sapplicationagain.

TheTrutnovareaisalsohometoanumberofenvironmentalgroups,whichsubsequentlyestablished theSTOPHFcoalition ledby JiriMalik– theheadof theLivingWater association.The coalition,which currentlyunites envi-ronmentalistsfromacrossthecountryandseverallocalauthorities,callsfor

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astatutorybanonhydraulicfracturingintheCzechRepublic,claimingthatthetechnologyleadstothepollutionofundergroundwater.Malikhasattract-edmuchattentionfromboththelocalandnationalmedia.

Aseparategroupofpeopleopposingshalegasprospectingandextractioninareasofoutstandingnaturalbeautyhasbeenformedbyseveralnationalparkauthoritieslocatedintheaffectedareas.Theirdemandshavealsowonthesup-portoftheKrkonoseNationalParkauthorities,whichbordersontheTrutnovsite,aswellasanumberofexpertsfromtheCzechGeologicalSurvey.

• Eastern Moravia

Incontrasttothestrongandunitedoppositionvoicedintheregionssurround-ingTrutnov,localcouncilsinthevicinityofMoravia’sValasskeMeziriciunan-imouslysupportedshalegasprospectingintheregion.CuadrillaMoravawasevenwelcomedbylocalenvironmentalgroups,whichstressedonlythattheexploratorywellscouldnotbedrilled in theBeskydyNationalPark.Theat-titudeof the localcouncillorsandtheregion’sresidents,however,graduallychangedover time.Thiswas causednotonlybyunfavourablemedia cover-ageof theprojectbutalsodue toa reportproducedby theCzechGeologicalSurvey commissioned by the Environment Industry. The report concludedthattheMoravianWallachia(Czech:Valassko)wastoovaluableandsensitivetohumaninterference toallowexploratorydrilling togoahead in thearea.Consequently,localcouncillorsdecidedtooffertheirsupporttotheSTOPHFcoalitionandraisedtheirconcernsusingtheEnvironmentMinistry’sappealprocedure,whicheffectivelyblocked the implementationof theprospectinglicence.InAugust2012theMinistryannulledtheoriginallicenceandorderedareviewofCuadrillaMorava’sapplication.

• Beroun

BasGasEnergiaalsoappliedforalicencetobeginprospectingforshalegasinanareanearCeskyKrasandthetownofBeroun,around30kmwestofPrague.Althoughtheapplicationhasnotyetbeenprocessed forproceduralreasons,groupsofenvironmentalistsand localresidentshavecometogether tovoicetheir opposition against theproject. Themovement (linked to the STOPHFcoalition)hasbeenledbyBerouncouncillorSarkaEndrlova,whohassincees-tablishedlinkswithcouncillorsinneighbouringcommunities.Localgovern-mentbenefitsfromthesignificantmediacoveragesinceitsactionshavebeenbackedbythemanagersofthepopularCeskyKrasNationalPark.

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III. ROMANIA

1. Production potential – deposits and corporate interest in shale gas

AtpresenttheonlyavailabledataonthescaleofshalegasdepositsinRomaniaareroughestimatescompiledbytheUSEnergyInformationAdministration(EIA).TheEIAhasreportedcombinedestimatesforthreecountries:Hungary,Romania andBulgaria,which suggest that the so-called Carpathian-Balkanbasin couldpotentially contain 538bcmof shale gas (separate estimates forRomaniaarecurrentlyunavailable).ItshouldhoweverbenotedthatinFebru-ary2012theRomanianMinistryofEnvironmentandForestsreportedthatin2011ithadconductedinitialteststoestimatethesizeofthecountry’sshalegasdeposits,althoughnofurtherdetailshavebeenmadeavailable.ThetestswereallegedlycarriedoutbytheNationalAgencyforMineralResourcesincoopera-tionwiththenationalresearchinstituteGeoEcoMarandthreeuniversities(inBucharest,IasiandCluj).

