Companies including Chevrom Corp., Talisman Energy Inc., and Eni SpA are drilling 14 shale gas exploration wells in Poland, while another 39 are planned for 2012, Rzeczpospolia reported, citing data from the Environment Ministry.
Eighteen wells had been drilled by the end of last month, according to the Warsaw-based daily newspaper.
Source: Bloomberg
As the unconventional gas “revolution” was quietly unfolding in the United States, its potential to transform the U.S. gas market, and the country’s national energy discourse, was not apparent until recently. It has now become clear that shale gas development is perhaps the biggest energy sector innovation for the United States in recent decades. For Europe, however, the role shale gas will play in transforming energy markets is far from certain. The old continent’s unconventional gas reserves are substantial, but the question is how fast and to what extent Europe will develop them.
Europe needs a clear roadmap for the prospects of unconventional gas in its energy future. The current situation calls for an approach that is based on realistic expectations about the pace of shale gas development, as well as a strategy that is well-informed about potential costs and benefits. Continuing uncertainty could not only hamper the flow of investment into potential unconventional gas reserves, but could also impede the development of informed plans about Europe’s energy security and ability to fight climate change.
To begin with, it is worth recognizing Europe’s limitations. The combination of factors that led to the unconventional gas “revolution” in the United States—favorable geology, developed gas markets, and until recently, limited regulatory and public constraints—is not easy to replicate. Geologically, knowledge of unconventional gas in Europe does not go much beyond rough estimates. Where exactly are the shale deposits located? At what depth? And in what type of formations? At what cost could they be extracted? Europe still needs to start mapping out its shale gas reserves—a process that started almost three decades ago in the United States. At this point all that is known is that there are sufficient reserves to transform Europe’s gas market. Estimates vary but they consistently put the European Union’s unconventional reserves well above its conventional ones. Knowing this alone, however, is not enough.
The cost of developing shale gas reserves will be a principal factor in determining the future of unconventional gas in Europe. The sharp growth in shale gas output in the United States owes much to the considerable cost reduction witnessed over the past decades. Europe stands at the beginning of that process. Lack of comprehensive geological knowledge about shale precludes a precise estimate, though costs are expected to be high not least because of the scattered nature of reserves in Europe. The absence of a vibrant services sector for the gas market presents another bottleneck. The European gas sector’s limited capacity to provide cost-effective equipment for shale gas development along with a shortage of qualified labor will undoubtedly lead to higher development costs than in the United States. Costs can certainly go down, just like they did in the United States, as the industry gradually reacts to the needs of the market. But initial costs will pose a challenge.
In its quiet “revolution,” America’s unconventional gas industry outpaced both the regulators and the public. By the time stringent environmental demands became part of the national energy discourse, unconventional gas had already assumed its transformative role in the U.S. gas sector.
In Europe, if this revolution is ever to be repeated, it will not be a quiet one. The rigorous environmental regulations that are already in place—particularly with regard to water use—are prompting investors to think twice about managing costs before they commit. With their high population density, many European governments are less willing to embrace shale gas before its environmental impacts become apparent. In many countries, particularly in Western Europe, governments ignore environmental movements at their own peril. More investment in shale development will almost certainly have to confront calls for even stricter ecological requirements.
The EU’s energy and climate policy needs to recognize these constraints. It would be unrealistic to expect shale gas to be a panacea for the Union’s growing concerns on energy security and climate mitigation. This is true at least in the short and medium term.
And yet, discounting the potential role of unconventional gas in Europe’s future would be a mistake. It is in the EU’s long-term interest to maintain a role for shale gas development. Most industry insiders argue that unconventional gas will not contribute in any significant form to Europe’s energy supply until at least the end of this decade. Its role beyond that point, however, is anyone’s guess. How fast Europe develops these resources depends on today’s policy choices.
European policymakers should give shale gas development a chance. First, as a latecomer compared to the United States, Europe is more likely to find a way to develop its unconventional resources in an environmentally friendly fashion. Stricter regulations and low public tolerance for potential environmental risks may slow the pace of shale gas development. They can, however, also ensure that Europe develops these resources in the right way, avoiding some of the mistakes witnessed in America.
Second, the benefits of shale gas development could be disproportionately large. European gas supplies are in decline, while demand is expected to continue to grow. The EU’s ever growing need for imported gas is compounded by its dependence on a rather small number of external suppliers—Russia, Norway, and Algeria account for nearly three quarters of Europe’s imports. It is not certain that unconventional gas can reverse the decline in domestic gas output. However, it could certainly enhance the position of European importers when bargaining with their limited number of suppliers. Most recently, gas sold at spot markets, which constitutes only a fraction of total gas imports in Europe, effectively served such a role. Even Gazprom, known for its firm bargaining position, felt the need to revise a portion of its contracts. Shale gas could play a similar role for European importers in the future by enhancing competition. Increased liquefied natural gas (LNG) imports could potentially have a similar impact. But, they will be need to be sourced from outside the EU, maintaining Europe’s dependence on global LNG market trends.
