Poland's Shale Gas is Not Dead

Brian Hicks

Written By Brian Hicks

Posted August 29, 2013

It’s been over a month now, and shale gas is still being extracted from a test well in northern Poland, the first such occurrence for the EU member.

Everything has been going off without a hitch or a hiccup, giving hope to the Polish, who desperately want to wean themselves from their dependency on Mother Russia.

shale gas 19Presently, Poland consumes roughly 500 billion cubic feet of gas per year, 60 percent of which comes from Russia, according to phys.org. A successful run at gas production would broaden the country’s portfolio and loosen the reigns that Russia holds.

Lane Energy Poland (LEP), an exploratory subsidiary of ConocoPhillips (NYSE: COP), has been extracting some 8,000 cubic meters of shale gas every day in the northern city of Lebork since July 21, an amount that no country in Europe has seen to date.

This is excellent news for Poland after not one but three major firms all pulled out of the country due to lackluster drilling results.

It could very well be the beginning of a breakthrough in production, not only for Poland but for the entire continent of Europe.

As it stands, members of the European Union are divided on the matter of hydraulic fracturing (fracking), and its controversy has led one such member – France – to ban the method entirely.

Not Poland – it’s decided to jump in with both feet. The nation says that the gas, which is being extracted at depths of up to 9,800 feet, presents no threat to the environment.

With a full head of steam, the country will invest $17 billion in exploration and development of its shale gas by 2020.

Polish Exploration

Some accounts put Poland at the top of European shale reserves, with more than 800 billion cubic meters of exploitable shale gas in its possession.

The amount being extracted by LEP right now is still not enough to determine any viable commercial success; for that, Poland would need to add more wells, but it’s finally starting to see the results it has hoped for.

Poland pays some of the highest gas rates in all of Europe, and that’s one reason why it wants to get out from under Russia’s thumb so badly. Aside from the high price of gas, Russia also uses its leverage in political disputes and is one of the very few options Poland has in obtaining gas imports.

Domestically speaking, Poland has seen a sluggish economy and a high unemployment rate – about 14 percent – but this would drastically change if Poland can begin producing gas on a large scale.

LEP will plan on two more wells through 2014.

And Polish refiner PKN Orlen, which is conducting testing of its own, should announce its well results in the near future – and these are expected to be promising.

To date, Poland is pulling no punches. It’s granted 100 shale gas exploration licenses to both local and international firms, according to Reuters, and has totaled 48 wells drilled to ready exploration.

Pulling Out

So this raises a question: why would three oil giants up and quit on Polish exploration?

If the potential is so good, you would think they would stick it out. Marathon Oil (NYSE: MRO), Talisman Energy (NYSE: TLM), and Exxon Mobil (NYSE: XOM) all decided to pull out this year after coming up with disappointing results.

Marathon planned on selling 100 percent of its assets and ownership to San Leon Energy Plc (LSE: SLE), leaving it completely free of any Polish obligations.

That makes it seem like these companies are running from the place as quickly as possible.

But while results prove less than desirable, was it really that bad that they had to pick up and go? They may have been just a tad bit hasty.

Optimistic analysts still believe the best is yet to come, and with Poland’s eagerness to produce at a commercial level, the flood gates are left wide open.

But patience is a virtue, and that’s what it is going to take. I guess some of us just don’t have that luxury.

It doesn’t help that in June, a report by the U.S. Energy Information Administration (EIA), estimated that Poland’s shale gas resources were even lower than initially thought. According to Polskie Radio, the EIA dropped its estimates down from 187 trillion to 148 trillion cubic feet.

LEP’s promising results should trigger other companies to speed up development, but even as Poland eyes a future void of Russia’s tyranny, it’s going to need some big guns in order to show any real commercial success for the near future. Three of those guys just left the building.

Getting In

I think the opportune word here is: WAIT

But if you’re going to take a look, Chevron (NYSE: CVX) is still hanging around, along with Italian company ENI S.P.A. (NYSE: E). They’ve got what it takes to make some big moves, especially with the other three leaving town.

As much promise as Poland shows, it will just need more investment to show for it. With that, current estimates are likely to go right back up.

But like I said, it’s going to be a waiting game.


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