Polish gas cake
Wieslawa Lewandowska talks to Pawel Poprawa about the Polish gas revolution, energy-political alliances as well as bad and good heroes of the new Polish fairy-tale.
Wieslawa Lewandowska: – How did it happen that shale gas ‘revealed itself’ so suddenly and unexpectedly in Poland?
Pawel Poprawa: – It all began in America in 2002 when shale gas industry was developing rapidly and at the same time extractive companies decided to look for profitable fields to exploit gas. They began scanning all countries in the world to indicate areas worth of attention. Thus searchers reached Poland. Around 2006 the first companies asked the Ministry of Environment about the possibility of obtaining concessions to seek hydrocarbon. Then nobody understood what they spoke about because it was as if against our scientific knowledge concerning this topic…
– Even the State Geological Institute did not know what it was about?
– Polish geologists knew the Polish shale formations well but, one should admit that, they did not believe that they contained gas, which could be exploited. But soon we were the first to get to know this magical history from the inside.
– What was the magical beginning? A rich prince came and…
– Around 2006, the first American companies came here, and they were not the marvellously rich ones, asking for geological expertises. They came here and treated our market very cautiously. They gave up their first projects. It was only towards 2007 that two, still not big companies, decided to use the concessions to make some experiments and get to know the Polish conditions.
– Were they warmly welcomed?
– Rather with some indifference and misunderstanding. Our Institute had large knowledge of these geological formations but it was not ‘oil’ knowledge. We knew exactly where shale rocks were, what their structure and characteristics were but we were not completely sure that they could contain gas… It was like someone came to us and said he wanted to exploit gas from the granites at Strzegom…
– When and why did people begin talking about a gas revolution due to the huge resources of shale gas in Poland?
– The turning point that changed everything and announced such a revolution was the appearance of ExxonMobil, a world oil giant, in Poland. Then all eyes of the oil industry focused on us. In 2009-2010 companies almost trampled themselves in their rush to Poland. The other giants came, too. Four out of the six biggest oil companies have already become involved in Poland.
– How did Polish firms react?
– Polish firms got interested in this topic rather late…. When they became aware of the shale boom they naturally asked for concessions. Now the Polish Oil and Gas Company (PGNiG) and Orlen Oil have about 20% of the area, which the concessions embrace.
– Is it too little?
– No, since it seems that they will have to look for partners as they themselves cannot use their concessions fully.
– The investments per a borehole amount to even 30-50 million zloty and billions must be used for one concession. Such a sum can be beyond the financial capacity of smaller firms, especially that in the future one must invest ca. 50 billion zloty in one of the so-called concession blocks. It seems beyond the capacity of the whole Polish industry… Even the world giants of this industry must share investment risk with other entities because the investments must be really gigantic.
– But we are selling the bear’s skin before one has caught the bear. Our increasingly nervous calculations of profits and losses show the fear that the host of the resources, the Polish state, will gain nothing from the shale interest…
– Let us hope Poland does not lose and make profit on shale gas! There have been good mechanisms to protect our interests but many more protections must be made. The first concessions to search for shale gas will end in some three years. Then companies will begin asking for shale gas exploration concessions. We have three years to define proper legal regulations.
– Now one can fear about the quality of these regulations …
– Certainly we should think how to build a good fiscal system. We should not do it in a hurry and carelessly but take time to analyse how Poland can profit from its shale rocks.
– Or – as sceptics say – not to lose?
– I think the present discussion about the concessions that have been sold for almost nothing evokes confusion and draws attention away from the essence of the problem. And it is time to think about new, sensible legal-financial regulations and to mobilise the government to do that.
– The risk to make errors, omissions, especially in the atmosphere of quarrels or political diktat, may be big…
– Certainly, especially that in the less nervous countries errors have been also made, e.g., in the province of Alberta in Canada where as a result of wrongly prepared system of payment: oil and gas taxes, the whole industry withdrew in 2008. During a special training of the Polish group in Canada I had the chance to get to know the Canadian legal regulations and systems of fiscal payments. They are rather complicated but there are patterns that we can apply here. But we must discuss them in quiet to choose the best one in our conditions.
– And will we have to create our fiscal law under the pressure of foreign companies?
– Today it would be worth soothing discussions about it… And first of all, we should pay attention to the amount of the first investments, some 50 billion zloty. This money will stay in our Polish economic system and will not be transferred to some accounts in the Cayman Islands… It is worth considering the big possibility to employ people and involve Polish firms. Encana Company, investing ca. 4-6 billion dollars in Canada every year, has created ca. 80,000 work places… And in the USA it has been calculated that the nominal value of savings from the decrease in prices, which the shale gas has forced, is bigger than the whole expenditure of the federal administration of Obama to stimulate the bank system in the period of crisis! It can give us an image of the scale of the influence of this industry on economy. This scale can be repeated in Poland. Perhaps we will find ourselves in a new, better economic and financial reality.
– Its sounds like a fairy-tale. But we are slowly beginning to fear an ecological-political hysteria. Some even speak about the provocations of Gazprom and Russia because they do not like the Polish shale gas at all…
– It is no big secret that Gazprom wants to realise big businesses in Europe – political and economic ones. The last decades have shown best how Russia has been making Europe slowly dependent on its energy, drawing up big bills for that… And it means that starting the shale gas exploration on a large scale we are about to wage a real economic war with Russia. We should call it like that. And we can be sure that Russia will defend its monopoly in a rather brutal way.
