I’ve tried to put it together, but from what I can tell, around seven wells have been drilled in Poland and hydraulic fracturing techniques applied. Even to be widely optimistic, we could say ten.* The public discourse in the media has become more practical in terms of stating the technological challenges, but after my attendance at the 22nd Economic Forum in Krynica -Zdrój, Poland – it is clear to me the interest and expectation has not waned. The sessions on shale gas and coal were packed – while the sessions on renewables and energy efficiency were bare. It was obvious what the sexy topic was. This also indicates the type of audience at Kyrnica. (It needs to be noted, I had a very good time there).
The title of a presented report best describes the Polish shale gas scene, ‘Gas (r)evolution in Poland – which way to success?’ Evolution is probably the best way to describe the very slow but measured progress occurring in the country. Nonetheless, the Forum offered a great opportunity to hear from Polish experts and government officials involved in moving forward the shale gas sector. There was even the unveiling of an interesting study producing three scenarios for shale gas development and the economic impact.
In a dedicated session on shale gas, Mikolaj Budzanowski the minister from the Polish Treasury provided substantial information and a clear insight into how the sector will develop. From his perspective, the Polish government is using the next three years as an exploratory period. This means they will be assessing the operations and seeing what regulations need to be put in place. This wasn’t clarified, but I got the impression this applied to both environmental and financial (tax) regulations. Market operators complained about uncertainty and a slow bureaucracy (yes, typical complaints).
Within the three years, 150 wells will need to be drilled, stated Minister Budzanowski. So between now and 2015, on average 50 wells need to be drilled every year – or even a ramping up, for something like 25 + 50 + 75 = 150. Still, is this realistic? A high number of wells needs to be done to learn about the geology, as well as practice with different techniques for extracting the gas. It was the minister complaining that the companies (PGNiG – name unmentioned) that is not moving fast enough – but yet holds the most licences. The hurdle is high in Poland – production must be ramped up if any sort of impact is to made on the supply market to impact the price of gas.
What was very interesting was the pricing structure that needs to be in place to incentivize production of shale gas. There are two forms to this in Poland. One is the impact that LNG pricing will have in the country. If there is consideration that Poland will build an LNG facility (and possibly the Baltic countries) then there can be sufficient supply on the market to influence the price, and certainly have Gazprom set some more competively priced terms. If the market is influenced, either slightly or somewhat from LNG, this is the level that shale gas extraction will need to be priced at.
A more liberalized gas market is necessary in Poland, as the treasury minister and others stated. This will create the price signal necessary for the private companies to extract the shale gas. However, the current price for extraction, because of limited experience with the plays is extremely expensive. So will any of the invested money necessary to drill 150 wells be recouped – in addition to the cost of new production wells? The market price needs to be floated ASAP to induce and entice investors.
The discussion around shale gas is beginning to set off some alarm bells for me. Lots of talk, lots of assumptions and even some developed scenarios. But we are still with an estimated number of wells for testing purposes – but with little actual progress on the ground. But where’s the commitment and market reforms, along with higher participation rates by exploration firms? The government says these are all coming. So of course, the potential is there for a shale gas bonanza, but at one point all failed singers also showed potential. The question is, can the necessary variables line up to spur greater activity in the Polish shale gas sector?
Much remains up in the air (i.e. regulations, liberalization, pricing of Russian gas, infrastructure) this is both intentional and unintentional. Shale gas is no doubt the pretty girl – if not sexy girl, of Polish underground activity. But it is the current and ongoing discussions that make much of the assumptions, projections and needed activities exist in the theoretical realm. The Polish government needs to push hard on all fronts to realize the assumed potential. Delivering on technologies that are not just the flavor of the month takes long term commitment with a clear plan. I believe this exist in Poland, but there are many aspects that still must be clarified and completed with concrete action.
*For a more accurate picture of the number of wells and types of unconventional wells drilled please see this very good publication – Shale Gas Investment Guide Volume 2.
Or from another perspective….. Shale gas in Poland is this sexy:
(Note…. the top version is appropriate for this blog…the original, below, is totally inappropriate.. nonetheless, if you have some humor.. then you may watch it, it isn’t like you haven’t heard this song- but you’ve been warned)