Warsaw Business Journal: “Fuel Of The Future”
Huge multinationals are flocking to Poland to search for and potentially exploit sources of unconventional gas - the country could gain energy independence as a result.
Shale is the latest buzzword in the Polish energy sector. The news that Poland could sit atop several trillion cubic meters of shale gas has got tongues wagging far outside the country itself – if the supply exists and can be exploited, it could alter the balance of geopolitical power in the region.
“Could” is the key word here, because a number of unknowns remain. But lured by the potential for vast profit, major oil multinationals are currently in the process of acquiring concessions for large swaths of land to search for unconventional gas deposits, eager to repeat the “shale gale” that has transformed the US gas market in recent years.
Over the last three years, the Polish Environment Ministry has issued 49 shale gas exploration concessions to companies such as ExxonMobil, ConocoPhillips, Chevron, Aurelian, Marathon Oil Corp and Talisman Energy. Lane Energy Poland, a Polish subsidiary of 3Legs Resources, will start drilling tests in cooperation with ConocoPhillips in the north in April, with BNK Petroleum following suit soon.
Henryk Jezierski, Poland’s chief national geologist, has called this “the great gas rush.”
Unconventional expectations
Unconventional natural gas, so described because it is harder to extract than conventional gas, includes shale gas, tight gas, deep gas and coal-bed methane. Shale gas is trapped in dense rock formations deep underground.
Although it is more difficult to extract than conventional gas, supplies are also considerably more abundant. According to some estimates, global unconventional gas deposits could be 10 times greater than conventional deposits. The development of new technologies such as horizontal drilling and hydraulic fracturing has increased productivity and cut costs, allowing producers to tap into previously unprofitable resources.
Gas is also more environmentally friendly than coal. Power generated using gas produces just half the carbon emissions compared to burning coal, according to a March report issued by energy advisory IHS CERA.
Because of these factors, shale gas is a source of new hope for nations around the world. The International Energy Agency’s “World Energy Outlook 2009” estimates that unconventional gas output worldwide will rise from 367 billion cubic meters in 2009 to 629 billion cubic meters in 2030.
Rock-solid estimates?
Poland may have 1.4-3.0 trillion cubic meters of shale gas alone, according to various estimates. For a country consuming around 14 billion cubic meters a year, this would mean a huge increase in energy independence. The deposit figures are just a preliminary assessment, however, based on a comparison between Polish and American geological conditions; a better picture of supply size will be gained via drilling tests.
“We will know how much shale gas there is in Poland in four years, when exploration concessions for this type of gas begin to expire,” Mr Jezierski said at a recent gas conference. He also stated that shale gas would enter commercial use in Poland within 10-15 years.
“American companies have the experience and know-how to assess how the geological structure translates into gas resources,” said Robert Zajdler, an energy expert at the Sobieski Institute think tank.
Although none of the figures have been confirmed yet, the potential is huge. Many believe that the fact that major international players are flocking to Poland proves that there is a prize worth fighting for. One such believer is Paweł Olechnowicz, president of Lotos, Poland’s second-largest oil refiner.
“I do not think that the information on the amount of unconventional gas resources is exaggerated,” he told journalists in March. “Poland may become an exporter of gas. If the biggest players on the market say we have shale gas, it’s just a question of investing the right amount of money to extract it.”
However, Polish energy companies lack the equipment, experience and funds to do it alone. While ConocoPhillips and BNK Petroleum are about to start drilling, Polish gas giant PGNiG and oil refiner PKN Orlen, both of which hold unconventional gas concessions, are still negotiating with prospective partners.
“When it comes to shale gas, we expect to be able to specify where and when we will start drilling tests by the end of the year, after we conduct seismographic testing,” Orlen’s press office confirmed for WBJ. “In the beginning we plan to start drilling two wells. This might happen as early as next year. Further tests will take three to four years.”
Chasing the American dream
Shale gas has proven to be a game-changer for the US energy market, increasing the country’s gas independence. Presently, shale gas constitutes around 10 percent of gas output in the US, but it is estimated that it could reach 50 percent by 2020. Unconventional gas already constitutes 50 percent of US gas output.
According to some estimates, around $100 billion has been invested in shale gas technology in the US over the last three years. Moreover, the report by IHS CERA indicates that this shale gas boom has more than doubled the country’s discovered gas reserves.
Yet even if Poland does sit on massive amounts of shale gas, accessing it will take time. The International Energy Agency is extremely cautious in its estimates on international shale gas extraction.
“The extent to which the boom in unconventional gas production in North America can be replicated in other parts of the world endowed with such resources remains highly uncertain,” the organization has stated.
Obstacles mentioned by the agency include limitations on physical access to resources, the need for large volumes of water in order to complete wells, the environmental impact of extraction and the distance of resources from existing pipeline infrastructure. The largest environmental concern to arise so far is that the shale gas extraction technology called “fractioning” could poison groundwater.
Cost is also a major factor. Extracting shale gas requires advanced technologies and is therefore expensive.
“If the cost of extracting shale gas is, say, one-and-a-half times higher than importing it from Russia, nobody will want to do it,” said energy expert Witold Szwagrun. For now, the requisite technology comprises the largest part of cost, but the effects of scale will make the technology cheaper, according to Mr Zajdler.
It should also be kept in mind that not every project bears fruit. For example, Exxon pulled out of an unconventional gas investment in Hungary in February after failing to find sizable deposits.
Cautious, for now
Poland consumes 14 billion cubic meters of gas a year, while producing just 4.1 billion cubic meters, according to the Polish Geological Institute. Yet the Polish government seems wary of shale gas. Rather than bet heavily on it, the government has worked hard to secure a new long-term deal with Gazprom, increasing natural gas imports from Russia to around 10 billion cubic meters until 2037. After months of negotiations, the agreement is expected to be signed soon.
If greater energy independence through shale gas is possible, it will take time. Poland appears happy to explore its options for now.
Shale gas extraction
Although shale gas production has existed since the 1800s, only recently has it become a commercially viable endeavor. Technological advances like hydraulic fracturing (“fracking”) and horizontal drilling have allowed producers to reach previously untappable resources.
Extracting gas from shale requires drilling thousands of meters deep, and then drilling sideways. The borehole is then filled with water, chemicals and particulate materials (such as sand) under high pressure, which fractures the targeted rock formation. The particulate material helps to keep the fissures in the rock open, allowing gas to escape. The technology is best developed among US companies; only a few global corporations, such as BP, Total and Schlumberger, have mastered it well enough to efficiently exploit shale gas deposits.
Fracking has become increasingly controversial, however, due to concerns that the chemicals in the fracturing fluid can pollute groundwater.
By Martyna Olik for the Warsaw Business Journal.