Romaniahasmanagedtoattractmoreinterestfromcompaniesseekingtose-cureshalegasprospectinglicencesthanbothBulgariaandtheCzechRepublic.Todate,over a dozen firms have expressed an interest in starting pros-pecting and extraction operations in Romania.AmongthemajorplayersenteringtheRomanianshalegasmarketare:USenergygiantChevron(whichhasbeenawardedfourprospectinglicences,threeinDobrujaandoneintheMoldovaregion);andRomania’sRomgaz,whichconfirmed in June2012 thatitfirstusedhydraulicfracturingbackinthemid90s,addingthatatthetimethecompanyfoundthatfiveof itstwentyexploratorywells inTransylvaniacontainedshalegas.TheRomanianenergymarketispopulatedbyanumberofother companies,usuallyholding just a single licence foroilprospecting;theyhavehoweverexpressedequalinterestinsearchingforlocaldepositsofshalegas.AmongthemareHungary’sMOL,Canada’sEastWestPetroleumandMediaResources (formore informationabout theawarded licences, seeAp-pendix).Todate,noneofthecompanieshasbeenabletofullyconfirmthepres-enceofshalegasdepositsinthecountry.TheonlyoptimisticnewshasbeenreportedbyBritain’sSterlingResources,whichstatedattheendof2011thatitwas50%certainthatitsfieldcontained42bcmofshalegas.

Adiscoveryofshalegasanditssubsequentextractionatanindustrialscalewouldsecurethedominanceofgas inRomania’senergybalance.Naturalgas is thecountry’smost importantenergyresource (itaccounts forover30%ofallenergyresourcesusedinRomania).Importantly,over80%ofthe

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country’sgasconsumptioncomesfromlocaldeposits,whiletheremainingpartisimportedfromRussia.

2. Legal regulations

Romaniadoesnotcurrentlyhavespeciallegislationregulatingtheprospectingandproductionofshalegas.Companies interested in launchingprospectingactivities in thecountryneedtoapply foraregular licence forhydrocarbonexploration.Asageneralrule,anycompanyholdingahydrocarbonlicenceinRomaniamayoperateexplorationworksforunconventionalresources.Never-theless,accordingtotheEnvironmentMinistry,Romanialacksspecificproce-duresusedtoassesstheenvironmentalimpactofshalegasdrilling.

WhencomingtopowerinMay2012,VictorPonta’sgovernmentincluded ‘animmediateestablishmentofamoratoriumonshalegasoperationtocompletestudiesthatareongoingattheEuropeanlevelontheenvironmentalimpactsofthehydraulicfracturingprocess’initsmanifestoplans.Sofar,however,norelevant legislationhasbeenadoptedto facilitatesuchamoratorium.None-theless,theprimeministerclaimsthatthemoratoriumiseffectivelyinopera-tionandwillremaininplaceuntilDecember2012.Afterthat–followingtheDecemberparliamentaryelection–thegovernmentistodecidewhetherornottoextendthemoratorium.ItshouldthereforebeunderstoodthatRomaniahasintroduceda ‘political’moratoriumonshalegasprospectingandextraction,whichhasneverbeenofficiallylegislated.

3. Shale gas in public debate and local politics

ShalegasbecameatopicofnationwidedebateafterMihaiRazvanUngureanu’scentre-rightgovernmentawardedthreelicencestoUSenergygiantChevroninMarch2012.Thedecisioncausedlocalprotestsonalimitedscale.Thelarg-estdemonstrationwasheldinthetownofBarlad(wheretheUScompanyhadbeenoperatingsince2010),where5,000peopletooktothestreetstoshowtheiropposition to gas prospecting.Thedemonstrationswere coordinatedby theAssociationofBarladResidents,ledbyanMPfromthethenrulingDemocraticLiberalParty.Theprotestsinothertowns,however,werenotledbyaparticu-larpartyandtendedtobepoorlyorganised.TheissueofshalegascametotheattentionoflocalenvironmentalistsevenbeforeChevronreceiveditslicences.InFebruary2012,oneofthekeyorganisationsunitingenvironmentalorgani-sationspennedaletteraddressedtotheEnvironmentMinistry,demandinganexplanationofthecountry’spolicyonshalegasprospectingandproduction,

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stressingthatthetechnologyusedintheprocesswasharmfultotheenviron-ment. The activity of Romanian environmental groups howeverwas rathernegligible,particularlywhencomparedwiththepublicoutcryinneighbour-ingBulgaria.