– For instance, by inspiring ecological protests. Recently the press has written how Gazprom could stop effectively the activities of the German ecologists as for North Stream. They simply found an organisation uniting all voices of protest and paid 10 million euros to the organisation so that it would behave ‘sensibly’… In Poland one could fear the activation of ecological groups against exploitation of shale gas for the money of Gazprom…
– Then it will be hard to discern which protests are financed by independent money and which by the money from Gazprom.
– Of course, one cannot assume that there are no ecological problems and that one should not discuss them with ecologists. The worst thing to do is to claim that if you speak about bad influence of shale exploitation you are a ‘spy’ of Gazprom… There are many independent thinkers and honest people among ecologists. Recently even the spokesman of the Polish Greenpeace has said that one should look at the shale gas exploitation and its potential threats rationally.
– Polish shale rocks have many enemies today. The European Union seems not be in favour of shale gas…
– Today it is hard to speak about one common EU stand concerning this issue. We know for sure that the Germans would not favour our project because of North Stream. They are crucially interested in the fact that no alternative in this part of Europe is created because they want to capitalise this gigantic enterprise, which will not be profitable if there is a Polish competition… It may occur that the Baltic pipeline has been built in vain! Yes, we have no friends in Europe. We can seek support in these European countries that are in the same energy situation as we are but have not such potentials to explore gas.
– America is our main ally.
– One can say so. The involvement of the big American and Canadian companies to connect Poland with these countries is precious – it builds a solid relationship for several dozen years and gives us a real political umbrella, better than the anti-missile shield because missiles can be evacuated any time and gas pipes cannot be simply pulled out…
– These big concerns, contrary to missiles, have not come to Poland at some political request but they can be removed at such a ‘request’?
– One can have justified hopes that this will not happen. It is important that the previous and the present governments saw shale gas as a big chance for Poland and in this matter, perhaps the only one, we have absolute consent and continuity of politics. One can say that a small alliance between PO and PiS was realised in the shale policy, i.e., such a political concept that nobody still remembers but which can bring much good for the country now. So far the investors have been convinced that Poland is a country of a small political risk, that even despite a possible change of government Poland is not going to create economic-political barriers.
– But we have a dispute as for the calculations of the concession cost; an accusation is filed that Poland becomes a neo-colonial country giving away its resources for nothing.
– And unfortunately, this has worried the investors. From the perspective of time one can say that in 2009 we could have gained more money from the concessions but these are rather ridiculous considerations because the stage of search drillings is not the proper moment to think about profits, e.g., because of the gigantic investments and uncertainty of effects. The really important thing is not to miss the moment of the start of production when real profits and effects for the Polish economy appear.
– Can we be sure now that when this moment comes this most optimistic scenario comes true?
– The process of discerning resources is long and arduous. And it will have no spectacular turning point. For the next several years, month after month, we will have better and better pictures of our resources… However, we must still consider a scenario that due to some reason the exploitation of gas will not be possible since, for example production will be too expensive or there will be some social protest or some politicians will be reluctant…
– Or some external threat… How much truth is in the suspicion that Gazprom is acting under the cover of some companies searching gas in Poland?
– We can fear that in the future. Now Gazprom has not surely any meaningful shares in most of these firms. We are sure that Gazprom does not control any of the companies that are conducting activities in Poland. However, we must create proper mechanisms of supervision of the circulation of capital so that such a threat does not appear and there will be no hostile turn-over.
– Does such a real threat of Gazprom and Russia exist?
– One can imagine such a horrible scenario! If Gazprom calculates how much it can lose on Polish shale rocks it does not pay to make attempts to take over all possible entities to block the exploitation of gas. Fortunately, it is not very real because the concessions are awarded with a definite plan of development of deposits – if a company does not realise its plan it will lose its concession…
– Then we should not be afraid of anything?
– We have some more time to create good mechanisms of protection, e.g., on the Norwegian patterns. We know the Norwegian example very well since our PGNiG operates on that market. It is enough to ask the lawyers of this company what legal procedures it had to go through to have access to the Norwegian deposits. One can copy these solutions and use them not as restrictions but as a safety-valve. All legal regulations must be thought over and worked out. We have a lot of time to do that but we cannot waste time in barren disputes.
– Is it true that the reserves of shale gas from the Polish deposits can be sufficient for as many as 300 years?
– Such numbers are given by several American consulting firms that have evaluated these deposits. According to some calculations we will be able to produce 100 billion cubic metres of gas per year and we consume only 14… But let us assume that something goes wrong and the production will be only 10 billion it will still be a revolution for Poland! Having our own 5 billion cubic metres from our conventional deposits we are independent from import! We need not explore billions; it is enough to have a small bite of this cake and we will be satiated and safe.
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Pawel Poprawa – MSc and engineer, geologist, since 1995 he has worked in the State Geological Institute in Warsaw. Since 2003 he has directed the Oil Geology Workshop. He studied geology at the Jagiellonian University and oil geology at the University of Mining and Metallurgy as well as the University in Dublin, Ireland. For several years he has conducted research concerning the discernment of potential unconventional hydrocarbon deposits in Poland, collaborating with the public administration as well as with Western and Polish oil industries.