The shale gas industry is gaining prominence worldwide, as governments from Argentina to the United Kingdom look for alternative energy sources in their quest to reduce their dependency on foreign oil.
Multinational energy corporations are spending tens of millions of dollars to explore the possibility of extracting liquid natural gas from underground shale gas reserves via hydraulic fracturing, the practice of forcing chemicals and water through shale deposits in order to extract liquid natural gas via deep wells. Many people know the practice of extracting LNG from shale deposits simply as “fracking,” which has become a loaded term in the United States, France and many developed countries, where enviromentalists fear the consequences for water supplies and public health.
But in emerging economies that depend on other nations for their energy sources, fracking isn’t especially unpopular. It’s seen as a way to achieve energy independence while creating jobs and boosting local economies.
Poland is at the forefront of this concerted effort to expand shale gas extraction throughout the world, as its leaders have long sought to escape the high energy prices (see $5.50-per-liter gasoline, or more than five times what it costs in the U.S.) resulting in part from its overwhelming reliance on oil from Russia, a historic enemy. Paweł Tamborski, undersecretary of state at the Polish Ministry of Treasury, said during the U.S.-Poland Economic Forum at the New York Stock Exchange on Oct. 10 that the country sits on vast expanses of shale gas waiting to be tapped. “Changes have to happen in Poland in the energy sector … to create cheap energy, which will allow us to be more competitive in the European Union,” he explained. “Shale gas is a really big topic in Poland, and we hope to have the problem – the opportunity – of figuring out how to use all our cheap gas from exploring shale.”
The Polish government is hammering out the final details of its regulatory regime for the shale gas industry, and Prime Minister Donald Tusk has signaled that extraction of natural gas should begin in the next couple of years. Poland’s National Geological Institute says the country sits on an estimated 1.92 trillion cubic meters of extractable shale gas, the third-largest deposit in Europe after Norway and the Netherlands.
But the road to a viable, sizable shale gas industry in Poland is not yet clear, and experts point to a number of challenges and opportunities.
Fleeing The Russians
Poland is one of Europe’s few growing major economies, and its energy needs are rapidly increasing. The problem is that a lot of this energy comes from Russia, a neighbor that has been Poland’s traditional enemy for centuries but now provides two-thirds of the 14 billion cubic meters of gas Poland uses each year. Wary of Moscow’s stranglehold, the government wants to foster energy independence — and it has taken steps in the past few weeks to do just that.
First, Tusk announced his endorsement of a bill governing the shale industry in Poland. The move signals the beginning of what oil and gas giants hope will be regulatory certainty in the Polish shale gas industry, a condition necessary for companies to even consider investing tens of millions of dollars there.
Tusk’s administration also said that private and public investment for shale gas exploration by 2020 will amount to 50 billion Polish zlotys, or $16 billion, a much higher figure than originally expected. Finance Minister Mikolaj Budzanowski explained, according to Agence France-Presse, that Poland must be well on its way to energy independence by the time its current gas agreement with Russia ends in 2022.
Exploration is well under way: 26 shale gas wells have already been drilled, six are currently under construction and drilling will begin on 20 more by the end of the year, according to the Polish publication Europa Bezpieczeństwo Energia. In fact, the first hydraulic fracking outside of the United States got under way last year in northwestern Poland. But there is much more work to be done and money to be spent before Poland can begin to reap the rewards of its geography.
Regulators And Anti-Frackers
Regulatory uncertainty is one challenge. An annual report released May 15 by BDO USA, LLP, a leading accounting and consulting organization in the energy industry, asked 100 E&P companies what they worry about when deciding if, when and where to explore shale gas opportunities. “An analysis of the risk factors listed by these companies in their most recent 10-K filings reveals that regulatory and legislative changes remain the top concern, cited by 100 percent of companies,” the study said.
“We need to make sure we get the right regulatory regime in place quickly so we can get to work,” Derek Magness, general director at Chevron Europe Exploration and Production, said during the U.S.-Poland Economic Forum in New York.
