Even though it is not known yet if shale gas will flow at all, big business is already underway.
Even though it is not known yet if shale gas will flow at all, big business is already underway. Billions of zlotys are spent on the exploration in Poland itself. And experts compare Polish gas rush to the gold rush in 19th Century in the US. August 1896, Rocky Mountains, Northern Canada, at Rabbit Creek, a tributary of Klondike river, George Carmack, his cousin from Canada Skookum Jim Mason and Tagish Charlie dig in sand. Golden grit shines promisingly on sieves. On 17 August, on a day described by historians as the discovery day, it is already clear that the three gold-diggers have just become rich. However, they hide their secret for months. Only at the beginning of 1897 when loaded down with gold they appear in Seattle and the secret comes to light, America is engulfed by gold rush. In April 1897 in Dawson City, located the closest to the deposits, there were 1500 miners registered, in August: 3500 and a year later: almost 30000.
End of 2007, Poland. Only eight companies which in aggregate have 120 concessions are looking for natural gas. Two years later there are already 28 companies and 203 concessions. Today, from one end of Poland to the other, 35 different international companies are looking for gas on the basis of 234 concessions issued by the Ministry of Environment (as at 1 July 2011). The area covered by the permit for conducting tests represents over a half of the territory of the country. Henryk Jacek Jezierski, Chief National Geologist, says directly that we are dealing with the “gold rush of the 21st Century". And everything because of the shale gas deposits of which are the largest in Poland out of entire Europe according to the US experts. So far in Poland only ordinary conventional gas has been extracted. Documented resources in such deposits amount to 92 billion cubic meters. The majority on the Polish Lowland and Karpaty Foreland. However, we extract a little, only approx. 4 billion cubic meters a year. We have to import as much as 70% of the gas which we consume, mostly from Russia. But thanks to unconventional gas deposits, mainly the one in the shale, this may change. Notably, according to the report of the US Energy Information Agency, published in April this year, the forecast reserves of the shale gas for extraction in Poland amount to 5 trillion cubic meters, and their market value is more than tens of billions of dollars. However, these are the estimates prepared not by geologists but by a consulting company.
Where is Polish Klondike? Professor Joachim Szulc, Director of the Institute of Geological Sciences at the Jagiellonian University in Kraków: Gas shale occurs in two zones: from Pomorze to Podlasie, this is the Silurian shale as it comes from that period, and in a strip which is a few tens of kilometres wide, spreading from Zielona Góra, through Wrocław, central part of the Opole region, almost up to Katowice, which comes from the Lower Carboniferous period. It is located not so deep, at approx. 1500 m, so it would be cheaper in exploitation. It is not known how much gas in shales we have. We will find out in four to five years when the exploratory and prospecting work is finished but the sole perspective of billions in profits has fired the imagination of the prospectors of the “gold” of the 21st Century. Large international corporations engaged in gas and oil exploration came to Poland during the past two years. Americans are dominating; they also brought the technology for shale gas extraction. What is interesting, historically, wells were made in New York State already in 1821! For 75 years extracted shale gas had been used to provide light for the town of Fredonia.
However, people had to wait for the technology enabling the extraction on a larger scale until the 1980s. The fracturing method was invented in 1981 and patented by American, George T. Mitchell. The method consists in pumping high pressure water with various chemicals which breaks up the rock: small but dense factures occur thanks to which gas is released. In the United States shale gas now constitutes 14% of total natural gas production and the value increases each year. Geologists and companies which are engaged in shale gas exploration assure that the technology is safe for the environment, however, quantities of water to be used for fracturing raise concerns. Approximately from 7.5 to 11.3 million litres of water are pumped into a single hole; this is the equivalent to water filling three to five Olympic size swimming pools. At one of the conferences devoted to shale gas, the Chief National Geologist, Mr. Henryk Jezierski, assured that it followed from preliminary analyses that potential production of shale gas will not have significant impact on potable water balance in Poland. “The quantity of water used daily by Warsaw for municipal purposes is the equivalent of weekly up to monthly use of water for fracturing on the area of a few tens of thousands of square kilometres,” he stressed.
