Polish Diplomacy Keeps Fingers Crossed on Shale Gas

Natural Gas Europe was pleased to have the opportunity to speak with Mrs. Katarzyna Kacperczyk, Deputy Director of the Economic Policy Department, at the Ministry of Foreign Affairs in Poland on energy matters including the developing Polish shale gas industry.

NGE: Why is the Polish government so strongly supporting this new, emerging industry? Please enumerate both economic and geopolitical reasons.

KK: There are many factors. The first one, however, is... geology.  As tests have shown, we have reserves of unconventional sources in our country. This is a sine qua non condition for the development of this new industry. The experiences of some other countries, notably in North America, show that thanks to new technological solutions, extraction of those reserves has become possible and economically profitable, and that this industry might bring political, economic and social benefits for a country. 

The second aspect is the issue of energy and climate. Having additional reserves of gas and oil from shale may generate a significant added value in the context of our climate policy and our obligations concerning reduction in GHG emission. It is a well-known fact that gas is the cleanest fossil fuel and it may help us not only to implement the reduction obligations, but also to foster development of renewable energy sources – where gas may become a clean back-up. This applies to Poland, our region and the whole European Union.

Potential new, domestic reserves may be also important for reduction of imports from outside the EU and for supporting the Polish and the European priority of strengthening safety of supply. The European Union Energy Policy supports development of domestic reserves – including shale gas.

Coming to economic factors: development of a new industry means economic growth, jobs, development of modern technologies and innovations. These are elements, which we often forget, which are also very important.

The topic is very extensive, benefits can be very extensive, challenges are also extensive. All of the above shows the importance, strategic significance of this project to the Polish state. Thus, involvement of the government.

NGE: Heads of the Polish state-controlled companies keep saying that the main barrier is to shale gas development is financing. The Treasury Ministry has tried to overcome this hurdle by forming a capital group, composed of utilities and mining companies to support the effort for examining the shale gas reserves. The other barriers include: a lack of equipment and lack of specialists. Can the Ministry of Foreign Affairs help to remove them? Are you creating opportunities, building bridges?

KK:  It is worth remembering that this is a new sector and still there are many unknowns related to final results of exploration, as well as to profitability of future extraction. Currently, we are still in the most difficult, starting period. Therefore the shortages mentioned still exist. But along with the development of exploration and possible future extraction, the shortages can be corrected to a significant extent by market forces, which means that if there are new possibilities, if extraction starts and develops, also servicing companies will come to the Polish market and develop, which will in effect lead to the decrease in costs.

On the other hand, more incentives to both import and domestic production of the equipment in Poland will emerge. Companies from Germany and Czech Republic already take part in drilling and geological tests, though for the time being, the scale is small. Polish drilling companies buy modern rigs. Those tendencies will certainly intensify along with the progress of works.

The Ministry of Foreign Affairs has a secondary role in this process. We do our best in order to create an appropriate climate for investment in this sector: we facilitate training, exchange of know-how, we establish channels of cooperation for various institutions in our country with more experienced  partners. We organize trainings, study visits for both foreign experts coming here and for our experts - in different countries with experience; mainly in USA and Canada.

I hope that these contacts - also business contacts, because when we were in the US - we took with us the business delegation - will develop practical cooperation, which will enable removing these barriers.

NGE: Next challenge: infrastructure; it requires consider expenditure and timeframe to develop. Building “interconnectors” requires coordination at bilateral and European level. What steps are being undertaken by the Ministry of Foreign Affairs in this respect?

KK: Such actions are taken mainly at the European Union level.  A number of projects, also under the project of the so-called North-South corridor, are financed from the EU funds. The Ministry of Foreign Affairs together with the Ministry of Economy strive for financial support for these projects.

We had launched our efforts long before the perspective of gas extraction from shale appeared, because we believe that for connecting the gas market in Europe and removing the so-called "bottlenecks", referred to by the European Commission in its documents. It is important to develop interconnectors within the EU, which, in turn, will be included in the concepts of shale gas production.

The Ministry of Foreign Affairs supports the development of interconnectors both at European level and bilaterally, with states with which these connections are established.

NGE: If the shale gas development in Poland results in significant production, surpluses will have to be exported.  Neighbouring Germany has a huge demand, and - according to some experts - the most convenient way of exporting gas to the West might be the Yamal Pipeline. Is the Polish government preparing for such a perspective?

