Bloomberg News

Poland Targets Shale Gas With Exxon to End Russian Dominance

June 08, 2011

(Adds Ukraine’s gas talks in 13th paragraph.)

June 8 (Bloomberg) -- The same technology that brought the lowest natural gas prices to U.S. consumers since 2002 is being unleashed in Eastern Europe, threatening to reduce Russia’s grip on the region’s energy supplies.

Exxon Mobil Corp., Chevron Corp. and Talisman Energy Inc. are among companies leading the drive to unlock gas trapped in shale rocks from Poland to Bulgaria that may be enough to meet regional demand for almost 80 years, according to the Energy Information Administration. Poland, the hub of the wildcatting, has completed seven wells out of 124 planned, and the results are being assessed now.

A successful drilling campaign would redraw the energy map across Europe, a continent now reliant on Russia for about a quarter of its natural gas. The efforts to find more gas are taking on greater urgency as Germany plans to phase out nuclear energy and limits tighten on emissions of carbon dioxide blamed for global warming.

“The need in central and eastern Europe to at least try and uncover if they have this resource is much, much higher than it’s going to be in western Europe,” said Oswald Clint, a senior energy analyst at Sanford C. Bernstein & Co. in London.

Obama Visit

When U.S. President Barack Obama visited Poland for the first time last month, he offered to share the technology developed from Texas to Pennsylvania that’s used to crack open the gas-rich rock formations. Poland wants to start producing gas from shales within a decade, about the same timeframe that Germany has for closing its 17 nuclear reactors that produce 23 percent of the electricity for Europe’s biggest economy.

Eastern Europe may hold as much as 7.1 trillion cubic meters of shale gas, the EIA estimates. Poland alone may sit atop about 5.2 trillion cubic meters, equal to more than 300 years of domestic consumption.

“The geological conditions in Poland are phenomenal,” said Ingo Kapp, a physicist at the GFZ German Research Centre for Geosciences in Potsdam, Germany, who specializes in exploration techniques. “There is a remarkable amount of gas deposits.”

To date, Poland has issued 86 exploration licenses. In April, U.S. explorer Marathon Oil Corp. agreed to sell a 40 percent interest in 10 Polish licenses to Nexen Inc. A month later, Total SA signed an agreement with Exxon to take a 49 percent stake in two licenses in eastern Poland.

“The licensing process is pretty much done,” said Henryk Jacek Jezierski, Poland’s chief geologist. “Now getting into Polish shale plays is possible only via acquisitions.”

Hydraulic Fracturing

Shale exploration is controversial because it involves the drilling of hundreds of wells and blasting of rock with water and chemicals, a process known as hydraulic fracturing, or fracking. New York has temporarily banned the practice while it develops new rules to prevent the risk of water contamination, while France has threatened to withdraw exploration permits.

Those concerns have deterred neither Poland nor its neighbors as they seek greater energy security after a dispute between Russia and Ukraine disrupted gas supplies in 2009. Ukraine, Romania, Hungary and Bulgaria are among other countries to have decided to press ahead with shale exploration.

Ukraine has signed an agreement with Exxon and is also holding talks with Royal Dutch Shell Plc and Chevron. The country may have 1.2 trillion cubic meters of recoverable shale gas reserves, the second biggest in the region after Poland, according to the EIA.

Price Cut

Efforts by Ukraine to negotiate a price cut for Russian gas imports ended in failure yesterday after talks between Ukrainian Prime Minister Mykola Azarov and Vladimir Putin in Moscow.

Bulgaria awarded a 30 million-euro ($44 million) shale drilling license to Chevron last month. The nation may hold as much as 1 trillion cubic meters of gas, according to the Energy and Economy Ministry.

“The gas issue in Europe and especially in central and eastern Europe has much more significance than dollars per cubic meters,” Bulgarian Energy and Economy Minister Traicho Traikov said last month. “It has to do with national independence.”

Challenges include tight water supplies and lack of transport infrastructure, according to Bernstein’s Clint. The region won’t benefit from shale gas mining this decade, he said.

“It’s really far too early,” Clint said. “There should not be anybody claiming that unconventional gas will wrap up quickly across Europe because in reality there is not sufficient data for anybody to make that conclusion.”

Secure Permits

Jacek Wroblewski, the country manager for BNK Petroleum Inc. in Poland, travels hundreds of miles a week across farmland near the Baltic Sea to secure permits for old single-lane country roads to transport parts of the 1,500 ton rigs. Many of the roads were built to support vehicles of as much as 15 tons, less than a third of the weight of some of the trucks he’ll need for the job, he said. BNK owns stakes in six exploration licenses in Poland.

Still, Poland and possibly Ukraine have a real shot at developing a commercially viable shale gas industry given the amount of gas trapped underground, Kapp said.

“Fracking is challenging, but not impossibly difficult,” the physicist said. “We have great hopes for Poland.”

--With assistance from Daryna Krasnolutska in Kiev, Edith Balazs in Budapest and Elizabeth Konstantinova in Sofia. Editors: Stephen Cunningham, Rob Verdonck.

To contact the reporters on this story: Ladka Bauerova in Prague at lbauerova@bloomberg.net Marek Strzelecki in Warsaw at mstrzelecki1@bloomberg.net

To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net Stephen Voss at sev@bloomberg.net


We Almost Lost the Nasdaq
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

 
blog comments powered by Disqus