The first single concessions for the exploration of shale gas in Poland were granted in October 2007. Boom started two years after. In 2009 the Ministry of Environment granted already 30, and in 2010, 40 concessions. “This year we have already issued 14 concessions and we are examining another dozen applications,” says Maciej Młynarczyk, Head of Energy Minerals Division, Department of Geology and Geological Concessions at the Ministry of Environment. In total, the Ministry has already issued 92 concessions for shale (as at 1 July 2011). The largest number, 35, is held by national companies, mainly Polish Oil and Gas Company (PGNiG) (15), Lotos (7) and Orlen (6) but as much as 30 concessions are held by Polish representative offices of American companies, 12 - British, 9 - Canadian, 5 - Hungarian. Single permits are also held by Italians or Australians. “The areas covered by the concessions for the shale gas exploration cover approx. 25% of the area of the country,” says Młynarczyk. The concessions for gas exploration in Poland are in the hands of such famous American corporations like the petrochemical giant, ExxonMobil, which obtained rights to make wells in the Mazowsze and Podlasie regions, or Chevron, which has a concession in the Lublin region. In June 2010 the employers related with the industry even established Polish Exploration and Production Industry Organisation which was joined by such companies as: Chevron Polska Energy Resources, DPV Service, ExxonMobil Poland, Grupa Lotos, Lane Energy Poland, Marathon Petroleum Poland Services, Orlen Upstream, PGNiG and San Leon. The richest Poles also fancy shale gas. Petrolinvest, controlled by Ryszard Krauze, purchased 60% of shares in Silurian which has four concessions for exploration. Silurian is to be assisted in drillings by the US Hallwood Energy which is one of the pioneers of the shale gas business in the United States and has its own technologies of extracting this resource. PGNiG made the first pilot drilling with unconventional gas in the Lublin area in July 2010. The second drilling, in the Pomorze region, near Wejherowo, was completed in March 2011. “Positive results were confirmed in that drilling, however, it is premature to assess the reserves,” says Małgorzata Olczyk from the press team of PGNiG. “Only further analyses will provide the answer to questions how large are the resources and whether exploitation of the deposit would be profitable,” she adds. Notwithstanding the fact whether the companies will really find shale gas and will be able to exploit it, one thing is clear already: Poland was struck by gas frenzy. And a costly one. “It is estimated that the investors will invest in the next three to four years from 6 to 20 billion dollars only for the preparatory work for the production of shale gas,” states Professor Joachim Szulc. This is good news for domestic subcontractors who carry out all kinds of work, starting from the preparation of documentation, design, receipt of permits, through geophysical and geological tests, making infrastructure on the sites where the drillings will be made, road construction, ending with drillings which also have to be supervised by geologists and subject to environmental protection monitoring, and waste neutralisation. “One can say that 95% of such work will be performed by Polish hands. In fact the participation of foreign companies is limited to the coordination and subcontracting of work,” says Professor Szulc. “This benefits the economy. Even small companies, consisting of two to three people which made shallow drillings, now purchase additional equipment to develop and be a part of the shale boom,” he adds.
“If the optimistic versions are confirmed, it will be profitable to exploit shale gas and nobody will stop this due to environmental or political reasons, this will be a drive not only for geological companies but for construction companies as well,” says Jan Purchla, owner of Geokrak from Kraków, which makes not only drillings but also geological, hydrological tests and assessment of the environment. Purchla started his business in 1992. He says that back then the market was completely different than it is now. “There were not so many foreign companies which came with foreign capital and looked for contractors. Certainly, there was not so much opportunity in getting orders as it is right now,” he states.
