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Robert M Cutler

Robert M Cutler

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Doubt Deepens Further Over Polish Shale Gas

Energy companies flocked to Poland after a 2011 US Department of Energy report estimated its shale gas reserves as perhaps the largest in Europe, 22.5 trillion cubic meters, of which nearly a quarter would be ready for immediate extraction. Most of the latter quantity, about two-thirds, was located in the Baltic Sea Basin, another quarter in the Lublin basin, and the remainder in Podlasie Voivodeship. However, these figures have turned out to be far too optimistic, in part because the geological formations are more complicated and with deeper rock than suited for current US technologies, therefore requiring different and more expensive drilling techniques to recover. The 5.3 trillion cubic meters originally estimated to be recoverable are now reduced to 800 million cubic meters. Further, the country's dense population and important agricultural sector diminish the areas susceptible for development, as environmental concerns have been raised throughout.

Poland generates 90% of its electricity from coal; the electricity generation sector employs 100,000 workers, and the broader coal sector three times as many. Still the government is formally engaged for EU mandates, by the end of the decade, to reduce greenhouse gases by 20%, increase renewables to 20% of consumption, and increase energy efficiency so as to effect further savings of 20% in consumption.

Related Article: U.S. Racing Against Shale Gas Clock

Earlier this month Canada's Talisman Energy and the U.S.-based Marathon Oil take separate decisions to sell their interests in their Polish shale gas ventures after unsatisfactory drilling results. ExxonMobil had already exited last year. Plans of remaining companies have now been cast into doubt by newly announced tax schemes. According to the newspaper Rzeczpospolita, the bureaucrats in charge of the country's power sector want the government to be the sole proprietor in charge of shale gas development.

Some in Poland want the state to receive all future profits from shale gas production. Tax rate increases have been lately talked up in order to drive foreign companies away. A draft hydrocarbons law set the tax rate at a bit under 40%. On the one side, some economists argue that this is too high because the geological conditions make drilling more difficult. On the other side, people cite the example of Norway, which imposes a 70% tax rate. Over the last weekend, the government's environment minister now expects an amended draft by mid-year, with parliament approving it perhaps by the beginning of next year. On Wednesday the 22nd, the finance minister announced a five-year moratorium on tax collection after the law is expected to come into force in 2015. The government also intends to improve and streamline regulations in the meantime. At present, in order begin drilling a company must seek and receive over two dozen different permits of various sorts.

By. Robert Cutler


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