May 08

Poland Has No Plans For Shale Gas Moratorium

By Curve natural gas in Europe, Poland, Realm Energy, San Leon Energy, Shale gas production, shale gas reserves No Comments »

 

Poland has no plans to follow the example of several European countries that introduced moratoriums on shale gas exploration and will continue its efforts to tap unconventional energy sources to limit its dependence on costly Russian supplies.

The Czech Republic said on Monday it was planning a two-year moratorium on granting licences for shale gas exploration to put required legislation in place.

Countries like France and Bulgaria have already halted exploration due to environmental concerns related to a drilling method known as fracking, which uses large amounts of fresh water and chemicals to extract shale gas.

“The government is not planning any shale gas moratorium,” Tomasz Arabski, the head of the prime minister’s office, told a news conference on Tuesday before a government sitting.

Poland has granted more than 100 exploration licences to its state-controlled companies as well as global majors such as Chevron and Exxon Mobil. It has estimated its shale reserves at 346 billion to 768 billion cubic metres (bcm).

The country has so far strongly pushed the companies it controls to join forces and explore its shale gas deposits. It expects first shale gas production at the turn of 2014 and 2015.

Source: Reuters

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May 07

And Now, Some Good News In Poland

By Curve hydraulic fracturing, Poland, shale gas in Europe No Comments »

 

It sounded like a dream come true.

In a session entitled dedicated to the Operator’s Perspective at the Unconventional Gas & Oil Summit in Warsaw, Poland Kamlesh Parmar, Country Manager, Poland at Lane Energy recounted how in March ConocoPhillips, the company’s JV partner in Poland’s Baltic basin, had exercised a call option to take a 70% stake in the assets.

“This is exactly what we’ve been working for in the last two years, that at some point they would take over operator control. It’s what I’ve been working for, it’s very positive, and exactly what I was expecting,” recalled Mr. Parmar.

He explained what was attractive to ConocoPhillips.

“As listed company in London we’re obliged to put up reports of what we’re doing,” he said. “We achieved gas flows out of both wells, but does this prove commerciality? Not yet. It’s a new play in a new country with new rocks, so it’s going to take some time.”

According to Mr. Parmar, Lane Energy had fracked wells, got gas to surface and had drilled two horizontal wells in Europe. He said that drilling on the company’s concessions was hard work and now there were new challenges.

“We’re bringing a fairly new concept to Europe,” he explained. “Convincing people was hard work: We had to show them we were serious and this was a real idea.”

Parmar explained that before drilling Lane Energy was trying to raise its profile and raise awareness of shale gas potential, but later tried to calm things down. He joked: “Hang on, we haven’t got the gas yet.”

According to him, having more operators now in Poland was a good thing.

He recalled, “Then we had only PGNiG subsidiaries to provide us with services, and later, international service companies arrived. Since then, more companies are coming to Poland with rigs, and this gives us more choice, and more flexibility to do our work.”

What had it been like partnering with ConocoPhillips?

“We’re two very different companies in terms of size and set up,” he explained. “They have fantastic resources, abilities and a track record in terms of operating shale plays in the US. We came into this with great experience with our team and we’re nimble and we’re quick, so there’s flexibility on our side. We complement each other.

“Having this joint arrangement has enabled us to do our work more quickly. A large company making a fresh entry into a country takes a lot of resource for them, a lot of commitment and a lot of time,” he continued.

“We are the operator, they are our partner – they have rights to look at what we do and we clear everything with them. Now the role will reverse, now they will take over the operatorship. It’s a normal O&G arrangement. It happens all over the world, and is nothing new. It has worked a lot better than I expected as I feared that the our operation style and approach would differ because of the size of the companies.”

He added that the partners had found their way through the size difference.

Parmar recalled the time in Poland when acreage was up for grabs, but that now all the acreage that had any potential at all was thought to be licensed up. Now, he said, it was time for explorers in Poland to work together as an industry; the OPPPW industry group was one manifestation of that.

Of data sharing among concessionaires, he said, “We are all obliged to share data with the Ministry. If you have your acreage, you have it. The issue is how we can share data to move the play forward? This will accelerate the learning curve.”

In terms of service companies, he noted that many players were coming in to Poland.

“I can only dream of a price war,” quipped Parmar. “We’ve come a long way. We’re in an open economy. If we can generate the work, the service companies will come. When we started, they were not here and they are now.”