KK:  This is a long-term perspective. I think that in a short and medium-time perspectives [the gas] will be used, first of all, in our country. Since we are in the initial phase of the process, we still have time to think about all scenarios, and how to use any possible surpluses that could arise on the market.

There are many possible scenarios. Creating connections with the Baltic States, with our southern neighbours, with Germany using the Yamal Gas Pipeline. I think that all of the scenarios are already considered by Gaz-System – the company which is responsible for expansion of the network in Poland, where new pipelines and interconnectors and LNG terminal [in Swinoujscie] are already under construction.

It seems that one of the benefits of emergence of these new gas reserves in Europe is that they may bring more competition to the gas market, creating a situation in which formulas, directions, scope of the relations will be determined more by supply and demand. In other words, decisions by companies will be based more on commercial terms. Of course, in order to achieve such a situation, we need not only reserves but, first of all, expansion of infrastructure and connections.

NGE: Back to the topic of geopolitics. One may observe an interesting evolution of the attitude of Gazprom to shale gas: from complete dismissal, through scepticism, to a more moderate stance. Does the Polish diplomacy follow this evolution? What are your expectations as to its further course, especially after the last statements accompanying signing the Rosneft-Exxon contract, at which Russia envisaged the use of this type of technology in the future?

KK: There are different points of view on that agreement. And it sometimes causes emotions. It is difficult to refer to any details, because this is a commercial agreement between two companies, so the terms are confidential.

Previously, Russian companies did criticize the extraction of gas and oil from unconventional sources, underlining its negative consequences for the natural environment.  We understand now, that after the conducted analyses, tests, after becoming familiar with this technology, Russian companies - such as Rosneft, which signed a contract with ExxonMobil – have reached a conclusion that extraction is not so harmful that it was not worth involving in it. This is a positive sign.

NGE: Should an emergence of additional supply from Polish shale be necessarily treated as a competition for Russian gas?

KK: Not at all, and we have never treated it this way. A statement like: "we will become independent from Russia" is an oversimplification, because it is not about losing overnight contacts with any supplier to Europe. It is not a zero – one game.

Russians and Gazprom will remain an important partner and a major gas supplier for the European market. No additional supply will change it, but it seems to us, that along with the occurrence of real alternatives, energy relations will be more strongly rooted in the market, and this is a huge advantage and probably this is also a way to perceive potential reserves in Poland and in Europe. The North American market sets a good example.

NGE: How does shale gas affect the Polish-American relations? Is it also a field for cooperation with China, which has is vigorously trying to tap its own reserves?

KK:  Not only Polish-American but also Polish-Canadian relations, because in those two countries shale gas is extracted, so both are natural partners for cooperation. Undoubtedly, the involvement of American and Canadian companies in Poland is intensifying the relations between administrations of the countries, but also between the companies and research centres. We would like to use American and Canadian experience. The Ministry supports such cooperation by organizing study visits for Polish experts in the USA and Canada and for the experts of these countries in Poland, by organizing conferences, seminars, trainings, etc. We intend to facilitate contacts between appropriate institutions and between scientific-research centres.

By the way, it is worth mentioning that shale gas is an important, but not the only element of our energy cooperation. During the visit of Minister Sikorski to the States in 2011, a memorandum of energy cooperation was signed, in which, apart from the gas from unconventional sources, other areas were mentioned, such us clean technologies, renewable power engineering, clean coal technology – CSS, dialogue concerning geo-strategic, geopolitical issues. In fact, the energy policy has been included as a constant component to the Polish – American strategic dialogue. This allowed us to move those issues higher in the agenda. Likewise, we intensified energy dialogue with Canada.

China is an interesting partner and undoubtedly, it is worth to use its experience as well. It is not a secret, that shale gas was on the agenda of talks between Prime Ministers and Ministers of Foreign Affairs of Poland and China in Warsaw. We hope for development of bilateral exchange in this field.

We have an exchange also with other countries - countries in Europe, Africa and Latin America. Each of them has specific experiences. This is a new sector, a new technology. Many things should be adapted locally and it is worth to exchange experiences. 

NGE: Does the European Union have the opportunity and the will to block production in Poland? Does the Ministry of Foreign Affairs do anything to decrease the probability of such a turn of events?

