Poland's Shale Resources: Gone and Forgotten

Today, not much is heard about Poland's shale gas sector following a period of wild speculation and, just a couple of years later, highly publicized abandonment of exploration concessions by players both big and small. A “black scenario” had materialized regarding development of shale gas in Poland, but why had it turned out this way? And how might the situation be reversed?

As the moderator of a session focused on shale gas at the 25th Economic Forum in Krynica, Poland, Cezar Filipowicz, Vice President, Business Development, United Oilfield Services, Poland, reminded delegates in attendance: “There was a time when the Polish market had all the great players here. Now, it's gone and forgotten.”

He added that while foreign investors may now be scarce, it is an achievement that Poland's geological and mining law has been adopted.

Admitting that he was in a difficult situation, Mr. Slawomir Brodzinski, Vice Minister, Chief National Geologist, Ministry of Environment, Poland, said he wanted to focus on the present and the future regarding Poland's shales.

He reported, “We have 40 concessions for exploration of shale gas resources, 13 new concessions are now being processed – quite new applicants – and those companies are very prepared; there are applications under the old law. Altogether, there will be slightly more than 50 new concession applications.

“The fact is,” he continued, “is that no sweet spot has been discovered that would give rise to enthusiasm, but the number of wells drilled is now 70 – one is being drilled and we are certain about another two this year.”

Mr. Brodzinski said he had tried to cool down the political enthusiasm over the shale concessions that had been exploited a few years ago, calling himself a “moderate optimist.”

As for his vision of the future, he said, “I'm positive that actions already undertaken by the government will bear good fruit. The first thing was the legal environment and the amendment of the law as a postulate.”

Still, he cautioned that results of exploration are not always what is expected.

“It's still too early. What we are doing now has not required legislative amendments,” he said, making mention of a European Union report on hydraulic fracturing.

As the country's former Chief Geologist, Minister Jacek Jezierski recalled that Poland had received applications from major players and that he had signed 100 of them.

“I believe that it was a great time for Poland,” he said. “The large players wanted to spend their money here. They came because it was a good geological recognition and promotion consistently exercised by the Ministry of Environment.”

As for the present, he offered to speak about why those companies had left Poland, especially now in a time of low gas prices, which had resulted in thousands of redundancies in the oil and gas industry.

He offered, “That's a signal of the environment in which we are now.”

Referring to a Canadian study which measures global investment attraction, Mr. Jezierski said that investors had rated Poland 39th in 2011, but by 2013 that ranking had dropped to 84th. “We have lost our attraction for prospective investors,” he noted.

The solution, according to him, is that Poland create an atmosphere for getting investors to return, as the country's geology still held prospects that could lead to promising results.

Mr. Jezierski compared Poland to Argentina, which now has 200 exploration wells and one production well.

Now, he said, Poland should make efforts to further improve the law; he noted that his successors had adjusted the tax law and a regulation to secure treasury state interest. “But still we are lacking something that would encourage investors to improve and facilitate investment projects and enable spending into geological research and explore the shale gas resources which are here.”

The session moderator went on to introduce Mr. Piotr Wozniak, former Deputy Environment Minister, who he said had been perceived as an “enemy to foreign investment.” This, said Mr. Filipowicz, referred to what was deemed a conflict between legislators and investors in Poland.

Mr. Wozniak was asked whether he could still see reasons for the Polish government's various efforts at establishing a national operator.

Recalling his time at Poland's Ministry of Environment, he said that ExxonMobil had requested a meeting in February 2012 at which the company announced its unsatisfactory results; later, in September, they decided to discontinue their exploration in Poland and resigned their concession.

“That was the first sign that not all companies perceive our country as attractive in geological terms, because in investment condition terms we were looking quite attractive,” he said.

According to him, Poland's highest level of foreign investment was in 2007 at EUR 17.2 billion, while in 2013 that number was minus EUR 5 billion. This, he said, was a number that reflected foreign investment in general, not just in the energy sector.

Referring to Poland's national operator, he said: “I was in favor of the concept of a national operator of energy resources on each hydrocarbon concession, each of which was directly represented by the state.”

The model, which he said has been used for decades, was a benchmark of three net exporters of natural gas: Holland, Norway and Denmark.

The hydrocarbons industry, he said, is the only industry where there is a separate, dedicated directive that allows for public assistance subsidy, which meant that such states just simply invested without asking investors for consent, something not enjoyed by, for example, the coal industry.

“They don't need to ask Brussels for consent, and it's done completely legally.”

Mr. Wozniak said he hopes that investors will not be scarce in Poland forever, as he believes the good prospects will return, which could lead to tangible results.

“In my opinion, the necessary condition is that the state would guarantee the stability of such investment by way of direct involvement,” he offered, adding that it was mostly small companies that had protested against such measures, not the larger ones.

“As we all know, none of these concessions produced any results,” he stated.

-Drew Leifheit