He mentioned Lane Energy’s efforts to re use water and have the least impact on people in the vicinity of drilling operations.

How was it possible to avoid problems with local communities in Poland? Back up from local authorities?

“Community engagement is absolutely vital,” said Mr. Parmar. “My focus is on government relations and local relations. You have to go there, sit in their office and explain what we’re doing. I do that myself. When explaining drilling or completion activity, it’s important that the Company is there and not just represented by 3rd party consultants.”

He reported that Lane Energy had had very little negative press about its operations in Poland. He suggested letting the local Voivodes take ownership of meetings with communities and organizing meetings through them had helped.

Source: Natural Gas Europe

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May 07

Baltic Energy Security And Shale Gas Development In Europe

By Curve natural gas in the USA No Comments »

 

In a recent report, The Lavtian based ThinkFoundation examined the opportunity that shale gas development provides for Baltic Energy Security. The following summarizes key elements of the report – Global Developments in Shale Gas:A Game Changer for the European and Baltic and Energy Security

Lithuania, Latvia and Estonia face exclusive dependence on Russian gas as well as near-exclusive dependence on electricity, and with lack of grids with other EU countries.  These factors results in high-energy prices, energy insecurity and increased vulnerability.

Background

The Baltic States energy sector bears scars of their Soviet legacy and are highly dependent on energy imports due to lack of infrastructure. The vulnerability is especially high in the gas sector: the three Baltic States have no gas reserves of their own and are 100 per cent dependant on imports from just one supplier: Russia’s Gazprom.

Despite facing a similar predicament, the three Baltic States cannot be thrown in the same pot. Each state has its unique energy mix with its weaknesses and strengths that are examined in detail, as examined below.

Lithuania

Lithuania is arguably the most vulnerable state in the Baltics. Until recently Lithuania was producing most of its electricity (70.7% as of 2009) at its nuclear power plant in Ignalina. This changed in 2010, when the plant had to be closed down in order to comply with the agreement made in tandem with joining the EU.

Even though the closure of the plant did not require the once energy exporting nation to resort to electricity imports by default, as elsewhere reported, it did nonetheless transform the country’s energy sector.

If needed, Lithuania is capable of covering the annual electricity consumption by producing all of it within its borders, namely at its power plant in Elektrenai. The problem lays in the fact that Elektrenai is mainly gas-powered plant, which means that the fuel for running it would have to be imported.

Leaving the security of gas supply issue for a later discussion, the significance for Lithuania of switchover from nuclear to gaseous fuel is two- fold:

Firstly, it is more expensive to produce electricity in a gas-powered power plant than it was in Ignalina. To compensate the difference, Lithuanian government decided to import half of its electricity from neighboring countries. Thus production costs were favored over electricity production autonomy.

Secondly, by deciding to  prioritize energy price and resorting to import of electricity, Lithuania has voluntarily increased its dependency on Russia as it currently offers the cheapest supplies.

To compensate the shortage of electricity supplies, the Lithuanian government is proposing to build a new nuclear power plant in the area nearby from the decommissioned Ignalina power plant.  The new power station, Visaginas, would be a joint project between the three Baltic States and Poland. Despite the recent nuclear accident in Japan , Lithuanian officials seem undeterred and insist that indeed, “now is the best time to build nuclear!”

However, even if the construction of Visaginas begins as planned in 2014, it will not be operational until 2020. The only participant in the Lithuania Energy Ministry last year’s tender in search for a strategic investor, Korea’s Electric Power Corporation (KEPCO), withdrew its offer.  It is interesting to note that Russian President Dmitry Medvedev visited to South Korea just two prior to KEPCO’s withdrawal.

It is clear that the Visaginas project is not as conclusive as the Lithuanian government would like to convey.

Latvia

Whereas Latvia produces no oil, it has large underground gas storage facilities. Equally, while Latvia is not an entirely self-sufficient electricity producer, electricity production mostly from hydroelectric plants, satisfies 88% of domestic consumption. However, the picture becomes less rosy when other energy resources are reviewed.

To satisfy overall energy consumption demand, as much as two thirds of Latvia’s energy is imported.  Even though there are plans to construct a new 400 mega watt power plant between 2015-2025, under status quo it would shift the problem of dependency from one area to another– the new power plant would be fuelled using liquefied natural gas (LNG).

