At Your Service: Preparing the Stage for Unconventional Development
“Without services there is no production,” said Andrzej Sikora, CEO and President of the Board at Poland’s Institute for Energy Studies, whose talk at the Global Shale Gas Plays Forum in Krakow, Poland was entitled Developing a Competitive Service Industry in Europe.
“Poland can duplicate this shale gas revolution but with a little help from our friends which will create opportunities,” he said, adding that because the Institute was a privately owned company it could share its opinions on the topic.
Mr. Sikora said he’d begin his talk with a quiz for the delegates, asking: “How big is worldwide production of unconventional gas today?” He answered that there was over 450 BCMs of yearly production, today in 2011.
“It’s nothing new from a technology point of view. According to the IEA we’ll have over 25% unconventionals production in 2020. We’ve got consumption estimates based on this technology.”
He also spoke of the lack of attention paid to unconventional gas in traditional O&G regions.
“If you’ve got conventional, why would you need the data for unconventionals in, for example, in the Middle East, or Russia? China, India and others in the Far East are expecting something new because they don’t have their own production of natural gas.”
What had the service industry meant in Europe? Mr. Sikora said it was necessary to make sure that the services in place in Poland led to other services.
An additional 1,000 expatriates had come to Poland, he noted, to provide services to shale gas E&P. He commented: “The services are linked to the whole society, the culture, including drilling services, geoscience, wireline services, water, sand, etc.”
In Poland, he said, 12,000 wells would eventually be drilled.
“The process of business which is rapidly growing has just started,” explained Sikora. “This means you shouldn’t be focused on a single service, but on project management service. You need to organize the whole process from the very beginning. We need to create a better understanding for this project management for creation of opportunities.”
He said that when it was possible to calculate the average cost of services in Poland, one could compare and see that they were a minimum 3-4 times higher than in North America, which meant that the costs of production would likely be higher.
Showing a graph of the current status quo in Europe, he said it wasn’t cost effective and that shale gas in Poland wouldn’t be as cheap as the Henry Hub price.
“We can’t confirm the market situation for natural gas, because it’s hard to imagine we will see an additional 100 crews which will be imported to Poland. Everybody’s looking for a better opportunity, a better price but if you’re already engaged in Canada or the US with a ongoing term service contract it’s difficult to imagine that you will bring it to Poland.”
Other complications, according to Sikora, included EU law as well as Polish regulations.
“Documents must be in Polish regarding all wells,” he reported. “It’s the same in other countries with old mining laws. It’s hard to believe we can reorganize this because of shale production.
“At the end of the day, there will be services but you need to add your needs, observations to the market.”
He noted that local rig markets were dominated by state owned enterprises.
To give some perspective on potential needs in Poland, Mr. Sikora showed a slide of what he termed a typical fracking job at the Marcellus shale in winter: “You need to heat the water, 2,000 tons of sand, and 12,000 cubic meters of water needs to be pumped,” he said.
“This is only one example of service, equipment,” he continued. “We’ve tried to calculate the whole market for the next three years and only for those 100 already prepared wells in Poland. Our estimation only for services, for exploration is $2-5 billion. There’s no such money in the Polish budget. I’m not talking about production, only exploration.”
He added that, considering potentially cheaper gas from Russia meant services for shale gas production in Central Europe would have to be cheaper.
Sikora concluded: “Europe is still not ready for a common European gas strategy. Without gas infrastructure, hubs, and a market we don’t have the possibility for such an upstream position. A hub in Poland or Hungary could open a discussion, but we’re not ready for implementation.”