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Poland's shale is down, but not out amid challenges

The sheen on Poland’s shale gas sector has tarnished somewhat after a series of challenging wells and a major reserves reduction, but it is far too early to write the industry off

A new Polish Geological Institute report dramatically downgraded the outlook for recoverable shale resources compared to a US Energy Information Administration (EIA) assessment from last year. The report, which did not include data from recently drilled shale wells in the country, estimates recoverable shale-gas resources of between 346 billion- 768bn cubic metres (cm). That is a reduction of as much as 85% from the EIA report, which estimated recoverable shale-gas resources of around 5.3 trillion cm.

Nevertheless, it is the EIA estimate that has been relied on by the market, and fuelled hopes that a shale-gas revolution similar to that seen in the US would transform Poland into a European energy powerhouse.

The downgrade may see Poland forced to temper hopes of reducing, or even eliminating, its reliance on Russian gas. Russia supplies about two-thirds of the gas needed to meet Poland’s 14.4bn cm of demand.

Under the EIA estimate, Poland was thought to have enough gas to meet domestic demand for 300 years. The government now sees reserves meeting a more modest 35- 65 years of consumption. This is not enough to shake Europe’s energy landscape, but it is sufficient to keep shale gas at the centre of talks about Poland’s energy future.

Shale gas still holds the potential to displace coal as Poland’s dominant energy source. That would help bring Poland into line with broader European efforts to reduce carbon emissions.

The country will also still be able to use its shale gas potential as leverage in price negotiations with Gazprom. Poland is keen to renegotiate its oil-linked gas price contract with Russia as soaring oil prices have seen gas import prices surge. PGNiG, which has taken Gazprom to arbitration after failing to secure lower prices, said it was paying 44% more for gas imported from Russia in the fourth quarter of 2011 than in the same period of 2010. The company didn’t say how much it was paying, but earlier this year treasury minister Mikolaj Budzanowski said it was paying more than $500 per thousand cm.

As Poland’s shale sector comes back down to earth, the conversation is likely to turn to the on-the-ground challenges that lie ahead in cracking Poland’s shale. The initial wave of shale-exploration wells failed to live up to expectations. UK-based 3Legs Resources drilled two wells with ConocoPhillips, neither of which were commercial. ExxonMobil also drilled two non-commercial wells last year. As explorers go back to the drawing board, a rift appears to be opening between some in the industry and the government over when shale production might start.

Marathon Oil, Talisman Energy and Chevron, as well as Poland’s PGNiG and PKN Orlen plan to drill a total of 22 wells this year. In spite of the early setback, the government continues to say that this drilling will lead to commercial shale-gas production by 2014. Budzanowski said in mid-March that commercial production of as much as 1 billion cm could start by 2014.

But comments from some of those in the industry seem to cast some doubt over whether this target is realistic. George Kirkland, the head of Chevron’s upstream unit, said recently that it would be three to five years before the company would be able to decide whether or not to go ahead with its Polish shale projects, and that commercial production might not start until the next decade. Chevron has not yet released the results of its initial shale drilling in Poland.

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