European Union Decision Clears the Way For Fracking Investment

Major news out of Europe confirmed the strongly held belief of many in the energy sector that European states will be the next frontier in the shale gas revolution, and it seems sooner rather than later.

In a much anticipated decision, on January 22, 2014, the European Union adopted a series of non-binding recommendations on companies engaging in hydraulic fracturing within the EU's borders. The newly released recommendation calls for member states to adopt "minimum principles" for fracking in each member country, such as, for example, requiring a careful assessment of environmental impacts and risks, ensuring that wells conform to best practice standards, monitoring environmental effects, and informing the public about materials utilized in individual wells. The legislations calls for member states to apply the principles within six months and to report to the EU annually about what specific steps are being taken to comply.

The EU's legislation specifically rejected calls for sweeping and legally-binding regulations on the fracking industry that could have slowed, or even stayed, exploration activity altogether. Among the rationales cited for refusing to adopt sweeping regulations is the desire to establish clear and unambiguous rules affecting natural gas investors in Europe. While individual EU states still have the authority to curb fracking activity, or disallow it altogether, the EU's move ensures that exploration and development activities will proceed full-speed ahead in countries that want to reap the potentially vast benefits of fracking. In particular, England, Poland, the Czech Republic, Hungary and Slovakia were instrumental in lobbying against the proposed broad-ranging regulations on the extraction of natural gas within Europe.

Europe appears more than ever to be the next great energy frontier, with active exploration already under way in the UK, Denmark, Germany, and Poland. Significant foreign investment has also been committed to the Ukraine, Romania, France, and Lithuania. The EU's recent recommendation sent a loud and clear message that such foreign investment is welcome in Europe so long as exploration and development activities are conducted in accordance with best environmental practices and are transparent to the public. Perhaps most importantly, the EU has now demonstrated its commitment to establishing a predictable regulatory scheme for investors in the European shale industry.