Shale Gas Boom in Denmark? Why You Shouldn't Count on It

The newswires are abuzz about the Danish government allowing Total to drill shale gas test wells on Danish soil. But if the results are anything like those of other European countries, investors shouldn't hold their breath on a shale boom in Denmark.

Jul 8, 2014 at 3:24PM

G

A drilling rig in Poland. Source: Natural Gas Europe

Last week the Danish government gave French energy major Total (NYSE:TOT) permission to drill test wells for shale gas around Frederikshavn, a municipality in northern Denmark. Apparently Denmark is allowing Total to explore on its soil due to concerns about the country's dropping gas output. The Danish government, no doubt, wants to stem that decline in gas production, a decline which threatenes to undermine plans for Danish energy self-sufficiency by 2050.

If only it were that simple. Just a couple years ago ExxonMobil (NYSE:XOM) dropped plans to drill for shale gas in Poland for the same reason Total will probably be unsuccessful in Denmark: Commercial viability.

While many geologists believe that Europe does indeed have considerable shale resources, having the stuff in the ground and getting it out properly are two very separate things. In Denmark's case, test wells could yield substantial amounts of natural gas. After that dry gas is removed, however, it must first be transported to a processing facility and then transported again to end users. 

Unfortunately, Denmark does not currently have the pipelines or processing facilities to meet this need. Although Denmark does have considerable oil and gas infrastructure, it is all geared to offshore, North Sea production.

This is where commercial viability comes into question. In order to make shale drilling operations work, Total will have to build most infrastructure itself. Regarding drilling regulations and permitting, Poland is perhaps the most business-friendly country in Europe. Denmark is among the least. If ExxonMobil couldn't make it work in Poland, the cautious investor should be even more doubtful about Total's test wells in Denmark.

Shale Gas Poland Pic Natural Gas Europe

Shale gas drilling in Poland. Source: Natural Gas Europe

Mandate from Brussels
Meanwhile, Denmark has been one of the most enthusiastic participants in Europe's drive to renewable energy. The EU renewable energy mandate gave Denmark an overall target of 30% of all energy coming from renewable sources by 2020; a target Denmark is set to exceed thanks to the buildout of an expensive 'smart grid.' Not inconsequentially, Denmark's per megawatt cost of energy is now the highest in Europe at 30.54 Eurocents per kilowatt hour.

In any case, betting that Denmark will, on the back of its renewable energy infrastructure, build a pipeline and processing network for shale gas, is another questionable prospect.

Hands of the few
Assuming that Total can make Danish shale gas profitable, an unlikely prospect in my opinion, retail investors will still find it difficult to profit meaningfully from Total's success. After all, Total is a huge company with a market cap of nearly $160 billion. Danish shale gas would account for just a small portion of overall revenue even in a best-case scenario. 

Don't count on smaller, independent companies to get involved, either. The EU's strict environmental regulatory stance ensures a high cost of doing business, and an even higher barrier to entry. Non-European independent companies would therefore have a very difficult time breaking into a hypothetical European shale drilling industry. The benefits of a European shale gas boom would likely rest in the hands of the few.

Foolish conclusion
If you do believe in the shale, it's best to stay away from Europe. Drilling results in other European countries have thus far been disappointing. Furthermore, Brussels-based environmental mandates, a strong tradition of "not in my backyard," often dating back to colonial times, and a high tax regimen are all reasons to keep your investment money in North American energy instead. 

The real energy opportunity
You already know record oil and natural gas production is changing the lives of millions of Americans. But what you probably haven't heard is that the IRS is encouraging investors to support our growing energy renaissance, offering you a tax loophole to invest in some of America's greatest energy companies. Take advantage of this profitable opportunity by grabbing your brand-new special report, "The IRS Is Daring You to Make This Investment Now!," and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Casey Hoerth has no position in any stocks mentioned. The Motley Fool recommends Total (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers