Unconventional hopes in Poland

By bne IntelliNews July 5, 2010

Jan Cienski in Warsaw -

Poland has not been endowed with enormous amounts of natural resources - except for coal - but now the prospect that the country could be sitting on huge deposits of unconventional gas is causing dreams of wealth.

The winner of the Polish presidential election on July 4, the ruling party candidate Bronislaw Komorowski, said before the election that Poland would not sign the long-awaited gas deal with Russia if it finds enough shale gas in its territory. "If we find out that we have enough of shale gas, we want to have the right to renegotiate the deal with Russia or maybe we will step aside from it," Komorowski said in a TV debate with his challenger Jaroslaw Kaczynski, the twin brother of the late president who died in a plane crash.

With 95% of votes counted, Komorowski had 52.6% of the vote compared with Kaczynski's 47.4%.

Kaczynski has criticised the gas deal that the ruling Civic Platform government negotiated, which calls for Russia to supply 10bn cubic metres (cm) of gas a year until 2037. The deal is supposed to fill an annual shortfall of some 2.5bn cm of gas, which now Kaczynski and others say could be done with shale gas.

Radoslaw Sikorski, the country's foreign minister, has said that Poland could be very rich. "There is a chance - and I don't want to exaggerate here - but in 10 to 15 years we could become another Norway," he said in a television interview last month.

More will be known about the scale of Poland's unconventional gas reserves – hard-to-get-at deposits of tight and shale gas, as well as coal-bed methane – when Canada's Lane Energy begins drilling a test well in northern Poland in June. The testing could last as long as four years, but the potential rewards are enormous. US consultancies estimate that there could be anywhere from 1.5 trillion to 3 trillion cubic metres (cm) of gas buried in Poland's shale formations.

Henryk Jezierski, Poland's deputy environment minister and chief geologist, cautions that the true amount of gas in Poland is still impossible to verify. US estimates come from comparing Poland's geology to that of parts of the US where shale gas deposits have been found. "The gas is probably there, but to say it with certainty I require documentation," he tells bne, adding that about 12% of Poland has structures that could be favourable for shale gas.

Europe could have as much as 14 trillion cm, of which almost a third could be in Poland. "Poland has the best prospects in Europe," he says.

Poland has already issued 58 concessions to explore for shale gas, and the companies in the hunt include some of the biggest players in the US, like ConocoPhillips, Exxon Mobil, Chevron, and Marathon Oil, as well as Poland's PGNiG, the gas monopoly.

Hard economics

In the US, shale gas has changed the economics of the gas business. Although shale gas - small quantities of gas trapped two to three kilometres underground in ancient shale formations - has been known for decades, it is only in recent years that US companies have discovered the technology of fracturing the shale with high pressure water to allow them to extract large quantities of gas at reasonable prices. In the last four years, shale gas production has tripled, and the US is now becoming a gas exporter. Liquified natural gas (LNG) terminals built just a few years ago to allow for the importation of vast quantities of gas are now either standing idle or being converted for use in exporting gas.

While the possibility of becoming a gas giant is turning the heads of some Polish politicians, the economics are quite complicated. Poland currently pays about $340 per 1,000 cm for gas from Russia, but that price may fall if US production continues to grow, making it difficult to calculate the business sense of going forward with drilling in Poland - which will only happen in a decade or more.

The European regulatory environment also may make it more difficult to exploit shale gas. EU environmental rules are much stricter than in the US, where some states are already expressing concern about the potential impact of shale gas extraction on water quality. There are also worries about the release of methane, a greenhouse gas, during mining operations.

There are also legal differences between the US and Europe. In the US, surface landowners normally own the mineral rights below their property, while in Europe mineral rights usually belong to the government. That may make it politically more difficult to allow for large-scale gas extraction in Poland, because the benefits will tend to accrue to large foreign companies.

Komorowski has expressed misgivings about shale gas, though, worrying about the "devastation of picturesque areas of Poland" with techniques he compared to open pit coal mining.

Although Komorowski's geological knowledge may have proven a little wanting - shale gas is not extracted in the same way as coal - others share his concerns. Waldemar Pawlak, deputy prime minister and head of the Polish People's Party, a junior member of the ruling coalition, fretted about the cost of extracting the gas. "Shale gas may be interesting, but its costs and the size of deposits first have to be assessed," he said.

Jezierski is also keen to first get some hard data in his hands before making predictions of Poland becoming a gas superpower. "Everyone wants to hear that Poland could become a second Texas," he said. "We may be or we may not be."

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