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TO RUEHC/SECSTATE WASHDC 8288
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INFO RUCNMEM/EU MEMBER STATES COLLECTIVE

UNCLAS SECTION 01 OF 03 PARIS 000160 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EB/ESC/IEC Alex Greenstein, S/EEE, S/CIEA, EUR/WE 
 
E.O. 12958: N/A 
TAGS: ECON ENRG EPET FR
SUBJECT: FRANCE: POTENTIAL FOR SHALE GAS DEVELOPMENT 
 
REF: SECSTATE 11742 
 
PARIS 00000160  001.2 OF 003 
 
 
SENSITIVE BUT UNCLASSIFIED 
 
¶1. (SBU) Summary: France has no identified shale gas bearing 
formations.  Industry took an interest in the sector in 2007, but 
although the GOF plans to permit exploration activity for shale gas 
areas in Southeastern France in 2010 (making production possible 
around 2015), technical, legal and political challenges are 
significant.  Shale gas is not a strategic energy priority for 
France, given a diversified set of natural gas/LNG suppliers and a 
large amount of nuclear generated electricity.  End Summary. 
 
¶2.  (SBU) EconOff met recently with GOF officials and industry 
representatives in the energy sector who gave an overview of current 
policies, activities, and future challenges regarding shale gas 
development in France. 
 
Energy Mix: No Urgency for Shale Gas 
------------------------------------ 
 
¶3.  (U) Our contacts suggest no immediate push to develop France's 
shale gas market.  Imported gas accounts for 15 percent of France's 
energy consumption.  (The small amount of French commercial gas 
production - 1.1 billion cubic meters per year - will end in 2013.) 
The GOF aims at keeping a diversified set of suppliers: Norway (33 
percent), The Netherlands (18 percent), Algeria (17 percent) and 
Russia (15 percent) including substantial liquefied natural gas 
imports.  Gas in France is used for heating and industry with a 
small percentage for electricity production (4 percent of 
electricity comes from gas compared to the EU average of 7 percent). 
 The country's 58 nuclear power plants generate nearly 80 percent of 
the country's electricity.  Potential remains for expanding gas 
utilization in the power/transportation sectors given planned 
production for electric vehicles. 
 
No Shale Gas-Bearing Formations 
------------------------------- 
 
¶4.  (U) France has no identified shale gas bearing formations so 
far.  Shale gas experimental labs do not exist, nor is there record 
of horizontal drilling or hydraulic fracturing activities, according 
to sources at the Ministry of Sustainable Development (MEEDDM).  The 
GOF Investment Plan for Gas Development 2009-2020 makes no mention 
of shale gas related infrastructure projects.  Industry's interest 
in shale gas development in France is recent (since 2007). 
 
Potential in the Southeast Basin 
-------------------------------- 
 
¶5.  (U) There is potential for shale gas development in Southeastern 
France, energy experts contend.  The specific area spans roughly 450 
miles, extending from the Jura Mountains near the Swiss border in 
the north, down through the Alps to the Languedoc and Provence 
basins bordering the Mediterranean Sea.  The area is in one of the 
three large sedimentary basins in France, called the "Southeast 
Basin" or "mega-basin," which is known for its structural 
complexity. 
 
¶6.  (SBU) Energy companies are currently applying for non-exclusive 
exploration permits for the Southeast Basin to research shale gas 
formations.  European and American firms operate alone or form joint 
ventures with French companies.  The largest players are Lundin 
(Swedish), Vermilion Rep SAS (Canadian), Schuepbach Energy LLC 
(Swiss), Toreador Energy (U.S.) and Total Exploration and 
Production, in partnership with Devon Energy (U.S.).  Other 
applicants include Mouvoil SA, Bridgeoil, Diamoco Energy, Egdon 
Resources Ltc, Eagle Energy Ltd, YCI Resources Ltd, and Cevennes 
Petroleum Development Ltd.  MEEDDM's Directorate on Energy and 
Climate, Bureau of Exploration and Production of Hydrocarbons (BEPH) 
publishes monthly updates and company information on permit 
applications www.energie.developpement-durable.gouv.fr . 
 
