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Epic Shale: Investor exodus from Poland leaves wider questions for fracking

One of Europe’s largest shale gas markets by drilled wells has seen many companies wind up their exploratory operations, leaving Poland’s shale gas ambitions floundering.

The companies cite a mix of bureaucratic entanglement and difficult geology as their reasons for exiting the market, with only state owned enterprises (such as PKN Orlen, Lotos and PGNiG) and a few well-funded global companies left prospecting. It is a far cry from former foreign minister Radek Sikorski’s vision of Poland becoming a “second Norway” in 2010.

Emboldened by the US’s shale boom and motivated by an increasingly belligerent Russia’s control of over two-thirds of Polish gas supplies, Poland hoped to use the controversial technology to encourage self-sufficiency. In 2011, the US’ Energy Information Administration estimated that Poland could have gas reserves of as much as 5.3 trillion cubic metres; making it the largest potential stockpile in Europe (although it has since downgraded its estimate). A later and more conservative estimate by the Polish geological institute suggested shale gas reserves in the range of 346 to 768 billion cubic metres. Even the more cynical estimates could have a revolutionary impact on Poland, which uses about 16 billion cubic metres of gas a year. If true the reserves could be three centuries worth of domestic supply, hence Sikorski’s vision of a sovereign wealth fund powered by natural resources similar to Norway.

Since then, Marathon Oil, Talisman Energy, Eni and ExxonMobil have all exited the market, with only Chevron and ConocoPhillips left of the large global players. Of the eleven foreign players, seven have left, spending a cumulative £500m (approximately $781.6m).  The Polish environment ministry now estimates the country may have around 55 years’ worth of gas (if it can even be extracted) with test wells producing only 10% to 30% of the gas flow needed to be commercially sustainable so far. Only 66 wells have been drilled as of November 2014, contrasted to Pennsylvania’s 1600 new sites every year. It could take another six years before the environment becomes commercially viable again.

It is also much more expensive to test in Poland; $25m for an extensive test, twice as expensive as the American market. Bureaucracy is cited as a factor; despite a government courting fracking companies with tax incentives it still takes months for permits to be issued, causing cash flow problems for companies and crowding out all but those with the largest financial reserves.

The failure has led to a stealthy change in tact from the Polish government. The new Prime Minister Ewa Kopacz made no mention of shale in her maiden speech to parliament in October 2014. In an environment of rising Polish anxiety over dependence on Russian oil and gas, the omission was profound.

It is another twist in the controversial saga of shale gas. Following a US boom, some European economies have descended into a clamorous frenzy at the prospect of a gas boom; others have decided swiftly against it. The UK is pressing ahead with the policy despite concessions that it won’t lower end user prices of gas, whereas France and Germany have issued moratoriums on fracking technology, the latter considering moving to an outright ban.

Poland’s experience is unlikely to make significant moves in either camp; the companies leaving are most critical of government bureaucracy, and Poland itself will probably resume the shale drive if Russia’s Eastern European foreign policy continues to sour. Nonetheless, it has indicated that the shale gas dream may be a bitter reality.

For related contents, take a look at our:

Gazprom: Fighting the fracking revolution

Hydraulic Fracturing: The UK moratorium is lifted, but opposition grows

Oil & Gas: Global Industry Guide

Oil & Gas – Scandinavia Industry Guide


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