Poland woos investors back to shale gas hunt with fast-track regulations

By bne IntelliNews February 6, 2014

Tim Gosling in Prague -

Poland will approve new investor-friendly shale gas regulations within a fortnight, Prime Minister Donald Tusk pledged on February 5. The move signals yet another about-face in Warsaw's confused energy strategy, as it launches a drive to tempt foreign investors back to the hunt.

Warsaw launched dreams of becoming a major gas producer in 2010 on the back of estimates of massive deposits of unconventional gas. Foreign investors snapped up licences, but the enthusiasm soon waned as reserve estimates were slashed and the government failed to deliver regulatory and tax clarity. Tusk turned to pushing state-controlled companies into the fray, but huge investment demands for investment in new power capacity have made that a struggle.

Now, Poland appears to have launched a new charm offensive to persuade those foreign investors still on the ground to stay and raise their efforts, and others to take another look. The first apparent step in the new push was an announcement from London-listed San Leon in late January that it's close to producing the first commercial shale gas flows in Europe.

Tusk told reporters on February 5 that the government will now rush through a regulatory framework within two weeks, noting that it has made significant concessions to investor concerns over previous plans. In particular, he said Warsaw will not now create a state-owned operator that would take a stake in each licence and control the investments. He also said licensing procedures will be streamlined. Investors had complained earlier of demands for different licences for drilling wells deeper and the lack of a guarantee that explorers will gain production licences.

"More and more countries are betting on shale gas... so we had to opt for a less bureaucratic model of regulations," Tusk said, according to the Wall Street Journal.

The scale of the about-face in Warsaw is startling. Just a year ago, investors reported having been called to a private meeting with environment ministry officials at which they claim their concerns were met with disdain, and they were essentially informed that foreign investment in shale gas was no longer welcome. However, Warsaw now appears to realize it really can't go it alone.

Italian giant Eni became the latest to give up the ghost in mid-January, leaving just two energy majors - Chevron and Conocco Phillips - still in the game. Meanwhile, state-controlled company finances are creaking under the strain. Tusk said last week that plans for two nuclear power plants, to be built at a cost of up to €15bn by a posse of utilities and miner KGHM, will definitely go ahead.

Reflecting that ongoing confusion over a strategy that aims to reduce Polish reliance on Russian gas, as well as make up a shortfall in generation capacity that the economy ministry suggests could stand at 1.1GW by 2017, Tusk was quoted as saying: "Today we understand that in order to count money from shale gas, we must first of all begin to extract it."

Recently appointed Environment Minister Maciej Grabowski has been drafted in to spearhead the renewed push for foreign experience with drilling for shale gas and cash. "This year, I think at least 30 wells for shale gas will be made," Grabowski said. "To date there were 55. This year will be a turning point for shale gas".

Parker Snyder, president of industry body the Poland Shale Coalition, told Bloomberg on January 30: "It's a definitive departure from the previous leadership, that was at best neutral and at worst hostile to foreign investors. [Grabowski] is very open to dialogue. Things are definitely getting more positive."

However, as Tamas Pletser at Erste points out, while Warsaw can offer whatever regulatory and tax temptations it likes, that can't overcome suggestions from current test drilling that the depth and complex geology of Polish shale gas deposits make many commercially unviable. "The new law was missing for a long time, but what we really miss is the good results of the fracturing," the analyst points out. "It seems to us that Poland cannot meet earlier expectations, even though new technologies may result in a breakthrough a few years from now. We believe that the companies cannot change 'Mother Nature', but they can lobby for a better law and lower taxation."

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