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European Shale Gas Exploration May Hurt Russia: Capital Economics

Russia's energy exports are likely to be hit severely if European countries are successful in developing their shale gas reserves, Capital Economics Emerging Markets Economists Neil Shearing and Liza Ermolenko said Friday.

The economists said that the potential development of shale gas fields in Europe, though it may take many years, could have a significant impact on Russia's energy exports. Natural gas currently accounts for over 10 percent of Russia's exports earnings, and around 90 percent of the country's total gas exports go to Europe.

Also, the development of the European shale fields could push down the international oil prices, eventually distorting Russia's current growth model, which is hugely reliant on oil exports.

The U.S. Energy Information Administration estimates that the largest deposits of shale gas are in Poland, France, Ukraine and Norway, of which the former three are currently large importers of gas from Russia. It is estimated that the shale deposits present in those countries can make them self-sufficient in gas for many decades.

Capital Economics cautioned that in an extreme scenario where Poland, France and Ukraine start producing gas from their respective reserves and stop importing it from Russia altogether, Russia may suffer a loss in export earnings equivalent to as much as 1 percent of GDP. Moreover, if all of these countries also become net exporters of gas, Russia's market share will be squeezed considerably.

However, it is too early to overplay the potential impact of European shale on Russia as estimates of the size of potential deposits could prove to be far too optimistic, Capital Economics said. Further, environmental concerns could delay the development of fields by many years, the firm noted.

by RTT Staff Writer

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