ThedecisiontoawardthelicencestoChevronattractedalotofcriticismfromthethenoppositionSocialLiberalUnion.SLUcitedChevron’sshalegaslicencesasanexampleofthegovernment’sinabilitytorunthecountryandthenusedthematterasaformalargumentinitsjustificationforavoteofnoconfidenceinUngureanu’sgovernment.ItshouldbenotedthatSLU’sprotestsdidnotre-fer to thepotentialextractionofshalegasbutrather to theunclearcriteriausedtoawardthelicences.Ascouldbeexpected,thegovernment’ssubsequentdecisiontoclassifyallinformationabouttheprocessprovedhighlycontrover-sial.Ungureanu’sgovernmentarguedthatthemovewasnecessarytoprotecttrade secrets, even thoughChevron requested the government todeclassifythemaintermsandconditionsofthecontract,andstressedthattheconfiden-tialityclausewasaddedbythegovernmentatitsownaccord.

Theissuewaswidelyreportedinthelocalmediaandgeneratedgreatinterestfromtheoppositioncentre-leftSocial-LiberalUnion.TheleaderofthelargestpartywithinSLU–VictorPontafromtheSocialDemocraticParty–accusedthegovernmentofsecretlysellingthecountry’smineralresources.Asimilaraccusation came from the leader of theNational-Liberal Party (also anSLUmember)CrinAntonescu,whostressedthathewasnot protesting against shale gas production but against the procedures used to award the licenc-es.ShalegaswasthereforeassociatedbySLUwiththemannerinwhichthegovernmentprivatisedkeystatecompanies,exemplifiedbythesaleofthecop-perproducerCupruMinorthecontroversialRosiaMontanagoldmine.Soonafter,shalegasbecameassociatedwiththeconflictsurroundingtheconstruc-tionofamineinRosiaMontana,whichRomaniansocietysawasanexampleofthegovernment’sdesiretomaximisethestate’sprofitbyignoringtheinterestsoflocalcommunitiesandexposingthemtoapotentialenvironmentaldisaster.InRomania,therefore,shalegasappearedasanelementofawiderpublicde-bateaboutactionstakenbythestatewithregardtotheexcavationofmineralresourcesanditsrelationswithforeigninvestors.

OneofthesupportersofshalegasproductionhasbeenRomania’sright-wingpresidentTraianBasescu,whoisanoutspokencriticofthecentral-leftSLU.ThepresidentregularlystressedthattheextractionofshalegasinRomaniawouldofferthecountryanopportunity toreduce itsdependenceonforeign

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energysuppliesandcitedPolandasanexampletofollowwithregardtotheuseofshalegasasawaytoimprovethecountry’senergysecurity.Healsocalledforaquickdecisiononthefutureofshalegasextraction inRomaniatoenduncertaintyamonginvestors.Thepresidentalsohighlightedtheneedforclosecooperationwithwesterncompaniesandcalledforareviewofthesystemusedtosetfeesfortheexploitationofmineralresources.

Theuseofmineralresourcesbecameoneofthethreeofficialreasonsforavoteofnoconfidence inUngureanu’spro-presidentialgovernment.After theno-confidencemotionwaspassed,powerinthecountrywashandedovertothecentre-leftSLUandVictorPontawasaskedtoformaCabinet.OneofthefirstdeclarationsmadebythenewCabinetwastheintroductionofamoratoriumonshalegasprospectingandextraction.Sincecomingtopower,however,SLUhasnotmadeanychangestotherelevantlegislation.Furthermore,inmidJune2012,theSLU-controlledSenaterejectedadraftbillproposingacompletebanontheuseofhydraulicfracturinginthecountry.ThebillwassubmittedbyagroupofSLUMPsbefore the formationofVictorPonta’sgovernment.TherecentmeasuresthereforesuggestthatSLUpoliticianshaveabandonedtheirearlierplanstointroducethemoratorium.ItshouldbenotedthattheEnviron-mentMinisterintheSLUCabinethasreiteratedhisplanstointroduceatwo-yearmoratoriumonshalegasprospectingifthepartywinsthenextelectionbut it isclear that thedebateonthe issuehasdieddown.Atpresent,publicdebateinRomaniahasbeendominatedbythestartofimpeachmentproceed-ingsagainstpresidentTraianBasescu,initiatedbySLUinearlyJuly.ThismaysuggestthattheissueofshalegasextractionwasusedbySLUpurelyinstru-mentallytofightpoliticalbattleswithUngureanu’sgovernment.

