It looks like it was a happy Halloween for Spain, as October 31 marked the first day fracking was allowed in the nation under a new set of ground rules set forth by the government.
Oil and gas drillers will now be allowed to explore and develop shale plays with the backing of Spain’s national government.
A 1998 oil exploration law was amended to specifically address fracking technology – the highly controversial method of extracting gas and oil from shale rock using water and chemicals – in an effort to endorse the technology and intrigue producers.
The new measure also modifies a 2006 law and mandates that all fracking projects pass an environmental-impact assessment, as Businessweek reports. Every project nationwide must adhere to rules included for aquifers, air quality, and all aspects of wildlife.
Prior to yesterday, oil and gas projects were handled differently from region to region. Now, a drilling permit that crosses various regions will be supervised by the central government, though permits that span just one region will still be overseen by that region’s officials. But this also means that if one region prohibits fracking, it may conflict with federal law and therefore could be overruled.
This formally legitimizes Spain’s willingness to frack and comes at a time when the Spanish economy faces great uncertainty.
If early estimates are any indication, Spain could be in for a good run. According to Shale Gas Europe, the nation has reserves of natural gas at about 2.05 trillion cubic meters, 80 percent of which would require fracking from shale rock. That’s enough to satisfy current demand for the next 55 years.
Spain’s unconventional and yet-untapped natural gas resources are therefore up for the taking, and with this new law, there is little standing in the way.
Fracking Spain
All of Spain should be rejoicing; it’s one of the poorest nations in all of Europe when it comes to energy. Spain imports roughly 99 percent of all oil and gas needs. The few traditional fields that are in operation produce very little.
But the entire game is about to change with the approval of fracking technology and Spain’s willingness to drill unconventionally.
The prime real estate is in the north, in and around the Basque region, where shale deposits are thought to be most fruitful.
What’s great about this region is that it not only holds the key to Spain’s future riches, but it is operationally viable. Most of Europe has been criticized for trying to incorporate fracking into areas with high population densities – but the Basque region doesn’t have that problem. Additionally, the topography of mostly grasslands will be easy to work with.
Forward Progress
With so much of the region left for exploration, Spain has gained interest from its own Repsol SA (OTC: REPYY), San Leon Energy Plc (LSE: SLE) of Ireland, and privately held Heyco Energy Group Inc. of Texas.
In April 2013, two exploration licenses were granted to Frontera Energy, a subsidiary of San Leon, along with two other licenses to explore Basque’s Cantabrian Basin.
Heyco is interesting because it’s the first non-European company to get involved. The company seems very pleased with efforts thus far, and it has already announced it has gas shows among preliminary tests.
Shale formations where Heyco is concentrated are up to 13,000 feet in depth, according to Natural Gas Europe. The company will drill vertical wells here, complete logging suites, and conduct microseismic monitoring.
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Heyco has much experience with unconventional drilling methods and multi-stage fracking. It’s also worked in Europe since the 1990s in the U.K., France, Morocco, and now Spain.
And Heyco has a joint venture with True Oil LLC and Spain’s Basque National Oil Company “SHESA,” the project operator.
The company’s success will greatly influence whether outside parties are likely to join in.
To date, there have been 70 licenses granted to explore for oil and gas, according to Businessweek. Those companies are not required to disclose they are exploring shale or conventional deposits, but we can guess it’s shale they’re after.
The Investment
With the Spanish government now in full support of shale exploration and development, terms are set for companies to chomp at the bit. Spain’s tax structure is also very beneficial for companies that make long-term commitments.
It looks like environmental restrictions are also favorable. Spain cares deeply for it forests and wildlife, and it has set clear boundaries for where fracking is strictly prohibited. There are no blurred lines here.
On top of that, a firm pipeline infrastructure is already laid out, so projects won’t run into problems there. And the cost of natural gas is favorable for producers, too.
The only real threat to Spain and its fracking success is the possibility of seismic rifts that fracking may cause. There have been reported tremors caused by Spain’s Castor plant, a subsea gas storage plant, and these have raised ire that fracking may contribute to more seismic activity. It’s still too early to tell how much resistance this will put up.
Let us fish around on this one while you guys wait it out. It’s no time to rush.
But the wheels are in motion.
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