THE shale-gas exploration rush is advancing in Poland, with media coverage drawn by the business and strategic implications of the developments. The companies joining the rush are taking significant risks, but are counting on large profits in the future.
If developed, this new, abundant source of natural gas, the cleanest fossil fuel, will be vital to future European energy supplies and play a significant role in reducing greenhouse-gas emissions.
In the background of this bigger economic and environmental picture are the local communities that would have to endure shale-gas exploration and production (E&P) activities. In the future, some of them will live in the midst of large-scale production operations.
Local communities; global issues
Worldwide, the hydrocarbons industry seldom works for the benefit of the local communities that live in the midst of developments. In some countries, the discovery and development of natural resources have caused setbacks in economic development – so-called Dutch disease, or even the resource curse. In extreme cases – sadly not that rare – it has ruined the environment, brought social tensions and unrest, and even war.
But some countries, such as Australia, Norway and Canada, have shown that hydrocarbon riches do not have to become a curse. The keys to success are a well-organised democratic state; the rule of law; transparency in relationships between the state and business; and a free-market competitive economy. The positive engagement of local communities is also crucial: the development of the oil and gas industry should be a vehicle for local community development.
Meanwhile, there are political objectives within Europe that orderly development of hydrocarbons can help achieve. An aim of EU cohesion policies and programmes is to equalise the differences between poorer and richer regions so that, in time, every member state enjoys equally high living standards. However, the global economic crisis and its nasty aftershocks have affected all EU countries deeply, curtailing their spending abilities. Consequently, funds that have helped in development of the poorer EU regions are no longer as generous as they have been.
Towards balanced development
A number of substantial shale-gas plays in the EU are in the bloc’s less-wealthy countries: Poland, Hungary, Bulgaria, and Romania. In Poland, some shale plays are in rural eastern regions, some of the least developed in the EU. Shale-gas exploitation is an opportunity for them to help themselves by generating their own development funds.
Countries should focus on local infrastructure and business development. Local, national and European policies should promote education and training for the E&P industry, and essential, related technical-services businesses: transport, logistics, construction, drilling, seismic acquisition, data processing – from the most advanced technical professions, to day-to-day skills.
The quest for shale-gas development brings a new dimension to local communities: opening up not only trade and investment opportunities, but also cultural and social contacts. It makes the world smaller and brings distant, and exotic, places closer. This facilitates educational exchanges at training and university levels, social mobility and know-how transfers in the areas unrelated to the hydrocarbons business. It all has a positive effect on living standards and well-being in general.
Rules of the game: balance and predictability
The strategic importance of natural resources extraction requires the state to play a critical role in the industry: awarding and managing E&P licences; creating fiscal and tax rules; and establishing regulatory and market frameworks. For investors, predictability is vital. The E&P business carries enough technical and operational challenges without additional risks, such as political or regulatory volatility.
The stability of upstream rules is essential for business to make long-term investment commitments. Uncertainties are costed by E&P operators and added to their financial bottom line, which may discourage investment and lower a state’s ability to secure production revenue. Ultimately, taxpayers suffer as a result of a state’s instability or inefficiency.
The state must clearly define what it expects of E&P companies.
Dialogue between businesses, central government and local communities is critical to implementing well-balanced, sustainable policies. This is particularly important for the local communities where shale gas E&P takes place – which, naturally, consider the resource to be theirs. These communities will experience a massive social shift and must be certain of its long-term benefits.
Addressing these issues is a crucial objective of the Polish government, both on central and regional levels. Stable and transparent state policies, and legal and regulatory frameworks for hydrocarbons E&P, and all resources-extraction industries, are essential to broader economic policies. Well-managed resources are part of the nation's natural wealth, a source of present and future revenue.
The global financial crisis resulted in heavy sovereign debt across almost all European countries, increasing financial risks for investors. In hydrocarbons-rich countries, these resources can be used to bring the public finances back into balance and as a springboard for economic development.
But this can be achieved only if a state guarantees a stable, transparent and predictable business environment. Such a regime will make shale-gas investments in countries such as Poland more attractive to investors, resulting in improved public finances and a positive effect on a country’s credit rating and economic outlook. This, in turn, reduces the cost of servicing debt, further relieving the pressure on public finances.
The Polish government aims to create such a stable, transparent and predictable business environment for all investors in the country’s nascent shale-gas industry, enabling long-term business and financial planning. It will also promote business initiatives in local communities for the benefit of these communities and business at large, especially in the areas at the heart of the shale-gas rush.
Through co-operation with business and local communities, Poland can not only secure its future energy needs, but the country will become a beacon of stability and prosperity in central Europe, and a model for other countries rich in untapped energy resources.
*Jaroslaw Gowin is deputy leader of Poland’s ruling Civic Party; and rector of Tischner European University in Krakow