“The labour market has definitely improved for us,” confirms Tadeusz Sołecki of Geofizyka Toruń which conducts seismic tests for such companies as: ExxonMobil, Chevron, FX-Energy, DPV Services. “We are dealing with the second wave of the interest in exploration of gas in Poland, after the first one in the beginning of the 90s, when the concessions were started to be issued. However, back then the majority of tests were subcontracted by PGNiG and now many more international companies do that. The real fortune will be made, however, by the companies which make drillings because in the case of the shale gas exploitation more drillings are needed than in the case of conventional gas,” he adds. Nafta Piła, a daughter company of the PGNiG group, for the time being as the only Polish company makes drillings for the foreign investors who look for shale gas in Poland. It signed the first contract with the British Lane Energy which together with the US Conocophillips works in the Pomorze region, among others in Łebień. A month ago, the investor got to the shale gas there. “But it does not mean that these are deposits which are economically good for extraction. We still take samples from the site which will be sent to a lab for testing and only based on the three first drillings we will be able to identify what are the perspectives of the project carried out in the Pomorze region,” reserves Agnieszka Honkisz of the Lane Energy Poland office.
For Nafta Piła contracts regarding the shale gas constitute already 15-20% of all the contracts. The company makes or will be making drillings also for: Saponis Investments which is looking for gas in the Pomorze region, for example in Wytowno, Talisman Energy (one of the largest Canadian oil and gas companies) which has concessions together with San Leon for shale gas exploration in the North of the country, or Chevron Polska Energy Resources. Gas business in Poland is doing well also thanks to the fact that the scale of conventional gas and the second type of unconventional gas, tight gas, explorations is getting bigger and bigger. British Aurelian Oil & Gas, in which the wealthiest Pole, Jan Kulczyk, has his shares, got interested in large, documented deposits of that resource (approx. 10 billion cubic meters) near Poznań. Nobody has got to them before because the resource is not only located at significant depth but it is also difficult to extract it.
The British are already drilling the third borehole in the Kostrzyn district near Poznań. The results of the first two were so promising that the company is intending to ultimately extract 700 million cubic meters of gas a year. Also, PGNiG and Lane Energy are trying to get to the tight gas. The companies carry out explorations at their own expense and their own risk. Małgorzata Olczyk of PGNiG says that in order to assess the volume of the unconventional gas reserves and economic profitability of their exploitation, numerous geological, physical, chemical and geochemical analyses and mostly subsequent drillings are needed.
Meanwhile, drilling in Poland together with fracturing costs PLN 30-50 million. In addition to the outlays for exploration, there are other charges; annually, as Olczyk says, this is approx. PLN 100 million. Among others, such charges consist of VAT, concession fees and fees for geology information and rent of land, fees for the exploitation of forest areas, fees paid to the districts e.g. for the use of roads or compensation for forest clearing. Even though the big shale machine is rolling in Poland for good and the investors spend millions, the majority of them are holding their breath. They are waiting for the official results of the companies which have already got to the shale gas in their drillings. Because only then they will see if there is going to be return on millions which were invested.
Until 2017 the companies planned to drill 236 exploratory boreholes in shale in Poland. If the deposit is discovered and documented, it is the investor who has the priority in applying for the concession for gas extraction. Then, also districts and the state will earn money, even from exploitation fees. Depending on the quality of gas, the investor pays the district from PLN 4.68 to PLN 5.63 per each extracted thousand cubic meters. 60% of that amount goes to the district and the rest constitutes the revenues of the National Environmental Protection and Water Economy Fund. The district may also count on the revenues from real property taxes or taxes on business activities. For the time being the state makes money on issuing the concessions for gas exploration and charges for mining exploitation. Until now the companies have paid PLN 32 million to the State Treasury, National Environmental Protection Fund or districts. Poland needs shale gas for at least a couple of reasons. Our demand for natural gas is constantly growing, according to various forecasts the demand will grow until 2030 up to 20-23 billion cubic meters a year (today 14 billion cubic meters). Increased extraction of own resource would improve energy security of Poland and maybe even it would allow us to export gas. Increased production means also automatic development of other sectors of economy and work for Polish engineers. Also, reduction of carbon dioxide emission by Poland thanks to the use of gas for electricity generation is important. Currently we generate only 3% of electricity from natural gas.
Source: Gazeta Wyborcza, on page: 1, 2011-07-18, by Lech Bojarski, Joanna Bosakowska