Challenges for Gas-Shale Development 
------------------------------------ 
 
¶7.  (SBU) Embassy contacts raised several challenges for shale-gas 
development: 
 
-- Geological make-up.  France has one of the highest levels of CO2 
gas deposits in the world.  CO2 fields within the Southeast 
sedimentary basin lie along fault systems (fissures in the rock). 
Some CO2 fields are trapped by an overlying impermeable cap rock, 
others have CO2 emissions cropping out at the surface or leak into 
the ground water and emerge in carbonated springs.  Shale gas expert 
Francois Lorant stressed the unknown risks for hitting new CO2 
deposits when drilling for shale gas exploration, and the potential 
hazard on the local environment. 
 
 
PARIS 00000160  002.2 OF 003 
 
 
-- Social acceptability.  Communities fear the impact of intense 
drilling, well density, and high-volume hydraulic fracturing.  Our 
contacts underscore the absence of a thorough risk assessment on 
possible environmental consequences (wildlife, traffic, noise, urban 
settings). 
 
-- Water and chemicals.  Large volumes of water are required to 
fracture the rocks.  Regional authorities want evidence that shale 
gas development will not harm the environment and be an appropriate 
use of limited natural resources.  Communities, water regulatory 
agencies, energy experts, and industry leaders raise the risk of 
groundwater contamination by the fracture fluid which contains 
chemical additives.  The consensus is that further research is 
necessary. 
 
-- Population density.  The Southeast Basin covers several important 
urban and sports centers, wine and sparkling mineral water 
businesses (Perrier, Badoit), quaint villages and other scenic and 
tourist zones.  The demographics will make it difficult to access 
shale gas formations given the need for wide-spread drilling 
(approximately six wells every kilometer/four per mile), French 
experts estimate. 
 
-- Drilling and hydraulic fracturing technologies.  The GOF and 
French industry do not have expertise in drilling and new fracturing 
technologies required for developing shale gas resources. 
 
-- Drilling Rigs.  French companies build and export rigs 
internationally.  IFP Director Appert told us these companies do not 
have the capacity to cover domestic demand for shale gas production. 
 French rig suppliers would likely call on Spanish and German rig 
imports.  All things being equal, MEEDDM officials anticipate a 
shortage of rigs in France in the next three to five years if shale 
gas production moves forward. 
 
-- Mining rights.  There is no private ownership of mineral rights 
in France.  A gas field does not belong to the land owner, and only 
the state (MEEDDM) may grant exploration and production rights for 
such resources. 
 
-- Geological data.  France lacks a systemic assessment of shale gas 
resources and data on the source rock from which shale gas 
originates.  Seismic data and well site reports are considered 
"interpreted data" and remain confidential indefinitely and the 
property of the companies.  Other seismic data ("raw data") is 
public after a ten-year confidentiality period.  Some seismic 
sections (basin imagery) can be viewed (after ten years) on a case 
by case basis.  BEPH also maintains non-confidential data which is 
immediately accessible.  Information on existing gas wells in the 
Southeastern basin may be useful for shale gas exploration.  The 
material includes well reports, logs, cuttings/samples, test 
records, and surveys conducted before 1958 when the BEPH was 
created.  BEPH's website also posts national indicators on mining 
acreage in France, geophysical and drilling activity, oil/gas 
production levels and reserves.  Institut francais du petrole 
publishes regional studies on the prospects of France's sedimentary 
basins. 
 
Regulatory Environment 
---------------------- 
 
¶8.  (U) The French Mining Code is the main legislative instrument 
for regulating gas exploration, development, and production 
activities.  Potential investors in shale gas development follow the 
same three-stage process as those for conventional gas development: 
research permit, exploration activity, and production.  Each phase 
requires local and regional authorizations and a national permit. 
The respective local and regional authorities are the Prefect and 
the Regional Director for Industry, Research and the Environment 
(DRIRE).  MEEDDM is the national level authority. 
 
¶9.  (U) MEEDDM accepts research permit applications at any time, if 
the area is unencumbered by existing exploration permits or 
concessions.  France's General Council of Mines (GCM) provides a 
technical opinion on each application.  The first application 
received for a given area sets off the competition process. 
European companies (see para. 12) may file a competing application 
within 90 days after the publication of the initial application in 
the French Official Journal and European Official Journal.  MEEDDM 
is now assessing competing proposals submitted in 2007.  Awards are 
expected in 2010.  BEPH/MEEDDM can assist companies with the 
research permit application. 
 
