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May 22, 2013 6:55 am
Just a couple of years ago, Polish government officials were optimistically spinning visions of the country becoming an energy superpower, generating enough wealth from potentially huge reserves of shale gas to help lower public debt and even to become a gas exporter.
The reality is turning out to be much more difficult. Poland’s shale exploration programme remains stuck at a very early stage. Only about 10 per cent of the test wells that are needed to assess the scale of reserves have been drilled. Arguments about creating a new regulatory and tax structure drag on and have prompted some foreign companies that rushed into Poland in recent years to pull out.
“Polish resources could be attractive but the regulatory arrangements make it impossible to explore on a low-risk basis,” says Grzegorz Pytel, an energy expert with the Sobieski institute, a Polish think-tank.
“After an extensive evaluation of the company’s exploration activities in Poland and unsuccessful attempts to find commercial levels of hydrocarbons, Marathon Oil has elected to conclude operations in the country,” the company stated.
There are also accusations that Polish regulators are making life uncomfortable for foreign energy companies, hoping to keep most of the shale industry in the hands of Polish companies.
US and Canadian companies have most expertise in extraction techniques, pioneering the method of liberating gas trapped in rock formations deep underground by pumping in high pressure water to fracture the rock, hence the name: hydraulic fracturing or “fracking”.
Energy industry insiders aim particular criticism at Piotr Wozniak, the deputy environment minister and Poland’s chief geologist, who has become the country’s shale gas tsar. “He needs to be pro-industry, not just pro-Poland,” complains one.
Mr Wozniak rejects the complaint, insisting that US companies will be treated equally with European ones, and praising US technical abilities.
Much industry criticism is directed at planned legislation because it would create a government-owned national minerals operator that would get an automatic stake in concessions. There are worries that taxation will be too high and that the regulations do not take into account the expensive and high-risk nature of exploring for shale.
“There are a lot of problems with the legislative framework,” says Agata Hinc, managing director of Polish think-tank DemosEuropa.
Despite the worries, Mr Wozniak is confident that Poland will create a viable shale gas industry.
“We know where the gas is, we know where the shales occur – this is purely an issue of money,” he says.
So far the government has issued 109 exploration concessions but just 43 test wells have been drilled, providing too little data to get an accurate sense of Poland’s reserves and of the cost involved in extracting it.
Questions also arise over expenditure needed for exploration. It costs more than $15m to drill a single test well, while billions will be needed to build the production and distribution infrastructure.
The government is pushing state-controlled companies such as KGHM, the copper miner, which has no energy expertise, to get involved financially. Furthermore, the government is creating an investment vehicle that will put money into big infrastructure projects, including shale.
Although the road to extracting shale has turned out to be complicated, much enthusiasm remains about Poland’s potential.
The US Energy Information Administration set off Poland’s shale frenzy in 2011 when it estimated that the country had possible reserves of 5.3tn cubic metres, the biggest in Europe.
More recent estimates by the Polish geological institute have been more conservative, suggesting that shale gas reserves may be in the range of 346bn to 768bn cubic metres.
“We need to do a lot more exploration but enough wells have been drilled to be certain that this is a gas-rich area,” says John Buggenhagen, exploration director for San Leon Energy, which took over Talisman’s Polish concessions when that company pulled out.
If there are commercially viable quantities of gas, they could significantly change Poland’s relationship with Russia. Poland currently imports about two-thirds of the 17bn cubic metres of gas it uses every year, most of that from Russia.
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