Poland emerges as a new frontier for shale gas
Stockpiles of the unconventional fuel are luring North American energy firms
The town of Lębork is surrounded by Nowa Wieś Lęborska County, which is poised to cash in on a shale gas boom of its own
In the wide open Polish countryside, wind bends trees over towards the narrow roads and whistles against the side of a van driving along a weaving route to an emerging hot spot on the global energy map. “This is the county hall,” says host Ryszard Wittke, the mayor of Nowa Wieś Lęborska County. He points to an unremarkable building that badly needs a paint job. “It is going to get renovated,” he adds quickly. “And so is the road of death. They are going to start working on it in May.” Before his guests can ask if this rural lane is the one with the scary nickname and how it was earned, the mayor calls attention to a row of nice houses. “We do have some people here that are well off, you know,” says Wittke.
The affluent homeowners are not the majority. Not by a long shot. Formerly an area of many collective farms, Wittke’s county is poor even by Polish standards. The average income is the minimum wage of around 1,200 zloty a month or about $430. It seemed absurd to read the mayor’s prediction in a regional newspaper that the inhabitants of Nowa Wieś Lęborska County will soon live like the people of Kuwait.
But such bold statements, while possibly exaggerated, are rooted in fact. Wittke’s county is the site of Poland’s first exploratory shale gas drilling. One well, named LE1 Łebień, is being drilled by ConocoPhillips in co-operation with Lane Energy, a subsidiary of 3Legs Resources. With the notable exception of a drilling rig that had to be transported a long distance, the site was ready to go by late spring. It took 33 days to drill to a depth of 3,100 meters.
While LE1 Łebień is the firms’ first test well, all signs point to it not being the last. Poland has become the European hot spot for speculative shale gas investments. This first well, it is hoped, will glean favorable insights into the resources and inspire a drilling rush. A dozen international firms, from American giants ExxonMobil and Chevron Corp. to Canada’s Talisman Energy Inc., are picking targets in Poland. In July, U.S. Secretary of State Hillary Clinton visited Poland and pledged American co-operation in exploring and extracting the newfound resource.
Already, national chief geologist Henryk Jezierski has granted more than 50 exploration permits covering 12 per cent of the country. Estimates by consulting firms from the United States suggest that Poland may be sitting on 1.5 to 3 trillion cubic meters (53 to 106 trillion cubic feet) of gas. The most optimistic forecast rates Poland’s potential as among the world’s top five largest deposits.
Polish drilling targets have been identified in two Paleozoic source-rock formations. One is the Silurian shale on the western slope of the East European Craton. The other is the Carboniferous of the Fore-Sudetic Monocline. Within the former, three prospective areas have been identified: the Lublin Basin, the Podlasie Depression and the Baltic Basin. Of these, the Baltic Basin where the LE1 Łebień spud-well is being drilled is considered to have the most potential.
“We are in the early stages of our project, but believe we have a great opportunity to make a significant gas discovery in Poland,” says Kamlesh Parmar of Lane Energy. “However, it must be remembered that our shale gas project is a relatively new concept for Europe, and will take some time and a good deal of capital investment before we are properly able to understand the production potential of the resource.”
County mayor Ryszard Wittke has high hopes for shale gas development, but Poland, and Europe in general, lacks drilling rigs. The continent boasts fewer than 100 operating land rigs compared to roughly 1,500 in the U.S.
3Legs Resources says the exploration consortium led by Lane Energy and ConocoPhillips has six licenses in the Baltic Basin that contain commitments to shoot three-dimensional seismic surveys and drill exploration wells over the next four years. “Our assessment of the reservoir potential, based on independent testing of core samples and review of historical well log data, is extremely encouraging,” 3Legs adds.
As chief national geologist, Jezierski expects the full size of the resource to be revealed before the licenses expire. But companies have their own agendas. Parmar says Lane Energy’s initial program starts with two vertical test wells that, if promising, will be followed by the first horizontal production drilling in early 2011. “Once we have the results from the third well, we will look to develop a drilling program for the medium term,” he says.
Their North American partners are very upbeat about the venture – so much so that Larry Archibald, ConocoPhillips’ senior vice-president for exploration and business development, focused on Poland at an international Barclay’s Capital conference.
“What is not to like about this type of play? We are optioning it cheaply. There is great gas demand in the European Union market, unlike the current North American conditions. There are great fiscal terms in Poland. The location is operationally advantaged by easy access, flat terrain,” says Archibald. “All the things we like in upside in this type of play are there. So taking that expertise out of North America to screen some international ventures is the right near-term move.”
While determining Poland’s gas supply will take time, the country’s demand – which is strong, like Europe in general – adds another good reason for companies to try their luck. “We are a great market for gas, we need gas and we will need more gas,” says Jezierski. “We also have a particular geopolitical situation. Everyone knows that we want to free ourselves from imported gas which is currently coming from only one place: Russia. In addition, we have well documented geological conditions. We have a transparent legal system and transparent procedures when it comes to obtaining licenses.”
Poland’s gas market can easily double, says Maciek Kaliski, oil and gas director in the Ministry of the Economy. Growth drivers include high costs of coal’s current domination that will become increasingly obvious when the European Union’s emissions reduction policies start going into effect. Beginning in 2013, for example, free allocation of carbon credits under the EU’s cap-and-trade mechanism will end. That means venting carbon in Europe will become a whole lot more expensive.
All of Poland’s easily produced coal has been mined and what remains is becoming more expensive. The country is now importing coal in the millions of tonnes, primarily from Russia but also from as far away as Colombia, making any policy to keep coal as the main Polish electricity source for energy security reasons seem senseless.
Gas, in turn, currently satisfies 12.9 per cent of Poland’s primary energy needs, says Kaliski. “In the U.S., this figure is 24 per cent and in the EU it is 21 per cent. So we should be using twice as much gas as we are currently consuming.”
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