¶10.  (U) In the second phase, MEEDDM grants a company(ies) exclusive 
mining rights for an initial five years to explore the hydrocarbons 
within the confines of the research permit.  Holders of the 
exclusive research permit do not have the right to produce, but it 
is a prerequisite to do so.  The exploration period can be extended 
twice for a period of five years each.  Extensions require 
 
PARIS 00000160  003.2 OF 003 
 
 
consultations with local authorities and a favorable GCM opinion. 
This generally takes one year.  After the first extension, the 
permit area is reduced by fifty percent, and by an additional 
twenty-five percent at the second renewal.  In an effort to cut 
costs (seismic surveys, drilling, etc.), permit holders may grant an 
interest in the area to another company via a partnership 
arrangement (farm-in). 
 
¶11.  (U) Investors should be prepared for a lengthy consultation 
period to obtain departmental and local authorizations.  The DRIRE 
conducts environmental impact studies and establishes a dialogue 
with the community stakeholders.  It studies the company's 
environmental and financial management practices in light of 
specific local factors: geology, hydrology, climate, demographics, 
local economy, living conditions, and the overall environmental 
footprint.  The local prefect authorizes and will oversee the entire 
realm of operations: drilling, production, operations, management, 
waste disposal, departure plans, and well plugging. 
 
¶12.  (U) The production phase could begin as early as 2015 for shale 
gas research permits granted in 2010.  The license holder must be a 
company governed by French or EU law.  (Non-EU companies can 
establish a French/EU subsidiary or company, or enter into a JV.) 
If a commercially-viable discovery is made, only permit holders (not 
partners) have an automatic and exclusive right to obtain a 
concession.  The company must obtain a concession in the event of a 
commercially-viable discovery.  Concession rights are generally 
granted for 25 to 50 years, and renewable several times for 25 years 
each.  (Note: a partner can become a permit holder through a 
procedure called "mutation."  A mutation requires a ministerial 
order -- no public enquiry, no local administrative consultation, 
except for a report by the DRIRE--, after consultation with the GCM. 
 End note.) 
 
Taxes and Fees 
-------------- 
 
¶13.  (U) Production license holders must pay the GOF a royalty based 
on production levels.  For a new discovery, the rate is five percent 
for discoveries over 300 million cubic meters and is deducted from 
the business tax.  There are also local mining taxes: 65.1 euros 
(USD 91) to the municipal authority for every 100,000 cubic meters 
of gas produced; 330.3 euros (USD 457) per 100,000 cubic meters for 
the administrative department.  Surface rental fees do not apply, 
and wells recently brought on-stream are taxed at reduced rates. 
 
French Views on Other Shale Gas Markets 
--------------------------------------- 
 
¶14.  (U) Jean-Marie Chevallier, of Cambridge Energy Research 
Associates, said most of the recent interest in shale gas 
development is by American companies and that market potential is 
strongest in the U.S., however, the "situation is not clear" in 
Europe.  French energy experts agree there are likely opportunities 
for shale gas development in Poland, Hungary, and Germany.  Ukraine 
is emerging as the largest potential shale gas market that could 
"drastically change the energy situation", MEEDDM Energy Advisor 
Richard Lavergne told us.  It could be a major innovation that will 
change the European gas market by lowering prices, notably LNG. 
More LNG in Europe could lead to lower spot gas prices, which in 
turn could compete with nuclear electricity, he said.  As for 
industry, GDF-Suez and Total SA are tight-lipped about their 
long-term international strategy in shale gas.  CEO de Margerie told 
the press that Total's recent USD 2.25 billion investment in 
Chesapeake Energy's Barnett Shale project is a chance to gain 
experience in the sector before venturing in the French market and 
beyond.   Total executives told us that for now, middle-sized 
companies seem suited for shale gas projects, providing expertise in 
local environmental conditions and specialized drilling techniques. 
 
 
RIVKIN