Both gas and LNG would still need to be imported, although not necessarily from Russia. Moreover, the potential usage of LNG would require the construction of terminal and a  proposal to build a facility in Latvia is underway.  In theory it could increase energy security not only for Latvia and the other two Baltic States, but also Finland.

Latvia has a comparative advantage in building the terminal as the state owned underground gas station in Incukalns – one of the biggest in Europe with active volume of 2.3 billion cubic meters, – is seen as a vital link that could be utilized if the LNG terminal is built nearby.  Some Lithuanian energy experts have backed the idea for a joint LNG terminal in Riga.

However, a dispute over Incukalns ownership could potentially complicate the matters. Even though Incukalns is a state property, in 1997 its management was handed over to AS Latvijas Gaze for a period of 20 years.  As 2017 is approaching, AS Latvijas Gaze, whose 34% of shares are owned by Gazprom, has recently declared that if Latvia wants to retain its ownership, it would have to compensate for the investments it has made in Incukalns during the past 20 years amounting to about 600 million lats (860 million  euros).

Finland, which was endorsing the project, has quietly stepped away from backing the initiative recently.  If the ownership is not regained, Estonia and Lithuania could opt out of the potential construction of a Latvian LNG terminal, as the two states have said they would not cooperate on a project linked to Gazprom.

Estonia

Estonia is a fully autonomous electricity producer, the country stands out from the other two Baltic States because of its use of oil shale as a fuel for electricity and heat production. Eighty (80)  percent of world’s oil shale is mined in Estonia.  In 2009, this source accounted for 82 per cent of Estonia’s consumption of fuels in power, leading to 77 percent of Estonia’s electricity being generated by burning the shale.  This allowed the country not only to be self sufficient, but enabled it to export a share of its electricity to the neighbouring countries.

Nevertheless, the status quo is likely to change in the near future. The side effects of oil shale burning are high CO2 emissions. Despite the fact that future oil shale burning methods aim to cut down the emissions to that of coal and thus could, in theory, comply with the EC Large Combustion Plant Directive, they would remain very high.

Estonian policy makers also insist on the need to diversify its energy supplies. The aim is to cut down the dependence on oil shale so that its share in the next decade would be reduced to a third of the country’s total energy production. The energy production gap would be compensated by the expansion of gas, wind and nuclear energy. Unfortunately the diversification process may lead to less energy autonomy and more reliance on external suppliers, as there are no readily available substitutes at the moment.

One thing in common

Latvia, Lithuania and Estonia are all energy insecure states, even if the security of gas supplies issue is excluded from the problem. It is not hard to see why the current situation is alarming not only to the Baltic States, but to the wider Europe.

Having briefly sketched the differences between the three Baltic States’ energy sectors, it is important to assess the single most vulnerable link in the energy mix of the three countries which, unfortunately, is unifying.

When it comes to natural gas supply, Lithuania, Latvia and Estonia are all vulnerable and highly dependent: all three Baltic States are 100 per cent reliant on one natural gas supplier: Russia’s Gazprom.  However, the current developments are likely to increase dependency on Russian energy, including gas.

Estonia will have to reduce its reliance on oil shale in the near future in order to meet the EU 2020 targets. To compensate that, the government is planning, among other things, to shift some of the energy production to gas powered plants.

If that is not done, Estonia will have to begin importing some of its electricity. However, either way the dependency will be increased: even if the share of energy production of gas powered plants increases, the fuel itself–the natural gas–would still be coming from Russia.

As Estonia currently exports electricity to Lithuania and Latvia, the reduction of energy produced from oil shale would directly and indirectly be felt in these countries. The development would be especially uncomfortable to Lithuania, which lately, due to the closure of its Ignalina nuclear power plant, has resorted to electricity imports from the neighbouring countries, including Estonia.

Despite the fact that Lithuania would be capable of replacing energy imports with home produced electricity, the energy security problem would not be addressed. The production would be based in gas powered plants, fuel for them thus being imported from Russia. Given that most of the imported electricity already comes from Russia, increased dependency on the latter country and lack of an alternative supplier–Estonian electricity– would indeed be nerve wrecking for Lithuania.

The Lithuanian government is planning to address the energy security problem by building a new nuclear power station in Visagin as that would become operational by 2020. However, a lack of investor as well and the nuclear accident at Japan, will most likely delay the project’s development and thus would extend and increase Lithuania’s dependency on Russian gas in the following years.

