Boston, MA -- (SBWIRE) -- 01/02/2014 -- We see only limited upside to the current bearish outlook for domestic oil and gas production in Germany. There are some areas of opportunity, yet the redevelopment of maturing sites or the potentially sizable upside from underexplored East Germany and the main source of upside risk - shale gas - is mired in political and environmental uncertainty. Following pressure from Germany's business and industry community it appeared that the government might take a more supportive position toward shale gas, yet current coalition talks between the CDU and SDP look set enact more restrictions on fracking in a debate that is certain to continue.

The main trends and developments in Germany's oil and gas sector are:

- Natural gas consumption in Germany is under pressure from a glut of cheap coal and generous renewable subsidies. Supporting gas demand will be greater utilisation of gas as transport fuel, the phasing out of nuclear, and gas-fired power generation as a back-up to intermittent renewables. However, these upside factors will be kept in check by energy efficiency gains (which have seen gas consumption fall since the early 2000s), ambitious subsidised renewable projects and government targets, as well as cheap and abundant coal.
- While we see limited upside to conventional gas production, which looks set to continue its downward trend, there is some upside to oil reserves and production from new investments by independents targeting enhanced oil recovery utilising new technologies to recover previously uneconomic reserves. We also see possible gains from exploration of the former East Germany, where a lack of investment had stymied production previously.
- The primary upside to gas remains efforts to tap Germany's shale gas resources, yet even if the regulatory environment proves supportive, commercial production of shale gas is unlikely to occur inside our forecast period. The political debate continues its uncertain trajectory. In the latest developments, draft regulations that would permit hydraulic fracturing (fracking) were released by the government only to be put on hold until the conclusion of national elections in late 2013.
- With the election now over, and Merkel working to form a coalition government with the SPD at the time of writing, the outlook for shale gas is even more uncertain. Chancellor Angela Merkel's Christian Democratic bloc and the Social Democratic Party reportedly agreed to a temporary ban on exploring unconventional natural gas reserves in Germany until environmental issues are resolved. Deputy Environment Minister Katherina Reiche and the SPD's Ute Vogt told reporters in November that Coalition negotiators concluded that fracking could not be done safely in Germany given the risks of groundwater contamination.

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