Poland pushing to revive shale gas dreams

By bne IntelliNews November 27, 2013

bne -

Following a long delay that has seen investors dropping out of the Polish push for shale gas, the country's new environment minister said on November 26 that a draft law to regulate exploration and extraction will be sent to the cabinet for approval before the end of the year. Poland is clearly pushing to revive it's shale gas dreams, but news is still awaited on a tax regime.

Maciej Grabowski, who is due to be sworn in on November 27 alongside several other new cabinet appointments following a shuffle, insisted that speeding up the extraction of shale gas is a priority. Alongside disappointing test drilling results, the lack of a regulatory framework has been one of the major issues behind a severe slowdown in Polish plans for shale gas.

"I believe that one can achieve environmental goals by tying them to economic goals in a way more friendly for investors," Grabowski told newspaper Dziennik Gazeta Prawna. "We would like the law facilitating investment in shale to be passed as soon as possible to reduce the potential risk for investors," he said.

However, the minister added that the law on shale gas taxes would be prepared by the finance ministry in a separate bill at a later date. In his previous job as deputy finance minister, Grabowski was in charge of that task.

Amid estimates of huge reserves of shale gas, international investors began arriving in Poland in 2011, encouraged by a government with visions of changing not just the domestic gas market, but possibly the European game. However, poor test results and a severe drop in revised estimates has seen several depart. Exxon Mobil upped sticks in 2012, followed by Aurelian Oil & Gas and Talisman earlier this year.

The enthusiasm of the remaining investors has not been helped by Warsaw. The government has been fighting with investors for at least a couple of years over regulatory and tax regimes for the exploration and production of unconventional reserves, and investors complained earlier this month that the latest proposals are no better. That has slowed exploratory drilling, while reports suggest the geological conditions in Poland may make commercial production too expensive for the meantime.

Investors complain that approval to drill a test well takes about a year, according to the Financial Times, and there are also questions over whether exploration companies will easily get commercial concessions for any gas they find. Meanwhile, although the finance ministry has said that tax take should not come to more than 40% of profit, and that will only be imposed after 2020, a final regime is yet to be put before parliament.

Meanwhile, the state controlled companies that Warsaw has pressed into action in the stead of departing international investors are struggling to keep pace, with Warsaw also pushing them to plough billions into new electricity generation capacity. Hence, the government is now looking to revive the shale gas drive, with the number of exploration wells having become stuck this year at around 50.

Grabowski says four to five times more are needed. "200 to 250 wells will allow us to find out if commercial extraction is realistic," he said. Regarding the regulatory draft, he added: "I can speak about the intention for now, the details will have to wait. The target is for the bill to go to the government by the end of the year. Then its adoption will depend on parliament."


The government reshuffle has been swiftly followed by a sudden resurgence of PR for the Polish shale gas push. Sentiment was raised on November 24 when the CEO of United Oilfield Services - which provides equipment for shale gas exploration in the country - claimed extraction is to begin within months. "Government plans have changed, making it easier," Dennis McKee told CNBC in an interview.

On November 26, San Leon, which saw its share price drop sharply when it bought out former partners Talisman and Aurelian in May, reported its latest test flows had exceeded expectations. Yet, like others, the company has yet to find gas in commercial quantities, despite the government's continued hope that the country contains enough gas to make it independent for decades.

Still, the news flow suggests that the cabinet shuffle has resurrected enthusiasm in Warsaw for shale gas, which had seemed to wane this year amid mounting confusion over the government's energy strategy. Leading shale gas proponents have lost their jobs in government and at state companies through the year, while unconfirmed reports said shale gas investors had left a private meeting with a government official in April at which they were left in no doubt that Warsaw does not welcome large foreign investment in the industry any longer. One investor told the local media that it felt like the government had declared war on US and Canadian investors.

Prime Minister Donald Tusk said at the time that the changes at the environment ministry were about "a radical acceleration of shale gas operations." Grabowski was the deputy finance minister and had been in charge of preparing taxation for the industry. It has been speculated that Marcin Korolec lost his job due the ministry's slow response with regard shale gas regulation. Investment in renewable energy has also slowed to a crawl due to long delays on a new support scheme.

At the same time, the appointment of Grabowski shocked EU officials and NGOs who were busy at the time fighting with Korolec at the UN Climate Summit that has just wrapped up in Warsaw. Poland has infuriated many with its refusal to contemplate lowering its use of coal, insisting instead that it can use technology to reduce emissions, and even holding an international coal conference at the same time. EU officials said that the replacement of Korolec is seen as a delaying tactic for the process of agreeing new targets to lower emissions.

While on the one hand, shale gas might allow the country to replace its aging coal-fired power plants with gas burning facilities, at the same time the process of fracking - releasing shale gas by injecting a mix of water and chemicals into bedrock - is hugely controversial with environmental campaigners. US energy major Chevron said on November 10 that it has filed a civil lawsuit against protesters who have prevented it from reaching one of its fields.

However, the protestors' numbers are dwarfed in Poland by the miners and others that rely on the massive coal industry for jobs. The government is in no hurry to annoy them as it struggles to recover nosediving approval ratings - a scenario to which the reshuffle is attributed. Yet at the same time, Warsaw has made shale gas a matter of national pride. The unconventional gas is the cornerstone of the government's energy strategy and its bid to break free from dependence on Russian gas imports, which currently cover around 70% of consumption.

Grabowski said that Poland is ready to form an alliance with other EU states - the UK is seen as a prime candidate - to defend its rights to explore and extract shale gas against any possible plans from Brussels. "I know what is happening in Brussels, some concern is warranted," Grabowski said. "If there is need we will act in an unambiguous way on many front lines and create coalitions to back our position."

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