Estonia’s upcoming shift from oil shale to other resources and lack of immediate replacement for Ignalina power plant translates into increased energy insecurity for Latvia. The country’s energy mix is already over shadowed by gas (30 percent as of 2008, well above the 25 percent EU’s average).  Since Latvia is not a self-sufficient electricity producer and thus imports some of its energy from Estonia, it would, directly or indirectly, become more dependent on Russian gas as well.

As can be seen above, there are some efforts to alternate the current state of affairs and minimize energy dependency. However, the above discussed solutions (or lack there of) to change the status quo will translate into the Baltic States’ increased dependency on Russian gas in the near future.

The move to shale gas

Alternative gas sources would not only mean increased energy security for the Baltics, but cheaper gas supplies as well. Even though the natural gas spot price is currently very low, it is not the case that Europe gets its gas cheaply. Indeed, Gazprom currently uses its near monopoly (or total monopoly as regards to the Baltic States) to charge premium for its gas.

While the situation has gotten better during the last years – incidentally because of worldwide natural gas abundance, largely due to shale gas production in the United States –, Gazprom still retains great bargaining power towards Europe and is often not hesitant to use it, as not too distant past has shown.

The benefits for reducing Gazprom’s current monopoly status in the Baltic States would be especially great not only for the insurance of energy security, but for the countries’ economy as well.  Baltic households spend disproportionately high sums of their monthly incomes in paying for utilities and food, the price of the latter being partly influenced by the energy prices. Therefore cheaper energy would mean increased consumer spending which in turn would result in sharper economic growth. For the depressed Baltic economies this scenario of events would be very welcomed.

Political Mood for shale gas production in the Baltic States

On the one hand the shale gas project in the Baltic States is in its infancy – no exploration has been started, let alone production. It is not controversial to claim that the Baltic States will probably be the last ones to begin production, if at all.

Yet, the political mood is very encouraging. When Latvian Minister of Foreign Affairs Girts Valdis Kristovskis was on his work visit to the United States in February 2011, he spoke favorably of a collaborative project between the two countries for shale gas extraction in Latvian territory, noting that shale is beneath the entire Latvian territory. Around the same time the Latvian president Valdis Zatlers, when visiting the United States, invited the energy company DTE Energy to begin shale gas exploration in Latvia.

The push for shale gas is even bigger in the neighboring Lithuania. Fuelled by the promising preliminary data on technically recoverable shale gas resources in the country, Lithuanian Energy Minister Arvydas Sekmokas urged the government “to take immediate steps to make shale gas extraction in Lithuania a reality” and noted that the country could extract $30 billion worth of gas in the near future.

During the recent visit to Lithuania, the US Secretary of State Hilary Clinton said that the United States strongly supports Lithuanian drive for energy independence and the two countries pledged in a joint statement to cooperate on shale gas development. Furthermore, Sekmokas has recently revealed that he has had talks with an undisclosed US energy company about prospective shale gas production in Lithuania.

Estonia is so far the only country in the Baltic States that is quiet about its plans in relation to shale gas. This has to do with the fact that Estonia is not consuming a lot of natural gas and can largely satisfy its energy needs by relying on oil shale.

Estonia aside, it can be glimpsed that the other two Baltic States – Latvia and Lithuania – are very eager to exploit their potential shale gas resource, thus increasing the energy independence and relying less on Gazprom.

Conclusion

Shale gas is a game changer for both Europe and the Baltic States. The shale gas revolution that began in the United States has contributed, together with the global economic downturn, to worldwide natural gas price drop and has made the gas suppliers self conscious about the future.

The fact that there is now gas abundance, coupled with the possibility of some European countries themselves becoming shale gas producers, is threatening the position of current European energy market dominating gas suppliers like Russia’s Gazprom.

Even if shale gas production does remain a US venture, it will still mean that market principles in Europe will be reinforced and that the continent will be able to choose between conventional pipeline gas, liquefied natural gas or possibly even unconventional US natural gas.

If shale gas production begin seven in one European country–and all signs lead us to think that there will beat least one (Poland)–, the European energy market will become even stronger and more secure.

