Bell tolls for Polish shale gas dreams

By bne IntelliNews January 25, 2015

Jan Cienski in Karpacz -

 

A Polish energy conference would normally have been just the place for a bit of local chest beating about the country's impending shale gas boom, and the riches and energy independence that would flow as a result. Instead, when a speaker rose from his his seat at the Energy Forum being held in the slightly tatty resort village of Karpacz in Poland's south-western hills, the tone was striking different.

“This is a funeral ceremony for shale gas,” said the questioner, while the panel of experts sadly nodded its agreement.

“There is a question of whether we have to freeze the whole idea,” added Boguslaw Sonik, an energy expert and former member of the European Parliament for Poland's ruling Civic Platform party.

The numbers bear out the gloom. The number of exploration concessions to look for shale gas has dropped to only 56 from a high of 115 in 2012. Many big foreign energy companies which had been sniffing around Poland a few years ago have pulled out, leaving ConocoPhillips and Chevron, and there are rumours that at least one of them may not stay in Poland much longer.

The remaining foreign minnows are having a difficult time raising financing to hunt for shale gas in an environment of rapidly falling energy prices. That has left Poland's state-controlled energy companies, PGNiG, the former gas monopoly, and refiner PKN Orlen the main players in the field, and even they have a much diminished exploration programme.

The problems have been manifold. Poland's bureaucratic culture has been unable to deal effectively with the demands of the nascent shale industry. Initially, the environment ministry made it very difficult to change drilling depths, hampering exploration, while the government worked on an ambitious tax scheme that scared off potential investors. 

The geology has also proven to be a lot trickier than initially estimated. In 2011, the United States' Energy Information Administration estimated that Poland could have gas reserves of as much as 5.3trn cubic metres, the largest in Europe. A later and more conservative estimate by the Polish geological institute suggested shale gas reserves in the range of 346bn to 768bn cubic metres. The environment ministry is about to put out a new estimate, although it had earlier said that at least 100 test wells should be drilled to get a good sense of Poland's shale geology.

In fact, last year only 15 test wells were drilled, and the year before saw 14 wells bored. Only about a dozen have been horizontally hydraulically fractured, the process where water mixed with chemicals is forced at high pressure deep underground to fracture the rock and release trapped gas. All of those tests have shown less than commercial flows of gas.

Thirdly, there is the question of whether there is even a market for Polish shale – assuming any is ever extracted. Poland uses about 15bn cubic metres of gas a year, 10bn of which comes from Russia under a contract in place until 2022 and 5bn from domestic conventional gas fields. Poland has also signed a deal to buy 1.5bn cubic metres of liquefied natural gas a year from Qatar to be delivered to the country's still unopened gas terminal on the Baltic Sea. Added to that, gas prices are likely to fall as the US begins to export its shale gas, making exploration in expensive and marginal markets like Poland even more problematic.

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