Poland: plenty of gas, but problems, too
Local shale-gas reserves could heat Poland for 200 years, but a lack of infrastructure and other obstacles, not least politics, remain
POLAND's wealth of natural gas trapped in shale could feed the country's energy demand for centuries, support an export industry and end its reliance on Russian imports, say industry executives. The country's reserves could exceed 10 trillion cubic metres (cm), far greater than even the most optimistic estimates have suggested. But as Western companies bring their expertise to Poland, there are grounds for caution.
"If shale-gas exploration is successful it will change Poland and it will change Europe," says Wolfgang Rauball, chief executive of Eurogas, which owns a quarter of the Bieszczady concession in Poland. "There would be a dramatic change of wealth and it would change the geopolitical situation."
In Poland, a country long dependent on the whims of bigger neighbours – and especially on Russian energy supplies – the excitement is palpable. And suddenly, the big players of the energy sector are following the pioneers into the country's upstream. Last month, Chevron applied for an exploration licence. Canada's Talisman Energy, which has a string of prize shale-gas assets in North America, says it will begin drilling next year, with the aim of producing in 2013. ConocoPhillips is already in Poland, where it says prospects are "promising".
Only when the drilling results start coming in will anyone really know how big Poland's shale-gas reserves are. Most estimates range from 1.5-3.0 trillion cm. But Greg Pytel, an energy-policy analyst at the Sobieski Institute, a Polish political think tank, says such figures are a "very conservative estimate". More likely, he says, the reserves could be closer to 10 trillion cm.
If these figures materialise into commercially viable gas it could have profound implications for Russia, Poland and the whole of Europe. Poland imports 70% of its gas from Russia through the Yamal pipeline, which runs across Belarus. A series of disputes in recent years between Russia and the transit countries exposed how vulnerable this gas dependency renders many European countries.
The buzz about Poland's gas potential has brought the Russia question back into the country's politics. Last month, the country's new president, Bronislaw Komorowski, elected earlier in July, said he may not sign a new gas-supply deal with Russia if enough domestic shale gas is found. That was a reference to a deal from November between state-owned PGNiG and Russia's Gazprom to increase gas deliveries to Poland to 11bn cm/y until 2037. No wonder Gazprom has spent recent months dismissing the potential of shale gas to transform global energy markets.
Can Poland do it?
For all the talk of vast new reserves, however, several obstacles remain for developers. The lack of a solid services and supply chain, necessary to set up drilling operations in the country, is a huge problem. North America's vibrant – and highly competitive – services sector has been essential in driving down development costs for shale-gas drillers. For companies such as Talisman, even bringing in well services to developments in Canada's Quebec, home to the promising Utica shale, is hard enough. But that is on a continent with an established shale-gas services sector, and just a few hours up the road from heavy developments in the Marcellus Shale, in the US northeast. By comparison, Poland feels a world away.
A scarcity of available drilling equipment in Poland will increase production costs for energy companies that hire and transport equipment from other European countries. Water supply could also be a problem. Each frac – and many are necessary – can use as much as 10m litres of water. Transporting such volumes over great distances will be pricey for developers.
Tony Atherton, Talisman's operations manager in Poland, says the country's lack of a robust regulatory framework "did the industry no favours". Beef up the central regulator and make it more knowledgeable about the process, he argues, and the government would be able to develop its own network of expertise, drawing in yet more investment.
But there are mixed views about the government's support for the industry. Eurogas' Rauball says that the Polish government has been "the most helpful we have ever worked with". Talisman and San Leon, its partner in Poland, are similarly enthused about their reception from the government. Taxes are also low. Corporation tax in Poland is just 19%, compared with 28% in the UK and up to 35% in the US. According to Pytel, it gives Poland "possibly the best" hydrocarbon-tax regime in the world.
PGNiG is another matter, says Pytel. Its long relationship with Gazprom, and monopoly over Poland's conventional gas production, leaves it reluctant to see foreign companies arrive to break its monopoly, threaten its biggest trading partner, and corner any emerging export market that may emerge. PGNiG supplies a third of Poland's demand for gas, while importing the rest from Russia.
"PGNiG and Gazprom missed the boat with unconventional gas," says Pytel. The firm is hardly keen to see new foreign entrants begin exporting gas at the expense of its business transitting Russian gas. "PGNiG is basically running its strategy to suit Gazprom," he claims. Given the lucrative gas market in Europe on Poland's doorstep, it would gall the national energy company to see foreign firms, boosted by the country's low tax threshold, export valuable Polish gas while PGNiG remains locked into Gazprom's export network.
Other experts are urging caution. Michael Schuetz, a European Commission fossil-fuels policy officer, says more research is needed to find out exactly what promise the country holds. "We definitely need more data on the potential. Prospects for unconventional gas are unclear and we have to further analyse the details and assess the environmental impact," he says. He adds that, given the environmental concerns and lack of information, coal-bed methane, another source of unconventional gas buried across the continent, could offer more reliable gas supplies to the EU. Executives from Shell, one of the majors trying to back into an unconventional sector they missed in the US, are similarly sceptical.
One solution to end the geological uncertainty in Poland is for companies operating there to share their data. Talisman and others in the country's unconventional energy sector are arguing for this; and Poland's new membership of the US-sponsored shale-gas initiative offers a model of such co-operation.
Yet for all his optimism about Poland's potential, Rauball is sceptical that the collaborative approach will take hold. "I was a little bit surprised that our US panellists were so confident that companies will share information," he said at a shale-gas conference in Poland this week. "Everybody will try to keep the information as secretive as possible."