RUS | ENG | All
Enter the email or login, that you used for registration.
If you do not remember your password, simply leave this field blank and you will receive a new, along with a link to activate.

Not registered yet?
Welcome!

2014-10-11 19:20:00

EU ENERGY DIVERSIFICATION

EU ENERGY DIVERSIFICATION

Poland's ambition to achieve energy independence from Russia is being undermined by drillers giving up on the nation's shale wells after disappointing results.

The highest test flows during the country's five-year search for unconventional gas were just 30 percent of what's needed for commercial production, said Pawel Poprawa, a geologist at the AGH University of Science and Technology in Krakow. The number of active shale permits has fallen 43 percent from a high in January 2013 and explorers probably won't extend all those expiring this year, according to Slawomir Brodzinski, the nation's deputy environment minister.

3Legs Resources Plc, the Isle of Man-based company that was the first foreign explorer to buy a license in the East European nation, said last month it's leaving after poor results at Poland's biggest fracking operation in the northeastern Baltic Basin. The "poorly understood" formation may hold more gas than Texas's Barnett Shale, where commercial output from 2000 helped turn the U.S. into the world's largest gas producer, according to the U.S. Energy Department.

"If Europe really wants to do something about being a little bit more independent in gas, it has to develop its own resources as well and shale is one of them," Maria van der Hoeven, executive director at the International Energy Agency, said Oct. 7 in an interview in London. "Shale gas is there, but it's not as easy to explore as it was in the U.S."

Energy Diversification

The European Union is trying to diversify its energy supplies as local gas output falls and a price conflict between Ukraine and Russia, the region's biggest provider of the fuel, threatens to disrupt winter flows for the third time in eight years. Poland, which gets about 57 percent of its gas from Russia, encourages shale gas amid bans in other EU nations.

3Legs handed three permits in the Baltic Basin to partner ConocoPhillips (COP) last month, seven years after becoming the first foreign company to buy a license in Poland, citing poor results from their Lublewo well. Houston-based ConocoPhillips said Sept. 17 it would keep drilling.

Exxon Mobil Corp. (XOM) left Poland in 2012 after results from early wells disappointed. Talisman Energy Inc. (TLM) and Marathon Oil Corp. gave up in May 2013, while Eni SpA (ENI) withdrew nine months ago.

The U.S. Energy Information Administration in 2013 cut its estimate of the nation's technologically recoverable wet shale gas reserves by 21 percent from a 2011 forecast to 148 trillion cubic feet, of which 72 percent in the Baltic Basin. That would meet more than 250 years of current demand.

Polish Gas

Poland produced 4.2 billion cubic meters (150 billion cubic feet) of conventional gas last year, importing 9.6 billion from Russia and 1.8 billion from the rest of Europe, according to BP Plc's annual statistical review.

Lublewo produced less gas than predicted from Aug. 8 to Sept. 17, averaging 396,000 cubic feet a day and 157 barrels a day of light oil, according to 3Legs. That's about 30 percent of what's needed for commercial production, according to Poprawa, who's also an adviser at the Warsaw-based think thank Energy Studies Institute.

"When you look at the shale gas production in Europe, at this moment there's no shale gas production at all," Van der Hoeven said. Poland doesn't have "real nice rock layers like you have in the U.S." and the shale gas is deeper, she said.

Polish shale's organic content, reservoir thickness, permeability and porosity are near the lower end of acceptable levels for deposits in the U.S., Poprawa, who has been evaluating the nation's shale since 2007, said by telephone on Oct. 7.

Red Tape

"Our geological conditions are more difficult, and we are also bound by strict European Union environment regulations, which means U.S. success isn't being echoed in Europe," Brodzinski, also Poland's chief geologist, said Oct. 2 in a phone interview from Warsaw. "Without technological adjustments, there won't be shale gas success in Europe."

The permitting process takes on average eight months, compared with 45 days in Pennsylvania, according to Poprawa. The longer lead time slows the learning process needed to understand Poland's rocks, he said. Marcellus, the largest U.S. producing shale basin, straddles Pennsylvania and West Virginia.

"The biggest problem is an administration that lacks experience, flexibility, doesn't understand the industry and imposes suffocating procedures," he said. "Some 1,600 wells are being drilled in Pennsylvania every year, while in Poland the share of work done by foreign drillers is declining."

Foreign Investors

Five of the 12 wells completed in Poland this year through July were drilled by foreign investors, with the rest by state-controlled operators, Environment Ministry data show.

Poland's Treasury Ministry last month published a draft law that will simplify investment in exploration, production and transport of oil and gas, cut the length of procedures such as obtaining environmental permits and boost foreign investment.

"After the recent proposals and earlier adjustments of the geological law, investors should agree that the government is showing good intentions," Brodzinski said. "Once these two steps are complete, investors will have to put their cards on the table."

Chevron Corp. (CVX) supports the government's desire to create effective laws and regulations to encourage shale gas development, Sally Jones, a London-based spokeswoman for the company, said by e-mail Oct. 1. Chevron plans to start drilling a well this month in the southeast together with state-controlled Polskie Gornictwo Naftowe i Gazownictwo SA, or PGNiG, after completing four Polish wells since 2012.

Business Environment

"Poland should create a better business environment for explorers," said Marek Madeja, Poland manager for Cuadrilla Resources Ltd., a U.K. driller with one Polish license. "The exit of yet another company is a clear signal that Poland's shale gas project is losing its importance for foreign players."

ConocoPhillips has been advocating regulatory change that balances the needs to encourage drilling and to preserve the nation's interests, Kris Sava, a Houston-based spokesman, said by e-mail on Sept. 29.

"The decision to withdraw from Polish shale gas concessions demonstrates the high level of technical uncertainty that still remains for shale gas operations outside of the U.S.," Emma Wild, head of U.K upstream advisory practice at KPMG LLP, said Oct. 7 by e-mail. "Significantly more drilling is required to better understand the geology and identify any 'sweet spots' before any commercial shale gas production will be realized in Europe."

bloomberg.com

Tags: EU, U.S., RUSSIA, GAS, CONOCO, EXXON, CHEVRON