Even if unconventional gas is not a “game changer” for Europe as a whole, it could be a “game changer” for a select group of EU members. Ironically, some of the countries with greater prospects for shale gas development—Poland, Hungary, and Bulgaria—are among the most dependent on Russian gas.
At this point, the future of shale gas in Europe is very much in the hands of national governments. Legal competence for hydrocarbon development is mainly within the domain of these governments rather than Brussels. What they need is a well-informed national discourse on unconventional gas that involves all the main stakeholders. In effect, they need to avoid what France recently did—a rushed decision outlawing hydraulic fracturing—and instead attempt to fully assess the potential for developing shale gas while complying with strict environmental standards.
Brussels, on the other hand, does have a role to play. In addition to ensuring higher environmental standards, it could attempt to bring greater clarity about the future of natural gas in Europe’s energy balance. Mixed signals about its expected role have understandably preoccupied investors. Also, it could elaborate investment mechanisms for shale gas development that would serve its long-term decarbonization objectives by displacing more carbon-intensive sources of energy. Ultimately, Brussels should make certain that Europe does not miss this opportunity to seize the strategic potential offered by unconventional gas.
Source: Natural Gas for Europe
Polish oil and gas giant PGNiG started drilling for shale gas at its Tomaszów Lubelski concession in Lubelszczyzna, southeast Poland, on Monday, reported Dziennik Gazeta Prawna.
The new well is expected to allow the state-owned gas monopoly to obtain more information about shale gas resources in the region.
PGNiG announced that within the next 100 days it will carry out drilling to a depth of 4,300 meters. According to initial results of geological research in the area, shale gas should be found at a depth of approximately 2,300 – 4,300 meters. The total cost of the drilling rig and all the necessary equipment amounts to some $25 million.
A report published last week by the Polish Geological Institute (PIG) estimates Poland’s shale gas reserves at between 0.35 and 0.77 trillion cubic meters, indicating that Poland’s shale gas potential could be far lower than previously predicted.
Source: Warsaw Business Journal
There will be no change in drilling or investment policy in Poland – this according to Talisman Energy, in the wake of a report downsizing estimates of shale gas reserves in that country. This is what the company had to say:
“From our point of view this is purely an estimate,” Jadwiga Swiecicka, spokeswoman for Canadian-based Talisman Energy, said after the report was published. “What matters are the test results from our wells.”
Talisman is drilling its third well and examining rock cores from two earlier wells.
“We are continuing our work and this report has no effect on our investment plans,” Swiecicka said.
Further to this weeks report on Polish shale reserves, the Washington Post had this to say about the study which is based on pre-1990 data:
Poland has huge stores of coal that generate 93 percent of the nation’s electricity output, but it remains heavily dependent on Russian oil and gas for other energy needs. This dependence is expensive and a source of resentment in this former Soviet satellite state, which rejected Moscow-backed communist rule 23 years ago.
Currently, about 70 percent of Poland’s annual needs of 14.5 billion cubic meters of gas are covered by Russian imports.
Deputy Environment Minister Piotr Wozniak stressed that the new shale gas estimates are preliminary and based on archival data. He said they could be revised upward when findings are published from wells currently being drilled. The report says total recoverable reserves could be as high as 1.9 trillion cubic meters.
Poland’s energy mix will also include nuclear and renewable energy, according to a government plan reaching to 2030.
The estimate was not expected to affect business plans of companies exploring for shale gas.
Usually, only 25 percent of existing shale gas deposits are recoverable by a technology called hydraulic fracturing, or fracking, according to Jerzy Nawrocki, the head of the State Geological Institute, which compiled the report along with the Ministry of the Environment.
The U.S., which developed the technique of hydraulic fracturing, is the only country so far to engage in widespread exploitation of shale gas, which is trapped thousands of meters (yards) below ground in porous rock.
More than 20 international companies have licenses to drill in northern and western Poland, many among them several U.S-based firms. Some have made test wells, and are still analyzing data from them.
Prepared along with the U.S. Geological Survey, Wednesday’s numbers are based on pre-1990 data taken from 39 wells drilled for research and exploration. In making the estimate, an analogy was drawn between the geological situation in Poland and in the areas where gas is being produced in the United States.
