Eastern Europe, Seeking Energy Security, Turns to Shale Gas

The industrial Lublin and Podlasie basins of southeastern Poland are becoming major attractions for global energy giants hoping to tap into new sources for Europe.

Companies like Exxon Mobil, ConocoPhillips and Chevron have signed deals or are in negotiations for concessions from the Polish government to explore the region for shale gas, one of the most promising but elusive sources of energy on the planet.

And while the exact size of the gas deposits and the cost of extracting them are for the most part still the subject of conjecture, experts agree that the immediate attraction of shale gas in Europe is political: a desire to diversify energy sources away from a dependence on Russia.

“Shale can be a way to increase the region’s energy security, depending on what the results are of all these projects,” said Richard Morningstar, U.S special envoy for Eurasian energy, during a recent visit to Poland. “It is not a question of being independent from Russia. It is a question of having overall energy security.”

The attraction of shale gas is already well known in the United States, where diversification is an advanced theme in energy policy. With the discovery of big shale deposits several years ago, shale gas now accounts for nearly a fifth of the U.S. natural gas supply, compared with just 1 percent in 2000, according to a recent study by IHS CERA, an independent energy research center in Cambridge, Massachusetts.

Shale’s commercial potential is already bringing big money to the table. In November, Statoil, the Norwegian state oil company, agreed to pay $3.4 billion for 32.5 percent of assets held by Chesapeake Energy in the Marcellus Shale formation, one of the biggest in the continental United States.

Shale gas “ranks as the most significant energy innovation so far this century,” IHT CERA said in a recent report. “It has the potential at least to cause a paradigm shift in the fueling of North America’s energy future.”

In Europe, until recently, governments have shown little interest in shale — a natural gas that is stored in organically rich rocks and interbedded with layers of shaley silt stone and sandstone.

But demand for natural gas is expected to rise worldwide over the next 20 years, with Europe needing to double its natural gas imports to about 476 billion cubic meters, or 16.8 trillion cubic feet, according to Cambridge Energy Research Associates.

The GeoForschungsZentrum or GFZ Institute, a German research center for geosciences in Potsdam, has estimated that Europe has 510 trillion cubic feet of shale gas, perhaps 5 percent of the world’s supply.

Europe contains “prime targets for shale gas exploration,” the institute said. Those targets include Poland, Germany, Hungary, Romania and Turkey, all of which have received overtures from U.S. energy companies.

But if any investor wants to know the costs and potential profit in exploring for shale gas in Europe, they can forget it, at least for the next few years, industry experts say.

“It is just so difficult to know,” said Andy Briston, Halliburton’s area manager for Continental Europe. Halliburton has already started talks with several companies planning to drill in Poland. “It is all at the exploration phase,” he said. “We should have some idea over the next three or five years.”

Extracting shale gas is much more complicated than drilling for traditional gas deposits, and more expensive. Because shale gas deposits are less concentrated, more wells need to be drilled to obtain the same amount of gas.

There are environmental considerations, too. Shale production forces huge amounts of briny water to the surface, which means that the water has to be siphoned off so as not to contaminate local drinking water supplies.

Nevertheless, the center-right Polish government, led by Prime Minister Donald Tusk, has decided to build a liquefied natural gas terminal despite the hefty costs, and he has invited U.S. companies to drill for shale. L.N.G. gas would be shipped from Qatar.

The long-term aim is to reduce Poland’s dependence on Russia, which supplies 95 percent of Poland’s oil imports and 92 percent of its domestic oil.

Poland also wants to link its pipelines with Western Europe, particularly Germany, and with Central Europe to allow supplies of gas to be sent in case of shortages, such as those that occurred during the Russia-Ukraine energy disputes of late 2005 and in 2008.

Above all, Poland has made a political decision to bring in foreign companies to explore for shale, according to the country’s Environment Ministry.

The ministry acknowledged that it still had no idea about the size of its shale deposits. “We will know as soon as possible, as the companies that are getting the concessions for searching the deposits finish their work,” said Magdalena Sikorska, spokesperson for the ministry.

Companies that have received the concessions are similarly closed-mouthed about their commercial potential. None of them would speculate how long the exploration would take, or indeed if it made commercial sense.

Exxon Mobil has been awarded five separate concessions, two in the Lublin Basin and three in the Podlasie Basin. “The concessions will be evaluated for their potential to produce shale gas,” said Patrick McGinn, a spokesman for the company. “We cannot speculate on how soon drilling activity will begin. We are unable to comment on the size of the potential resource or potential rates of production.”

ConocoPhillips has been given the concession to explore for shale gas in the Baltic Basin, northern Poland. Chevron has been granted four exploration licenses for about 405,000 hectares, or a million acres, in the Lublin area, according to a spokesman, Kurt Glaubitz.

One reason for their reticence could be that the costs of drilling for shale oil in Europe are difficult to quantify because the industry is so young and, for the moment, U.S.-centric.

“We are talking about a situation where any company wanting to explore, let alone drill, has to rely on U.S. expertise, be it equipment, manpower, know-how,” Ian Cronshaw, head of energy diversification at the International Energy Agency in Paris, “That can be very, very expensive.”

“We are in the very early stages,” he added. “I cannot see shale gas making any kind of impact for at least another five or seven years.”

Mikhail Korchemkin, director of East European Gas Analysis, a consulting firm in Pennsylvania, said the lack of commercial information was why the early Polish concessions would be so important. “The results in Poland will show if the investment is recoverable and commercially feasible,” he said.

By: Judy Dempsey in Berlin

Source:  New York Times