Polish dreams that shale gas would transform the country into a second Norway have been tempered in recent months. The geology is more difficult than anticipated and proposed regulation has been repeatedly delayed. After great initial enthusiasm companies such as ExxonMobil, Talisman and Marathon Oil threw in the towel and quit the country. In a recent report investors complained that the legislation currently being drawn up ignores many of their demands. The Polish Exploration and Production Industry Organisation (OPPPW), the industry’s main lobby group, is concerned the government will get « excessive controls and rights » in shale gas exploration. They say the ministry of environment handed out five-year exploration licences to companies and they can be extended only once, for two years. (The first ones will expire in 2013-2014.) Since shale gas fields take longer to develop than conventional fields, says the OPWW, they will have insufficient time to make discoveries before the deadline, at which point they either have to apply for a production licence or hand it back to the ministry.The lobby also criticises the proposed laws for imposing disproportionate penalties on them if they fall behind in their work schedules due to circumstances beyond their control.
The Polish government used to be gung-ho on shale gas. Unlike many of their contemporaries in western Europe, Poland’s politicians brushed aside environmental concerns, impressed by estimates that the country was sitting on the largest shale gas reserves on the continent. Extracting oil and gas from shale offered solutions to two particularly thorny problems, namely how to reduce the country’s dependence on costly Russian gas imports and cut greenhouse gas emissions from its heavily-polluting coal-fired power plants. The former Soviet-bloc country inherited gas infrastructure built to transmit gas in one direction only, from the east. Since 1989 Polish politicians have been trying, spectacularly unsuccessfully until recently, to diversify the country’s energy supplies. As a result they have been forced to accept gas import prices higher than those paid by their richer western neighbours.
Burning gas emits fewer CO2 emissions than coal or oil but Poland sits on the largest coal reserves in the European Union and it has built more than two decades of economic growth on coal-fuelled power. Currently Poland produces more than 90 percent of its electricity in coal or lignite-fired power plants. In recent years Warsaw has found itself alone in resisting demands from Brussels to adopt more stringent emissions targets. Commercial shale-gas production would allow Poland to shut down older polluting coal plants and replace them with gas-fired plants, thereby reducing the country’s emissions. So it’s easy to see why, in April 2010, before a single exploration well had been drilled, the Polish foreign minister, Radoslaw Sikorski, said shale gas offered Poland the chance to replicate Norway’s success. By then, both foreign and Polish oil and gas companies had rushed to grab exploration acreage, attracted by a combination of gas prices four to five times higher than in America, fields close to the market and a government that was actively promoting the industry. The first exploration well was drilled in June 2010. To date around 40 wells have been drilled, more than anywhere else in Europe. Not one has flowed gas at a commercial rate.
ExxonMobil quit Poland in June last year after drilling just two wells. In May of this year Canada’s Talisman and Marathon Oil, an American firm, also withdrew from Polish exploration citing unsatisfactory results. Operators admit the technology of extracting gas from Polish shale has proved harder to crack than they anticipated. Even so, Pawel Poprawa, a geologist from the Energy Studies Institute, who authored the Polish Geological Institute’s estimate of the country’s shale gas reserves, says far too few wells have been drilled to draw conclusions about the rocks. Only four horizontal wells have undergone multi-stage hydraulic fracturing, the best indicator of a field’s reserves. The government’s proposed fiscal and regulatory framework is the main reason why companies slowed the pace of their exploration in recent months, says Mr Poprawa says. It was variously described to our correspondent as “mad” and “a mess” by industry executives.
The current regulations are inadequate. It can take over a year for companies to obtain the permits to change their work programme and drill a well deeper for example. The government wants to increase its take from a commercial shale gas industry. It has proposed new taxation capping the government take at 40% of an operator’s profits. Companies acknowledge new taxes will be introduced but argue that talk of figures is premature given no one knows yet if shale gas will prove to be commercially viable in Poland. The ministry of finance has eased matters by saying it will postpone the collection of any new taxes from 2015 to 2020.
More controversial are the draft regulations proposed by the environment ministry that will create the state-owned company, NOKE, to take stakes in all future production concessions as a way of guaranteeing the state’s interest in future production. Operators are concerned they are being forced to take on a partner in NOKE that, unlike the Norwegian state company it is based on, will be staffed by public administrators with no experience of unconventional hydrocarbons. Companies that have already invested millions of dollars drilling wells are also worried the proposals do not give them a legal guarantee to transfer their existing exploration licenses into production licenses without taking part in a competitive tender. “If there is a change in the government’s approach then it is not too late for this industry to patiently work its way through the problems with some realistic prospect of success. If we continue on the road we’re on at the moment, this industry will be very modest and will not fulfil its potential,” said Tomasz Maj, until recently Talisman’s Poland manager.