Source: Washington Post
International oil majors and Polish state-controlled companies should ramp up their shale gas exploration efforts in Poland to continue gathering more data, Polish officials said Wednesday after the national geological institute said Polish reserves are likely much smaller than the Energy Information Administration’s rougher estimate.
Poland’s national geological institute, or PGI, estimates the country’s recoverable reserves of shale gas at between 346 billion cubic meters and 768 bcm, the institute said in its first report on the subject, written with the help of experts from the U.S. Geological Survey.
The estimate, which Poland’s chief geologist Piotr Wozniak called “extremely conservative,” is as much as 10 times lower than earlier estimates by the EIA, which said the reserves could reach 5.3 trillion cubic meters.
The combined conventional and unconventional reserves of gas could cover 35-65 years of Poland’s demand for natural gas, despite the lower estimates, PGI said.
“With such a result, we have the third-largest reserves of this natural resource in Europe, after Norway and the Netherlands,” Mr. Wozniak said. “Now it’s time for making big investments.”
International oil and gas exploration companies, such as Exxon Mobil Corp. (XOM), Chevron Corp. (CVX) and ConocoPhilips (COP), have bought licenses to explore shale gas in Poland, making it one of the first countries outside the U.S. to make a serious effort to tap into the resource.
“Only through more wells will we gain detailed information on our deposits,” said Mr. Wozniak, adding he didn’t expect this report to make private-sector investors less motivated to conduct exploratory work.
The European Union’s largest ex-communist country uses about 14 billion cubic meters of gas annually, most of which is imported from Russia, making energy diversification one of its top priorities.
Shale gas plays a fundamental role in that drive.
“We’re counting on gas prices to fall,” Mr. Wozniak said on the sidelines of a news conference.
PGI’s most optimistic estimate of shale gas deposits is 1.9 trillion cubic meters, the institute said in the report based on 39 archival core samples extracted between 1950 and 1990.
“The report gives a more precise estimate than before, but is still based on data from a few dozen exploration wells,” said Treasury Minister Mikolaj Budzanowski. “The last one was made twenty years ago, so more intensive drilling is needed to accurately determine resources of both crude and gas.”
PGI’s estimate could be revised upward, Mr. Wozniak said.
Source: Wall Street Journal
The US’ ConocoPhillips has sealed a deal to take over operatorship and a 70% stake in three shale gas concessions in Poland from UK-listed 3Legs Resources, the UK company said Tuesday.
ConocoPhillips’ commitment to the 3Legs concessions is a sign that the potential of the shale gas blocks is sufficient to warrant further investment, and 3Legs share price jumped 15% after the announcement.
By 1130 GMT, 3Legs shares were up 7% at GBP0.72.
In August 2009, 3Legs teamed up with ConocoPhillips, which is funding the initial exploration program of seismic and drilling, to develop shale gas in the Baltic Basin.
The US company agreed to finance initial exploration work, and took a call option for a total of six concessions in the western Baltic Basin dependent on initial exploration results.
“ConocoPhillips has given notice of exercise of its call option over the company’s three western Baltic Basin concessions, thereby acquiring a 70% equity interest in and operatorship of these concessions,” 3Legs said in a statement.
3Legs said it would retain a net 30% interest in the three concessions, which cover an area of approximately 2,049 sq km, as a non-operator.
The US major also retains an option to acquire a 70% interest in 3Legs’ three eastern concessions, exercisable at any time up until September 30, 2012.
“We are very pleased that ConocoPhillips has exercised its call option in respect of our three western concessions in the Baltic Basin,” 3Legs CEO Peter Clutterbuck said.
“Our objective all along has been to see ConocoPhillips exercise this option and this decision represents a very satisfactory conclusion to almost three years of cooperation in the exploration and appraisal of the Baltic Basin shales.”
During the exploration period, 3Legs drilled a total of four wells in the Baltic Basin shale play and tested the first two horizontal shale gas wells in Poland.
MORE DRILLING
3Legs also said it has agreed with ConocoPhillips a plan for one vertical well to be drilled at the Lebork concession in the second half of 2012.
The well will be extensively evaluated and the parties will retain the flexibility, if considered appropriate, to drill a horizontal section to the well at a later date, which may be then be fracture stimulated and tested.
3Legs said it and ConocoPhillips are also giving further consideration to options for additional testing of one or both of its two existing horizontal wells — Lebien LE-2H and Warblino LE-1H — following the end of winter conditions.
3Legs also holds a number of licenses for shale gas exploration in southern Poland.
It said Tuesday that its campaign of 2-D and 3-D seismic acquisition there has been completed and the data processed.
“Interpretation results are expected early in the second quarter of 2012,” it said.
3Legs added that it continues to consider adding other unconventional resource opportunities to its portfolio.
