Poland Hopes to Frack Shale Deposits
Thursday, August 30, 2012
Ask Poles how they feel about fracking for natural gas and responses are mixed. They hope for big money and free flowing gas. They recognize legal, environmental and societal concerns, but ask them why fracking for homegrown gas is important and the answer is the same: energy independence.
Poles from all walks of life say if they can get to the natural gas that geologists and energy companies say is trapped deep underground, Poland would be free from reliance on its neighbors to the east — Russians.
Poland has a long and complicated history of being controlled by foreign powersk, most recently by the former Soviet Union.
The country is now a democracy, but after a half-century of socialism, many Poles of a certain age still recall those days vividly. They might still be able to speak the Russian they were taught in school, but they don’t do it aloud. They don’t stand on the long bread lines that characterized the Eastern Bloc during the Cold War. These days you are more likely to see long lines of women waiting to try on clothes at H&M’s or Zara’s.
But Poland’s reliance on Russia for gas continues.
A Power Tool
Poles consume about 14.5 billion cubic meters of gas a year, 30% of it produced domestically. The rest comes from Gazprom, the gigantic state-owned Russian energy company.
"Russia has a very poor track record of supplying the gas that it promises to supply its downstream customers in Central Europe. In 2006 [and] in 2009 we saw politically motivated shut-offs of this energy to Central Europe," said Peter Doran, a senior policy analyst at CEPA, the Center for European Policy Analysis. The price of gas can fluctuate wildly in Poland, and on average Poles pay about five to six times more than what U.S. residents pay per cubic foot. Even compared to European countries that also get their gas from Russia, the Poles still pay more. They claim Russian uses gas as a power tool.
As the country continues to build its independence, it's a condition that’s harder and harder to live with.
"Poland’s relationship with Russia underscores an idea that is difficult for Americans to get their heads around. In the U.S., natural gas is just a commercial business. It is hard for Americans to imagine the residents of Denver, Colorado chopping down trees in their public parks just to stay warm in the winter because Canada had a fight with Mexico over the price of natural gas," said Doran.
Until recently, this power play was something the Poles just tolerated, but with the latest phase of European geopolitics in play, the Poles have an additional motivation to change the equation.
Poland is part of the European Union, which has tough environmental standards. To meet those standards, Poland has to drastically reduce its use of coal. Coal-fired power plants provide Poland’s 38 million people with roughly 95% of their electricity.
The only alternative would seem to be getting more gas from Russia, but the last decade has seen the development and growth of hydraulic fracturing technology in North America, and that has some excited. With estimates that there are deep deposits of shale gas in Poland, new possibilities have emerged.
Estimating Poland's Reserves
"The figures of the report are 350-750 cubic billion … that means a lot for Poland. It probably does not very much impress American drillers and oilers, but for Poland it is a lot," said Piotr Wozniak, Poland’s Chief Geologist and the Deputy Minister for the Environment. A few years ago, when gas companies started moving in, they were using reserve estimates drawn from decades old data that there was enough gas in the country to power Poland — and possibly its neighbors — for many years. But then, in the spring of this year, the Polish Geological Society released a new report saying there was possibly up to ten times less shale gas than originally thought.
Wozniak said the latest report is also an estimation of sorts, and the only way to know how much shale gas the country has is to drill. To his understanding, he says, the figures can only be upgraded.
By the end of this year, there will have been at least 30 test drills sunk in the country. They are being drilled by both Polish and foreign companies. After doing a few test drills in Poland, Exxon Mobil decided to pull out. In a statement to 90.5 WESA, a spokesman for the company said there was not a demonstrated flow from its test drills to justify staying.
But despite these signs of weak prospects, most of the companies operating in Poland have decided to forge ahead, such as PGNIG, the Polish Oil and Gas Company.
"I would not base my own decisions or my company's decision on someone else’s investment moves," said Grazyna Piotrowska-Oliwa, Chairman and CEO of PGNIG. She spoke from the company's headquarters on a campus of super secure buildings — some old, some new — on a huge city block in Warsaw. She is banking on fracking becoming lucrative even with lower natural gas estimates from the Polish geological Institute.
"It means that the least that can be explored is the consumption for 30 years, at least. Which means there is a lot to talk about. So even if there is economically justified resources to be explored if it's only 300 billion cubic meters it will be 3 times more than what we know about the conventional reserves in Poland; so this is a huge potential," Piotrowska-Oliwa said.
To ensure that, in July, PGNIG and four other Poland oil and gas companies announced a deal that would allow them to share resources, and allow smaller companies to work alongside multi-nationals.
Looking to the U.S.
While Poland is forging ahead, many neighbors such as France and Bulgaria have placed bans or moratoriums on fracking, citing environmental concerns, but Poland isn’t looking to those countries. It’s looking to the U.S.
The two countries have an alliance that was developed with President Obama’s visits to the country in 2011. At the time, Prime Minister Donald Tusk and Mr. Obama spoke to media in Warsaw. President Obama said they discussed how, in an environmentally sound way, they would develop natural gas in the U.S. and in Poland and cooperate on fracking science and technology.
While Poland seeks to emulate the successes the US has had, it also grapples with a different legal system. For one, property holders don’t own mineral rights on their property, so landowners cannot really profit from drilling under their property. The infrastructure in the country is lacking. The country is densely packed. Poland also faces the challenges of adhering to stringent EU environmental laws.
Most prominently, the country doesn’t have the legal structure to deal with all the issues that fracking will bring, from who or what will be taxed to the amount of oversight local governments will have. For these very reasons, the Polish government is in the process of drafting a hydrocarbon law that will create policy and regulations for its natural gas industry.
The eagerly awaited law was originally expected in late spring, but is now several months overdue. Some companies and attorneys say they can’t do much until the law is drafted.