Maarten van Hasselt, a senior vice president specializing in oil and gas at Celerant Consulting, said, “As always, the industry needs to make its plans over a long time horizon, and stability of regulation is what everyone is looking for. Study work can start, but real capital commitment will only happen when the regulatory framework is nailed down.”
But regulation isn’t the only factor shaping how the sector will look years from now.
Poland has a less-vocal contingent of environmentalists looking to nip fracking in the bud, but their opposition is still a major concern for companies looking to drill there, as it is in the United States and elsewhere around the globe.
Many business leaders fear that environmentalists will pressure governments to enact anti-fracking rules, according to the BDO report. “Oil and gas companies are facing the challenge head-on as they develop new technologies to reduce water usage and earthquake risks. This year, 74 percent of oil and gas companies cited hydraulic fracturing regulation as a risk factor, up from 52 percent in 2011,” it said.
“The first thing American companies considering investing in foreign countries look for is certainty,” said Joseph Condo, vice president and general counsel at Invenergy, a Chicago-based international energy company. “That sort of premise that companies spend money, then are told after the fact that the rules of the game have changed, that affects all of us.”
All those factors mean that right now, “the cost of one shale well in Poland is still much, much higher than it is in the U.S.,” said Grażyna Piotrowska-Oliwa, CEO of PGNiG SA, Poland’s largest oil and gas exploration and production company, during a roundtable at the U.S.-Poland Economic Forum earlier this month.
The new shale gas law may actually end up increasing those costs. The industry publication Natural Gas Europe reports that the Ministry of Environment in Poland said the draft of the bill proposes new taxes and increased revenue sharing with local governments.
Wolf E. Regener, CEO and President of BNK Petroleum – an international energy company with experience with shale gas projects in the United States – explained at the New York forum how expensive the initial phases of shale gas exploration often become. “We’re in the exploration phase. There are many wells that need to be drilled,” he said. “Unfortunately in this business you have to drill several wells in order to figure out how to make it economical.”
Still, according to Celerant Consulting’s van Hasselt, things look good in the long run: “The state’s take is significantly lower [in Poland] than in e.g. the UK or Norway. In the end the amount of activity in an area is driven by economics: the economics in Poland appear to be quite good and better than elsewhere,” he said.
A Pipe Dream?
For all the bullishness, there is no consensus yet on whether Poland is the next frontier of gas drilling, or a great success story that just won’t happen.
Chris Faulkner, CEO of Dallas-based Breitling Oil and Gas, is in the pessimistic camp, despite sounding bullish at first. “The Polish government policy favors supply diversification and energy independence and they are the first government on the planet to actually endorse hydraulic fracking. That shows how desperate they are to make it work,” he said. “The increased use of natural gas in power generation and transmission is consistent with Poland’s plans for infrastructure modernization and reduced carbon footprint. Next, a successful shale gas industry would provide long-term jobs and additional domestic revenues in a time of need.”
But then there’s the real world. “Shale gas in Poland is a pipe dream today. With 10 years of work, billions of dollars in investment, there is a chance that Poland can reach commercial success. I would say there is less than a 30 percent chance this pipe dream becomes a reality,” Faulkner said in an email.
On the other hand, Richard Lada, vice chairman of the American Chamber of Commerce in Poland, said during a discussion last month in Warsaw that he believes circumstances are coming together to create a bright future for the shale gas industry in Poland. “The government really wants to diversify itself from its current sources of gas … The price of gas in Poland is literally five times the price of gas in the U.S.,” Lada said. “I think there’s a big priority among politicians to make it happen. I think it’s going to happen because there’s such a need for it. The price of natural gas is so high that there’s a huge incentive to do it.”
For the time being, Poland is at the center of the international shale gas discussion. And with the global need for energy rising, one thing is sure: Fracking in Eastern Europe’s biggest economy will remain an issue for years to come.
Original Article: http://www.ibtimes.com/poland-next-fracking-frontier-849359
By Connor Adams Sheets