It said its focus will continue to be on shale oil and shale gas in Europe, although it said it would not rule out moving into “other regions of the world.”
Poland is considered Europe’s most prospective country for shale gas, though total resources are expected to be considerably lower than original estimates.
The Polish Geological Institute in cooperation with the US Geological Survey is set to release its new estimate next month, which is expected to be lower than the 5.3 trillion cubic meters of recoverable shale gas reserves estimated by a study for the US Energy Information Agency.
Source: Platts
Poland’s treasury minister said Thursday that the country may start producing shale gas for commercial use in 2014, a move that should help the country limit its reliance on neighbouring Russia for a large chunk of its energy needs.
Mikolaj Budzanowski said that commercial production of up to 1 billion cubic meters per year could start in late 2014. He said the deposits could be up to 2 trillion cubic meters, enough to add to Poland’s energy mix for decades.
Poland is seeking to diversify its energy sources to cut dependence on Russian imports and its shale gas deposits are a major element in the plan. Nuclear energy and renewable sources are also to be added to the energy mix.
Poland’s annual gas consumption is 14 billion cubic meters and 70 percent of that comes from Russia, at prices dictated by its Gazprom monopoly.
The nation’s reserves are still being estimated and a state assessment based on geological research done in the 20th century is to be presented on Wednesday. It is expected to be well below the 5.3 trillion cubic meters estimated by the U.S. Energy Information Administration.
Some 20 international companies – many of them American – have obtained licenses to explore for shale gas and some have done some test drilling.
The technology of extracting gas from shale rock through hydraulic fracturing was developed in the United States. The move gave the U.S. a level of independence in the gas sector and led to sharply lower gas prices.
Source: The Seattle Times
CEO of 3Legs Resources Peter Clutterbuck has said that a pilot programme on its Lebian well in Poland could be ready within the next two years, though full-scale development may not be viable for several years after that.
Speaking to Bloomberg at the IHS CERA Week conference in Houston, Texas, Mr. Clutterbuck said that full-scale development may taken five to seven years.
“I think it’s going to take a couple of years from where we are across the basin with the industry at the moment into pilot development and then a couple more years after that from pilot development into a commitment to full-scale development,” he said. “So, a full-scale development is unlikely to occur before five years or so and more likely, six maybe seven.”
He said that the company had been pleased with the flow rates on its Lebian well, despite a surprise with the company’s second well in Poland, the Warblino LE-1H, which the company had expected to be the more successful well. The reason for the lack of success on the Warblino well was something the company was still figuring out, he said.
“We were very pleased with the first well we drilled which was the Lebian well and we got a good flow rate out of that. We tested it for a couple of weeks. And we were extremely pleased with the frack operations we had done which delivered what the design was in terms of the frack engineering and we’re also done on time, on budget, without any environmental consequences so that was very successful in our view.
“The second well, we thought was going to be a better well in terms of flow rate and certainly the sub-surface data indicated that we had a good quality pay there in the shale and the test results were disappointing and we’re still trying to figure out why; it’s one of those learning curve things.”
Shale exploration in Poland, he said, was more attractive economically than that in the US, he told the interviewer, which was evident by the fact that many US explorers had switched their attentions from shale gas to shale oil. Despite higher operating costs in Poland, the gas prices in Poland made shale gas exploration in the company more financially advantageous.
“The well costs may be 50 per cent higher or could even be double the cost—somebody said today three times the cost of an American well or a US well—but that’s completely overshadowed by the fact that the gas price is four times higher. ”
3Legs is the operator of both wells, located in the Baltic Concession in Poland, but ConocoPhillips holds the right to a 70 per cent interest in the concession in exchange for funding at the initial stages.
Source: Natural Gas for Europe
This item was published in the Baltic Review this week – it has been translated from the original:
The international energy conference on the issues of exploration, extraction and application of shale gas has been held in Vilnius, the capital of Lithuania, this week and reported on 29 February to IA REGNUM at the press centre of the Energy Ministry.
Participating at the panel discussion the Lithuanian Energy Minister Arvydas Sekmokas stated that “the Baltic States should become a good market for the supply of Polish shale gas, which could also compete with the gas supplied by “Gazprom”.
The Minister has also touched the pricing of the shale gas. He says, “if we consider the prices of shale gas in the USA and price similarly” then Polish gas “could compete with the ‘Gazprom’ gas”.
It should be remembered that the Lithuanian Government is systematically searching for ways to reduce dependence from Russian gas. Even though Poland is planning to start commercial extraction of shale gas in 2014, and it is not clear yet how efficient it will be, Lithuania is working on the principle that the exploration will be successful.
Source: Baltic Review
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