For the Baltic States this would be a dream Come true given that they are 100 percent reliant not only on gas imports, but on one gas supplier. As European and world energy consumption will eventually rise and the use of nuclear power will fade, shale gas is the perfect candidate to fill the role as a bridge fuel between highly dangerous energy resources like nuclear and highly polluting ones like coal on the one hand and environmentally friendly renewable energy sources on the other.

Shale gas production in Europe will not only mean more energy security, but will result in cheaper energy prices for the continent thus helping to fuel the currently sluggish economic recovery.

For the Baltic countries that were hit hardest by the global economic down turn this will be specially welcome news. That said it is unclear whether shale gas production in Europe will commence anytime soon as there are still many hurdles to over come. The shale gas exploration is just beginning and judging by the US experience it does take years before production can begin.

Yet, Europe does not have to go through the gas drilling technique development stage as the US has already done that. Furthermore, if environmental risks are addressed in the EU directives and the gas industry is subject to strict regulation, shale gas production should not become a public issue either.

Ultimately, it does not matter whether shale gas production will commence in Europe or not as it has already changed the EU energy market and will continue to do so in a foreseeable future. Because even if the US shale gas production in the short term does not address some of the energy security concerns of Europe, especially those of the Baltic States, it will somewhat reinforce them market principles  and should contribute to low gas prices in the medium term. If the Baltic States are integrated into a common European energy market soon, there is no rush to commence shale gas production in the continent.

In short, the existence of shale gas has already revolutionized the European and Baltic energy markets and will continue contributing to the continent’s energy security in the future, with or with out shale gas production actually taking place in Europe.

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May 04

Algeria To Tap ‘Big Potential’ For Shale Gas With Incentives

By Curve Energy, International Oil Corporations, natural gas in Europe, San Leon Energy No Comments »

 

Algeria sees “big potential” for shale gas and plans incentives to encourage exploration as extraction of so-called unconventional resources becomes economically feasible, according to an Oil Ministry official.

Algeria will introduce new legislation to spur investment in exploration this year, including tax incentives that “take account of the production difficulties of this kind of fuel,” said Ali Hached, an adviser to Energy and Mines Minister Youcef Yousfi. “There is big potential,” he said at a Paris summit.

Countries from the U.S. to Poland are exploring for natural gas in shale, which requires the injection of water, sand and chemicals into sedimentary rock at high pressure to extract the fuel. Energy producers have stepped up the search for such unconventional resources as rising energy prices and advances in technology have made such developments profitable.

“Non-conventional resources are important in Algeria,” Abdelhamid Zerguine, chief executive officer of state-run energy company Sonatrach Group, said at today’s summit. Tests in three provinces over 180,000 square kilometers (69,500 square miles) have uncovered a possible 2 trillion cubic meters of gas, he said, adding that “partnerships will be necessary.”

Sonatrach has said it intends to invest $80 billion over five years, with more than 60 percent dedicated to exploration and production. The company plans to drill 150 exploratory wells and expand crude-processing capacity at three oil refineries.

Development of unconventional gas resources outside North America will “take time,” Yves-Louis Darricarrere, head of exploration and production at French oil company Total SA, said in Paris. Total, which is producing shale gas in the U.S. with Chesapeake Energy Corp., is developing the Timimoun and Ahnet gas projects in Algeria and pursuing projects in China.

Source: Bloomberg

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May 03

Fracking Does Not Need More Regulation, Report Says

By Curve hydraulic fracturing, natural gas in Europe, San Leon Energy, shale gas No Comments »

 

There is no need for more environmental legislation in the case of shale gas exploration, at least until it reaches commercial scale, says a new study published by the European commission.

The activities relating to exploration of shale gas are already subject to EU and national laws and regulations, says the report, carried out for the European commission by Belgian law firm Philippe & Partners.

Water protection issues, for instance, which have been raised as an issue by shale gas detractors, are already covered by EU legislation under the Water Framework Directive, the Groundwater Directive and the Mining Waste Directive. Meanwhile, the use of chemicals is covered by the REACH regulation, the study says.

“It is a new technology and we do not have a specific legislation on shale gas, because it is so new,” said Marlene Holzner, European commission spokesperson on energy.

“So the study only says that the existing regulations are applicable for shale gas, that the tool is there and has only to be applied,” she told EurActiv, adding that the study was carried out only in four countries – Poland, France, Germany and Sweden. It was released on 27 January.

The law firm said shale gas activities were too small at the moment to justify specific legislation. “Neither on the European level nor on the national level have we noticed significant gaps in the current legislative framework, when it comes to regulating the current level of shale gas activities,” the study says.

