Polish unconventional gas to transform European energy market

Feb 03, 2010 01:00 AM

by Rafal Kiepuszewski

You may not have heard about shale gas or tight gas before. This kind of natural gas is extracted from deep rock deposits with the use of new technologies that were considered too costly until very recently, but are now being successfully used in the US.
Experts say that the recent discovery of abundant unconventional gas deposits in Poland may forever change the European energy market. Multinational power giants are scrambling for prospecting rights here. Russia has so far enjoyed a near-monopoly in natural gas supplies to Central and Southern Europe, but with the new Polish gas prospecting fever, that is likely to change.

High hopes
Trzek well on the outskirts of the mid-western Polish city of Poznan has an air of high hopes and excitement about it. The prospecting rig built in the newly discovered Siekierki gas field is proof that the deposits of unconventional gas have turned out to be commercially viable. British prospecting company Aurelian has high hopes for the project.
According to its Poland representative Maria Srokowska Okonska: "We know that in this area there is really good potential for future exploration and exploitation. Aurelian as the first company in Poland has shown the possibility. We will do one more well this year, maybe another one, and more, possibly twelve, in the next few years. Because it is economically justified, we expect to spend several hundred million Euros on this project. We must build gas mining installations and pipelines. We expect to break even in the next maybe five years."

Headline news
The launch of Poland's new gas extraction venture has become headline news. Commentators in one business TV show recently told their viewers that the country's dependence on outside energy sources may soon become a thing of the past. Multinational giants have already purchased prospecting licences.
As Poland's former chief geologist Michal Wilczynski explains: "… 44 licensing areas are now in the hands of Americancompanies, very big ones like Mobile, Marathon and Exxon. The potential of shale gas is quite impressive. US companies estimate 1,600 bn cm -- it's for 200 years of natural gas consumption of Poland. I'm absolutely sure than the next 5-10 years will completely change the gas market in Europe. I guess the first impact will be the decrease of natural gas prices."

Strategic importance
But apart from the commercial promise, in a country which has heavily relied on natural gas imports from Russia, the news is just as much a business story as a political one. Michal Wilczynski is convinced that shale gas is of crucial strategic importance for Poland and Europe.
"Russia uses hydrocarbons like a political weapon. I'm sure that the first impact will be the change of Gazprom gas pipe plans. The biggest producers of gas like Central Asian countries at the moment transport gas through Russia which buys gas at $ 80 per tcm but sells to Poland for four times higher. This is the chance for more independence of Central Asian countries. Our southern neighbours like Austria and the Czech Republic depend very much on eastern energy sources like gas and oil. If we have such big potential in shale gas we should export to the south. We have to calculate on the scale of the whole European Union, because the EU is a net importer of energy sources. This is very important for the whole European Union," he said.

European energy security
In fact, due to its proximity to Russia, and its reliance on Russian gas supplies, Poland has long campaigned within the EU for a diversification of energy sources. Polish foreign minister Radoslaw Sikorski has called on the EU to come up with a new energy security policy, in which Polish shale gas is bound to play a meaningful part.
"Energy security, which is going to play an ever growing role in the security of our countries is no longer exclusively a national competence. Nor is it solely an economic issue related solely to sustainable development. Poland wants to be part of a solution, not of a problem," he said.

Gazprom is worried
It looks like Poland's unconventional gas extraction prospects are beginning to worry Russia. Gazprom has come out with a report which states that its revenue from traditional gas production could be significantly affected if Poland's newfound deposits live up to their promise. The US already gets half of its production from new sources.
Within the EU, Poland and Hungary are at a pilot project stage. Russia may now be the leader in traditional gas extraction, but demand could fall. The EU gas market could be revolutionised if it makes the transition to unconventional fuel. And Gazprom should get ready for the switch. Russia's Yamal peninsula has trillions of cm of traditional gas, but the costs of its exploitation could become critical depending on world oil prices.

Brilliant prospects for Poland
If everything goes according to plan, within the next decade or so Poland could well be on its way towardmatching the North Sea countries' economic success as a net gas exporter.
"We hope that Poland can become a very rich country," Aurelian's Srokowska Okonska says. Poland could also finally lay its old fears to rest -- that one day Russia might turn off the tap.

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