Big players are taking big risks that Poland has massive gas reserves trapped deep beneath its surface.by Hilary Heuler 27 September 2010
WARSAW | Poland may be on the verge of signing a new natural gas agreement with Russia, but back in Warsaw, the political establishment is all aflutter about something that could turn Poland’s energy-dependent relationship with Gazprom on its head: shale gas. According to some estimates, the shale deposits running through Poland could hold anything from 1.5 trillion to 3 trillion cubic meters of natural gas.
That’s one side of the story; the other is that Poland could have no significant gas deposits at all. Up to this point, estimates have been based on the fact that large swaths of Poland’s geology resemble formations in the United States where shale gas has been found. Until more drilling is done, no one knows how much is actually there. But Poland uses around 13.5 billion cubic meters of gas a year, most imported from Russia; a significant find could be enough not only to make the country self-sufficient, but also to make it a net exporter of natural gas.
It’s a story Polish politicians are eager to hear, and to tell. Foreign Minister Radoslaw Sikorski told local media that Poland has the potential to become “the next Norway.” Polish President Bronislaw Komorowski, during his recent presidential campaign, declared that “if we find out that we have enough shale gas, we want to have the right to renegotiate the deal with Russia, or maybe we will step aside from it”; Treasury Minister Aleksander Grad made similar noises at an economic forum in southern Poland in early September. Even U.S. Secretary of State Hillary Clinton mentioned the possibility of a shale gas bonanza when she visited Krakow in July.
The prospect has also lured a number of big energy companies, including Chevron, ExxonMobil, and Canada’s Talisman Energy, into acquiring exploration licenses in Poland, 70 of which have been granted so far. In June, American energy giant ConocoPhillips began drilling exploratory wells in partnership with Lane Energy, a subsidiary of 3Legs Resources (based on the Isle of Man). Meanwhile, the state-run oil and gas company, PGNiG, has teamed up with Halliburton to perform Poland’s first hydraulic fracturing operation near the eastern town of Kozienice.
“There’s still a big exploration risk here, which also makes it an opportunity. Until you start drilling, you just don’t know,” said Kamlesh Parmar, country manager for Lane Energy. The company plans to invest $20 million in drilling this year. But Parmar cited the success of shale gas wells in the United States, which produced more than 50 billion cubic meters of gas in 2008 alone. “If we can replicate even a part of U.S. production levels, it could work,” he said.
It will take some time to know whether or not the risk is likely to pay off. Initial results from exploration are expected around the end of September, but according to Marta Wagrodzka of the Polish Environment Ministry’s Department of Geology and Geological Concessions, it will be two to four years before anyone knows if significant shale gas deposits even exist, with large-scale extraction another 10 to 15 years off.
Part of the problem is that even if gas is found, Poland, unlike the United States, lacks enough pre-existing wells to extract it. “Some infrastructure is there, but is it of a size that would suit large-scale shale gas distribution? Probably not,” Parmar said. This would mean building roads, wells, and pipelines, driving up the costs of extraction. Since America’s own shale gas boom has depressed global gas prices, there is also some uncertainty as to whether exploiting Poland’s resources would even be worth it. “Everybody’s guessing at the economics in Europe, because it’s not been done yet,” Parmar said.
In the United States, an explosion in shale gas production since the 1990s has transformed the country’s energy sector. Thousands of new wells have been drilled over the past few years, turning the country into a net exporter. Although shale gas was first discovered in the 19th century, extraction was only recently made possible by the invention of a new technology known as hydraulic fracturing, or “fracking.” During fracking, a pressurised combination of water, sand, and chemicals is forced underground, cracking the shale to release the gas trapped inside.
The process has created controversy in North America, where some people have reported finding gas in their water. In a recent American documentary film called Gasland, filmmaker Josh Fox travels around shale gas production zones, talking to local residents who complain about water supplies contaminated by gas and chemicals – some can even set their tap water alight. The reported health effects range from asthma to neurological damage.
The problem, says Wojciech Stepniewski of the World Wildlife Fund, is that fracking involves drilling wells thousands of meters deep, wells that almost invariably pass through underground water reservoirs. “The pipe used for getting the gas out goes through different layers of soil, stone, shale, and water, and it’s quite technically complicated not to mix the gas with the water resources,” he said. “This can lead to situations where you can actually find gas in your tap water, which is just dangerous.”
There are few thorough studies on the subject, and energy companies insist there is no evidence that fracking contaminates water supplies. “I think a lot of the stories you hear are due to carelessness and poor practices by certain operators,” Parmar said. Still, American authorities are starting to take notice. In August, the state of New York imposed a moratorium on new drilling permits in part of the nearby Marcellus shale, a move designed to protect the drinking water pumped into New York City.
In Poland the environmental risks are more complex, not least because the country’s population density is higher than it is in most of the United States or Canada. As Stepniewski also pointed out, some of the exploration concessions granted in Poland lie in Natura 2000 zones, areas set aside by the EU for special environmental protection. Under existing regulations, extraction of fossil fuels within these zones is prohibited.
“So far, we don’t see a conflict with the existing environmental rules,” Wagrodzka, of the Environment Ministry, said. “If companies want to do any drilling in these environmentally sensitive areas, they will have to prepare an environmental impact assessment and get permission from the local authorities.” But Stepniewski was adamant. “Polish parliamentarians are asking to be a little more flexible on these protected areas, but one cannot be flexible. No one can really predict the environmental consequences of such actions, and that’s our main concern,” he said.
On the other hand, natural gas is significantly cleaner-burning than coal, on which Poland currently depends. If large gas deposits are found, WWF doesn’t intend to advocate blocking extraction. But, Stepniewski said, “It must be kept in mind that this is not a renewable resource. It’s a fossil fuel. It should not shut the door on the development of renewable technologies and energy efficiency. It should be used as a technology that replaces coal but does not replace renewables.”
Since most of the companies granted exploration concessions in Poland hail from North America (“They have the technology, the knowledge and the experience,” Wagrodzka said), there has been some concern about the country’s mineral wealth being shipped abroad.
But considering the uncertainties involved in Poland’s shale gas venture, foreign partnerships may actually be the key to the country’s success. As PGNiG’s president, Michal Szubski, hinted to local media last month, American firms are financially capable of bearing the burden of risk. Then, if the stars align and Poland does turn out to be the next Norway, everyone may be a winner.
Everyone, that is, except Gazprom.