This is, however, not a reason for “complacency”, the study says, since the assessment refers only to the current scale of operations in Europe. Shale gas exploitation on a commercial scale would involve bigger maneuvers, it adds.

Europe has less experience in exploring shale gas formations as a new source of natural gas and no commercial scale exploitations have taken place yet, but this “is expected in a few years’ time”, the report says.

Shale gas is an unconventional source of natural gas and studies show different results on how safe the two main methods of extracting it from rock formations.

One is the horizontal drilling in various regions of the rock, which is needed to capture the gas pockets. The other, hydraulic fracturing – or ‘fracking’ – involves a high-pressure injunction of fluids usually mixed with chemicals into shale rock. Both of them require seismic and drilling permits, as well as large amounts of chemicals and water.

Only after conducting consecutive tests for drilling and fracturing does a project reach the stage of planning and acquiring the needed pipeline, followed by the decision to bring the extraction to a commercial scale.

In a few years’ time, investors might find themselves in need of making a decision on the commercial development of their shale gas projects, a situation which is not covered by the EU study published on 27 January.

Poland, which aims to shrug off its dependency on Russian gas, is planning to begin commercial shale gas production from 2014, Prime Minister Donald Tusk said last year. Most of the projects are currently at the phase of seismic surveys and some projects already have entered the drilling phase, which is expected to intensify after 2014.

The natural gas trapped in shale rock in Poland could provide the country with enough fuel to last for 300 years, the US Department of Energy said last year.

However, not everyone is willing to allow drilling operations on their land, despite the economic potential. At the beginning of January, thousands of Bulgarians protested against exploration for shale gas over fears it could poison underground water, trigger earthquakes and pose serious public health hazards.

Source: The Guardian
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May 03

The Financial Times – Finds That Form A Bedrock Of Hope

By Curve energy independence, energy market, hydraulic fracturing, natural gas in Europe, San Leon Energy No Comments »

The Financial Times published a special report on the potential of shale gas to undermine the concept of ‘peak oil’, reshape domestic economies as “one of the linchpins of global energy supply in the 21st century” and recast geopolitics, influencing companies’ investment decisions.

With quantifiable shale reserves now having been identified in Argentina, Australia, South Africa, northern Africa and eastern Europe, as well as in the UK and France, the US Energy Information Administration now estimates these could raise recoverable global gas resources by more than 40 per cent. The author stresses the economic and environmental potential of shale gas as it could improve energy security vis-à-vis Russia, and improve global carbon emissions should China decide to switch from coal. He concludes that the “promise of energy independence, job creation and cheaper power will spur many governments to push ahead.”

Source: EuropeUnconventionalGas.Org

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May 03

France Could Lift Shale Gas Fracking Ban In Coming Years: Besson

By Curve France, natural gas in Europe, oil production, San Leon Energy, Shale gas in France No Comments »

France could reconsider its ban on the use of hydraulic fracturing in the exploration of shale gas if the technique can be proven to be safe, French economy minister Eric Besson said Thursday.

Speaking at the 13th International Oil Summit in Paris, Besson said the subject was not closed in France.

He said that so far, shale gas explorers had been unable to prove that hydraulic fracturing, or fracking, was not harmful to the environment.

“That doesn’t mean the subject is closed — it could be reopened tomorrow,” Besson said, adding that by tomorrow he meant over the next few years.

But this would only happen if operators “can prove the safety of the technique.”

France last year imposed a ban on fracking because of fears over its environmental impact.

Oil major Total was hit as it has a shale gas exploration operation in France.

Speaking at the same conference, Total CEO Christophe de Margerie said companies were looking at how to prove its safety.

“We have to improve the way we produce [shale gas],” he said.

He added that the company was looking at developing shale gas in China.

Source: Platts

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May 01

Poland: Interview With Grzegorz Pytel, Sobieski Institute

By Curve Poland, Realm Energy, San Leon Energy, shale gas in Europe No Comments »

 

Natural Gas Europe recently interviewed Grzegorz Pytel, Energy Security Expert at the Sobieski Institute, on the development of shale gas in Poland.

