Poles apart in search for shale gas in Central Europe

By bne IntelliNews May 10, 2011

Nicholas Watson in Prague -

So we now know it's less a question of whether Poland has large deposits of shale gas, but rather if these are commercially viable. For several reasons, that's still a big "if".

An April report by the US Energy Information Administration (EIA) on shale gas resources outside the US put Poland's technically recoverable shale gas resources at 187 trillion cubic feet (cf), making them the largest in Europe. That compares with the 862 trillion cf of technically recoverable shale gas in the US, and sets it apart from other countries in Central Europe like Hungary, where the national oil and gas company Mol has been exploring for shale gas for several years but hasn't seen any results.

The ramifications of this could be huge for Poland. Technology such as horizontal drilling has allowed the US to commercially produce large amounts of unconventional gas – hard-to-get-at deposits of tight and shale gas, as well as coal-bed methane – which turned the country into a gas exporter from being a big gas importer in a matter of years.

The EIA says that of the 577bn cf of gas consumed in Poland in 2009, 61% was imported, almost all of it from Russia. But with the shale gas reserves, Poland has enough gas to cover its own domestic consumption for up to 300 years. With Poland generating 90% of its electricity from coal, domestic shale gas would also allow it to lower its greenhouse-gas emissions, but not at the expense of having to increase its reliance on Russia for gas. "Development of Poland's large shale gas technically recoverable resource of 187 trillion cf could significantly increase the country's natural gas reserves and internal gas production," the EIA report says.

Indeed, Polish Prime Minister Donald Tusk has said he's determined to see the "exploration and exploitation of shale gas in Poland become a fact."

Unsurprisingly, international oil companies, fueled by the huge rewards gained from developing US shale gas deposits, are arriving en masse to Poland and other European countries where shale gas is reckoned to exist in great enough quantities, such as next-door Ukraine. "Wherever you find hydrocarbons, there is the potential for shale gas," says Michael Borrell, senior vice president of Continental Europe and Central Asia at Total E&P.

Recent significant developments include a deal between Marathon Oil and Nexen to jointly explore for shale gas in Poland, while reports say Poland's largest energy firm PKN Orlen is close to a deal to take a stake in a substantial US shale gas deposit in exchange for access to its own concessions at home.

According to the local Rzeczpospolita newspaper on April 28, PKN is close to signing a deal with a US partner, but that details of the partner and the shale gas deposit in question would remain undisclosed until after the deal is finalised, perhaps in June. "We've said for a long time that we're going to look for partners to search for and exploit shale gas deposits in Poland and we want a company with experience in this field. Most of these companies are active in the US, which is the leader in shale gas production," Wieslaw Prugar, chief executive of PKN's upstream subsidiary, Orlen Upstream, told the daily.

The report said PKN has offered potential partners a 20-30% interest in Polish shale gas concessions in which it plans to remain the operator. In return, PKN gets the technology for the extraction process known as "fracking" or hydraulic fracturing.

The latest foreign player to be attracted by Poland's potential is Canada's Nexen, which on April 26 said it had signed a deal with Marathon Oil to jointly explore the US firm's shale gas concessions in Poland. Marathon said Nexen will acquire a 40% working interest in 10 of its concessions in Poland's Paleozoic shale play, where the company has 2.3m acres. "This partnership provides not only financial risk mitigation, but combines the extensive unconventional drilling and completion experience of Marathon and Nexen to fully evaluate the potential of these concessions," Annell Bay, Marathon's vice-president worldwide exploration, said.

Nexen joins a collection of major oil companies such as Exxon Mobil and Chevron, as well as smaller players including Canada's BNK Petroleu, drilling in over 70 concessions around Poland.

However, experts warn that commercially developing the shale gas in Poland could run into the same problems that are preventing exploration from happening elsewhere in the world.


At a Washington forum on trans-Atlantic natural gas issues hosted by Johns Hopkins University's School of Advanced International Studies in May, Vaclav Bartuska, the Czech Republic's ambassador-at-large for energy security, told delegates that the fear of pollution from fracking, which involves the pressurised injection of water and chemicals into the earth to separate gas from rock layers, is too great to allow shale gas development. "The reason we are so cold about shale gas is that we have had 30 years of mining for uranium, which involved pumping millions of litres of sulphuric acid into the ground. That has been an ecological disaster. We stopped it in the 1990s, and we've been trying to clean it up ever since," Bartuska was reported as saying at the forum.

Indeed, a recent study by New York's Cornell University found that methane emissions from shale gas extraction "carry a greater carbon footprint than oil, coal and conventional gas over at least a 20-year period" - something which has the environmental lobby up in arms.

"Shale gas production involves considerable social and environmental costs. They vary from place to place, and may not yet be institutionalised, but they are real. If it's increased crime rates, split communities, water contamination, road degradation, industrialisation of places of rural tranquillity or natural beauty, these costs are real and will eventually be factored in," says Mark Olsthoorn, a climate and energy consultant.

Olsthoorn cites a study by the Oxford Institute that estimates in Europe shale gas production costs would be three times higher than currently in the US, which to a large extent is due to the more demanding regulatory context. And the EIA notes in its survey that while the Polish government has shown strong support for shale gas drilling by putting in place very attractive fiscal terms for gas development, "infrastructure and regulatory issues remain as barriers to efficient development."

For David Goldwyn, a former shale gas expert in the US State Department who now runs an independent consulting firm, none of this cuts much ice. He says what is certain is that commercially producing shale gas can take as long as a decade to fulfil, so these possible environmental problems are far off in the future, if at all. In the meantime, the uncertain global energy situation behoves governments to determine now whether they have reserves of shale gas or not. "These are the early days, and the time for Europe to act is now, in terms of looking at what is there," Goldwyn told AFP. "The potential is there, but the reality is, very little drilling has been done, except in Turkey. People should look first, before they worry about it."

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