4. Outlook

ThemoderateactivityofRomanianenvironmentalgroups,coupledwiththelackofactivityamongRomanianinterestgroupsopposedtoshalegasproduc-tion, effectivelymeans thatRomania’s position on shale gas will depend mainly on the way the political situation in the country unfolds, and par-ticularly on how the political conflict between the government and presi-dent plays out.Themostprobablescenarioisacontinueddeadlockbetweenthecentre-rightpresidentandthe favourite in theDecemberparliamentaryelection – the centre-left SLU. Thiswould increase the likelihood of a legalmoratorium on shale gas, since SLU’s dislike for the presidentwould likelyfurtherpoliticisetheissue,withbothsidesoptingtouseitintheirday-to-daypoliticalbattles.Alternatively,however,theon-goingpoliticalconflictcouldbe

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wonbyeitherSLUorPresidentBasescu.SLUcurrentlyenjoysthesupportofaround50%oftheelectorateandisseenasthefavouriteintheDecemberpar-liamentaryelection.Byformingagovernmentaftertheelection,SLUcouldtrytoremovethepresidentfrompower(e.g.,byresumingtheimpeachmentpro-ceedings).However,shouldSLUfailtodoparticularlywellintheelection,thepresidentmighttrytoformanewgovernmentbyforgingallianceswithotherparties.Thiswouldbefurtherfacilitatedbythefactthatthepresidenthasatitsdisposaltheconstitutionalprerogativetoappointhisprimeminister.Bothscenario–theconsolidationofpowerbySLU,andtheformationofapro-pres-identialgovernmentaftertheelections–offerlesschanceofamoratorium.

Further developments around the issue of shale gas in Romania could also be affected by the evolution of diplomatic relations between Bucharest and Washington. When SLU began impeachment proceedings against thepro-American Basescu, and following a subsequent referendum, theUnitedStatesexpressedseriousconcernovertheparty’sactions,whichWashingtondescribedasinviolationofthestandardsoftheruleoflaw.TheUSreaction,seeninRomaniaasashowofsupportforBasescu,ledtoagrowingdistrustofAmericanforeignpolicyamongboththerulingpartyandpartsofRomaniansociety.AndsinceshalegasprojectsaregenerallyassociatedwithUSinterestsintheregion,theissuecouldbecomeabargainingtoolinBucharest’srelationswithWashington.Itshouldbestressed,however,thattheissuecouldbeusedbothasananti-Americantool(byintroducingamoratorium)orasagestureofgoodwill,stressingthedesiretomaintainingBucharest’sgoodpoliticalrela-tionswithWashington(byabandoningtheplansforamoratorium).

Last update 25 September 2012

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TABLE. Shale gas companies awarded exploratory licences in Bulgaria, the Czech Republic and Romania (updated August 2012)

Company Site location Additional information and progress

BULGARIA

ParkPlaceEnergyCorporation

AprospectinglicenceforasiteinDobrichregion,Dobruja(north-westernBulgaria).Blocks:Vranino1-11

ThelicencewasawardedinOctober2010,andconfirmedincourtinMarch2012(followinganappealbyanotherbidder).ParkPlaceEnergyspecialisesinprospec-tingforshalegas;followingthebanonfracking,thecompanyhasvowedtoabidebythenewrestrictions.

TransatlanticPe-troleumLtd.(viaDirectPetroleum)

AprospectinglicenceLovech(north-easternBulgaria)

ThelicencewasawardedtoBulgaria’sDirectPetroleumbackin2004.In2011,thecompanywastakenoverbyUSTrans-atlanticPetroleum.Initialexploratoryte-stsatthesiteconfirmthepresenceofbothshalegasandconventionalgasdepositsinthearea.Thecompanydoesnotofferprogressreportsbuthasinvitedbidsfromcompaniesinterestedinprospectingforconventionalgasatthesite.

Chevron(licenceagreementrema-insunsigned)

NoviPazar,Dobruja(north-westernBulgaria)

Chevronwasawardedpreliminaryli-cencepermitinJune2011,butinJanuary2012Bulgariangovernmentannulledtheoutcomeofthebiddingprocessanddecidednottosignthefinallicenceagreement.