NGE: According to the previous announcements, the Polish government will soon terminate works on the legal framework for the future conditions for companies willing to produce shale gas in the country. In over a year time, the Polish state will probably enter the phase of issuing first licenses for production. How will the Polish Geological Institute/Unites States Geological Survey estimates of recoverable shale gas reserves in Poland – much lower than previous estimates -  influence positions of government and companies on a doorstep of negotiations?

Grzegorz Pytel: A very important issue in financial negotiations between the government and any companies, on any fiscal tax regime imposed on companies, is the assessment of the risk, that companies are taking in exploration and production of the resources. The greater the risk assessed at the outset, the lower the taxes and other fees that the government should be really prepared to collect later. For a simple reason: the higher the risk the higher the reward expected. Therefore the report published by the PGI which lowers the estimates and therefore increases the perceived risk, especially if it’s based on government-financed report, improves the negotiating position of the companies against the government.

NGE: The type of methodology used in PGI/USGS examination tends to give rather conservative results.  If such an outcome wasn’t particularly difficult to predict, what could be the rationale behind a decision to prepare and publish this assessment, in the first place?

GP: This is the good question. The first thing is, that in my view governments should never be in the business of speculating. For example in the area where governments have to be in the business of speculating, like pensions, which is really forecasting some years ahead, they always get it wrong. In this case there was simply too little data to have any any credible assessment and in such a situation the government can never win. If they overestimate, then they later can be blamed for being overoptimistic and so forth. If they underestimate, they improve the financial position of the companies in the negotiations of tax regime.

NGE: So why did they do it?

GP: Typically the answer should be based on the question in whose interest it was: a classic “cui bono” test. On the face of it, the whole thing looks like a huge PR and negotiating success of the companies exploring for gas in Poland. However looking for anything like conspiracy behind may be too far-fetched. Anyway, one of the people key in preparing this report, has already left the Polish Geological Institute and now works in the private sector, so maybe this is a kind of indication that possibly shows real things behind it. The straight answer is I do not know but it all looks quite odd to me. Draw your own conclusions.

NGE: Many critics have observed that this assessment was based on cores as mature as 50 years old. Do you share this doubts? Shouldn’t Poland just wait for data from new drillings,  undertaken by companies presently active in shale gas development?

GP: I’m myself not a geologist or geophysicist. However I’ve heard a very respected professor of geology, who was laughing at the research carried on fifty years core samples, which basically – if they had gas in the past – most likely it has evaporated anyway; whether the gas was there in the first place or it wasn`t. Assessing 50 years old samples and data doesn’t seem to be the best idea of all. Basically it has consequences on credibility.

Source: Natural Gas Europe

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Apr 30

Poland – Factors to Watch on April 30

By Curve natural gas in Europe, Realm Energy, shale gas in Europe No Comments »

 

MONETARY POLICY

Poland will face increasing problems with maintaining economic growth in the long run, despite a relatively low level of real interest rates, Monetary Policy Council member Jerzy Hausner wrote in an article co-authored by former finance minister Miroslaw Gronicki.

DNB NORD

DnB Nord, the Polish arm of Norway’s biggest bank DNB , will announce a new strategy next week assuming an abandonment of the country’s retail segment and giving up on plans to launch services for small and medium-sized firms, Puls Biznesu wrote citing a source at the bank.

SHALE GAS

Poland’s shale gas reserves might amount to 1-3 billion cubic metres, a few times more than estimated in a state study from March, Dziennik Gazeta Prawna wrote in a comment to a report by Canada’s LNG Energy on estimates of resource volumes at its three licences in the Baltic basin.

SWEETER BID FOR EM&F

Czech private equity group Penta Investments and investment group Eastbridge raised their joint bid for Polish retailer Empik Media & Fashion (EM&F) on Friday, valuing the group at nearly 1.1 billion zlotys ($349 million).

Source: Reuters 

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Jan 30

San Leon Energy: Patience, Please, in Poland

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Shale gas exploration is risky, according to San Leon Energy’s Director of Exploration John Buggenhagen, who spoke about assessing the prospects for shale development in Poland at Shale Gas World Europe 2011.

“If you came for answers,” he quipped, “you’re going to leave disappointed, because you’re going to leave with more questions. We are in a very early phase of the exploration here in Poland.”

Mr. Buggenhagen said he was a bit irritated with press reports that had written off Poland’s shale gas prospects. “They create fear and panic in the marketplace and that takes away everything we are trying to do in the industry.”