KK:  In response to the first part of the question: it would be difficult, from the legal point of view, even impossible, to introduce the European moratorium for extraction. We find support in treaties that give the Member States the right to sovereign decision-making. Among some Members of the European Parliament, the greens and the socialists as a matter of fact, such postulates appear, but I think that actions will not develop in this direction.

What may give rise to some concerns is the possibility, that establishment of strict environmental regulations or regulations related to extraction safety would decrease the profitability. However, I am drawing attention here to the report of Brussels law firm Philips and Partners, made upon the order of the European Commission. It analyzed the existing regulations in Europe, and considered them sufficient and so flexible that if there is the need of introduction, by particular countries, of additional regulation, if they want to adjust the regulations to the specific nature of extraction, or to the specific nature of development, the present European law is sufficient insofar.

The report also states that there are no loopholes in the EU law that need to be "patched up", by introducing new regulations. The European Commission is aware of it. Notwithstanding this fact, some directorates in the European Commission run their own tests and reports to evaluate the effect of a potential environmental impact. There is no conflict with our activities, because our institutions under the auspices of the Minister of Environment, also conduct accurate environmental impact analyses and environmental monitoring.

Provision of conditions for the purpose of safe extraction is our common interest. In our opinion, the technology itself does not create any hazards, unless the entities performing searching and extraction observe the existing regulations and standards. Therefore, we work with the Commission, with the Directorate-General for Power. And the Ministry of Environment participates in works of the working group, which is organized by the Directorate-General for the Environment. We present there our experience, analyses and observations.

NGE: Therefore, does the data from monitoring of wells in Poland serve as a base for the studies conducted in Brussels?

We cannot provide data from hundreds thousands of wells, but we monitor, conduct tests; this is our contribution to the European debate. I think it`s valuable, because the drilling works are conducted first of all in Poland, so the knowledge has a practical and not only a theoretical dimension. Our institutions are perfectly prepared, we have procedures that enable us to act in an environmentally safe manner.

In addition, our goal is to show facts and empirical examples. Each decision can be made, provided that it is examined and scientifically confirmed and then it makes sense, because it serves both the interest of the state and the interest of the citizens. I think that a slightly different character is typical of the debate on the forum of the European Parliament, which is of more emotional and political nature. 

What is missing in Brussels is a debate which would include all aspects related to searching for and extraction of shale gas. Environmental aspects are very important. But shale gas is not only an environmental project. Each industrial activity has a certain environmental dimension, but also, it is necessary to take into account other implications: for the energy safety, the economic growth, for budgets of states, for the commercial deficit, because we are in a difficult period of economic crisis. Take the effects on the labour market. If we look at unemployment in Spain - it is difficult to tell the Spanish people not to include that element into the debate. This is a whole range of factors and we should discuss them in Europe. The Ministry of Foreign Affairs tries to make this debate comprehensive, to increase its reliability and credibility.

NGE:  Recently,  new estimates of shale gas reserves were announced by Polish Geological Institute  (PGI) in cooperation with American specialists.  The results are lower than most previous estimates. The PGI is an institution financed by the state. Does the Polish government, consequently, pay more attention to this research, than to others? If so, what are the possible effects on further exploration, process of licenses issuing and the emphasis put on this industry?

KK:  The Ministry of Foreign Affairs finds it hard to assess this report, because we are not geologists. We did not take part in preparation of this report, but looking more broadly at various estimations, we have already had a trillion, one and a half trillion, five trillion. Each of these reports and tests contribute some added value. I think that it is not advised to rely on any of them ultimately. I also think that the PGI report proves again, that a potential is high, and that solidifies the attitude of our government. Despite more modest estimates presented by PGI, the reserves are still significant.

Looking at the example of the United States, we may say that finding out how much reserves we have needs a numerous drillings. In the USA, a few hundred thousand wells have been drilled, and estimates are constantly updated. Similarly, they will be verified in Poland, with the progress of drilling works.

The report is a good base and a good starting point, and along with the inflow of new data, it will be verified. Still, it`s hard to rely on these numbers, because the calculations were not based on cores from recently drilled wells. More credible data will be obtained with the increase in the scale of drillings by companies.

We need to keep our fingers crossed for them to drill quickly and achieve good results.