CZECH REPUBLIC

BasGasEnergia Trutnov,BroumovNachod–NorthernpartsoftheCzechRepublic,nearthePolishborder.

Thelicencewasawardedin2011,andthenannulledinApril2012bytheEnvironmentMinistryandreferredforreview.Thecompanythenresubmittedanamendedapplicationforasmallersite,withoutareasofoutstandingnationalbeauty.

CuadrillaMorava Hranice,Koprivni-ce,ValasskeMeziri-ci(Moravia)

Thelicencewasawardedin2011,andthenannulledinAugust2012bytheEnviron-mentMinistry,andreferredforreview.

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Company Site location Additional information and progress

ROMANIA

Chevron Barlad,north--easternRomania,neartheMoldovanborder.

Chevronreceiveditsoilandgasexplora-tionlicencein2010fromRegalPetroleum(originallyawardedtoRPin2004).Area6,257km2,Chevronisplanningthreeexploratorywells(ca.3-4kmdeep).Noprogressreportsavailable.

Chevron Adamclisi,Costi-nesti,VamaVeche,south-easternRomania,neartheBulgarianborder.

ThelicencewasawardedinMarch2012foratotalof2,700km2.Noprogressre-portsavailable.

MOLandExpertPetroleum(70%/30%)

Voivozi(Ex-1),Adea(ex-5),Curtici(EX-6)–north-westernRomania

ThelicencewasawardedinApril2012foratotalof3,434km2.MOLhasindicatedthatthesitemaycontainunconventionalgasandoildepositsandplanstocarryoutprospectingactivities.Noprogressreportsavailable.

EastWestPetro-leum(EWP)toge-therwithNaftnaIndustrijaSrbije(NIS)–85%/15%

Ex-2(Tria),Ex-3(BaileFelix),Ex-7(Periam),Ex-8(Biled)–North-westernRomania

Eachlicencecoversaround1,000km2.EastWestPetroleumsuggeststhatallsitesarelikelytocontainshalegasdeposits.Todate,however,noexploratoryworkhasbeendone.

MediaResources(controlledbySterlingResour-ces)togetherwithTransatlanticPetroleum(eachholdinga50%stake)

EIII-7,SudCraio-va–south-westernRomania(Oltenia)

Thelicencewasawardedin2000.Agre-ementonoilandgasprospecting;thecompaniesexpressinterestinprospectingforunconventionalgasdeposits.

ZetaPetroleum(50%)andRafflesEnergyPte(50%,operatoronthedeposit)

Climauti,Suceava(Bukovina,nor-thernRomania)

InlateMay2012,ZetaPetroleumpur-chasedRegalPetroleumtogetherwithitsexplorationandproductionlicence.ZetaPetroleumannouncedthattheconcessionoffersbothconventionalgasaswellasunconventionalgaspotential.

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Company Site location Additional information and progress

Romgaz Romgazoperates8licences,lackofdataonindividuallicencesinTransy-lvania

InJune2012,Romgazrepresentativesconfirmedthattestsconductedinthe90suncoveredshalegasdepositsin5/20wellsinTransylvania.Nofurtherdetailsabouttheexactlocationofthesiteorsubsequentprogressareavailable.

Despite their initial interest in shale gas exploration, over the past year Bulgaria, the Czech Republic and Romania have become increasingly

sceptical about the development of unconventional gas resources. In January of this year Bulgaria introduced an indefinite ban on the

exploration and production of shale gas and Romania followed suit in May by introducing a six-month moratorium on exploration work, which it plans

to extend by another six months following the country’s parliamentary elections scheduled for December. Similar measures are being planned by the government in Prague. The aim of this report is to explore the reasons

why countries which claim to want to improve their energy security have been showing increasing scepticism towards shale gas.

Tomasz Dąborowski

analyst at the Centre for Eastern Studies (OSW), is an expert on political and economic affairs in South-Eastern Europe

and the region’s energy policies.

Jakub Groszkowski

analyst at the Centre for Eastern Studies (OSW), specialises in the domestic and foreign policy of the Czech Republic, Slovakia and Slovenia, with

a strong focus on the economic and energy policies of these countries.