As an example, he showed a quote from the Economist which wrote that the geology was “less favorable” in Poland than in North America.

“Right now we’re in a flux of regulatory, economic, political and investment issues surrounding shale gas. If you read what’s going on in the investment world, because we’re a public company I have to take all this into a balance. And I can’t say it more clearly: Exploration is risky. We just started doing this.”

He continued: “I think everyone needs to ask themselves, how we’re going to get from here to commercial gas production that’s going to change the energy environment in Europe, and here in Poland locally.”

Mr. Buggenhagen explained that San Leon was a small, listed company that had built a tremendous asset base through acquisitions of companies, taking advantage of the tough market conditions. “Through takeovers of two Canadian companies and an Irish one, we’ve amassed one of the largest shale gas portfolios in Europe, and that’s significant because it’s how we’ve gone about doing this that is the first step in where shale gas is going in Poland.”

He said San Leon’s core portfolio started in Poland, that he himself had been looking into opportunities for five years and the key to that was being on the ground.

“Recent acquisitions of Realm Energy have increased our portfolio. We also have almost 2.5 million acres under application in Spain for unconventional gas; we also have significant applications in France; and we are looking at other countries as well including Morocco, where we have a tremendous shale gas position, again limited by some of the political issues.”

When one looked at the resource estimates, according to him, one saw tremendous numbers. “Just net to my company in Poland, we have the potential for more than 40 TCF of recoverable gas – those numbers are scalable throughout our portfolio. This is not just a well or a small field. This is a game changer, for everyone that’s involved here in Poland.”

He showed delegates San Leon’s vast, significant and well diversified positions in Poland, the company’s 14 concessions, spread throughout Poland.

“Where’s the sweet spot, the production center that’s going to fuel the growth that’s going to start this industry up? So we spread our blocks around the basin based on various geologic parameters.”

He reported that in southwest Poland San Leon had 1 million acres of contiguous position in the Permian basin. “We are leading the exploration effort there – actually drilling the first well targeting unconventional gas in the carboniferous section in Poland and hope to be reporting results in the coming months.”

“A quote I like that I heard very recently is ‘Every well that’s drilled in Poland is redefining the stratigraphy, the geology of the Baltic basin and the potential of Poland in general. Modern core, modern logs, modern drilling techniques – this is all new to Poland in terms of exploring for shale.”

Buggenhagen contended the results that San Leon and others were seeing in Poland were very different results from the model. “That’s neither good nor bad, we’re just having to re think the model that started this shale gas boom here in Poland.”

He mentioned that San Leon had become the largest net acreage holder for unconventional gas in Poland, in the Podlasie, Baltic and Carboniferous basins.

“We’re a small company, we use every penny that we have wisely. And we’re very aggressive – that’s a very delicate balance to maintain,” he said.

He noted that fewer than 15 wells had been drilled in Poland and said: “We know there’s shales in these rocks, but can we get the gas out of the ground?”

“After two wells, people have written off the basin,” he explained. The people in this room have invested so much as to not even consider that possibility.”

Providing the US’s Barnett shale and its progression over time as an example, Buggenhagen said, “I think we’re back in 1997, maybe even before that, in Poland, we’ve just started. Here we don’t have the benefit of the conventional production that preceded the unconventional in the Barnett.”

“It took George Mitchell 20 years,” he recalled. “The Bakken was a drilling hazard, people thought it was a crazy idea and now it’s producing.”

Despite an earlier protest before the start of the conference, he noted that Poland was very pro shale gas. “They understand that indigenous energy is better than imports; I can’t think of a dirtier energy resource than coal,” he commented.

He described what he said was “information chaos” surrounding– everyone’s looking at where the investment for the future was going to come from. “It’s important for us to be very open with the public, with the regulators and influence things to make for a positive industry.”

Referring to the demonstration, he said “What happened today is a tool for sorting out the balance, and keeping the industry honest.”

“It’s not going to happen overnight, it’s going to take time,” said Mr. Buggenhagen, who summed up of Poland’s nascent unconventional gas industry. “Look at the history of Poland – 23 years later the country has come very far in a short time, but we have a long way to go as an industry, as operators, contractors and regulators. As an industry it’s incumbent upon all of us in this room to get together to figure out how we can solve these issues.

“It will change the economy and energy balance of Europe and here locally it will change Poland and how it fits into the European Union going forward.”

Source: Natural Gas for Europe

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