Unconventionals: What’s in it for Poland?

Once in production, shale gas players in Poland will have to give a certain percentage of their profits to the state.

It’s not the first time that Polish leaders have had to figure out what the country’s take would be of resources mined in the country, according to Krzysztof Rogala, Expert at Poland’s Jagiellonian Institute who spoke at the European Unconventional Gas Summit in Krakow, Poland.

He recalled the history of mining in Poland from the 10-11th century, explaining that agreements were made with local rulers of the government’s take in production of minerals, gold and silver.

Mr. Rogala said there was a bill in Poland on the principals of exercising the mining rights to hydrocarbons. He reported that a proposal would be submitted just after the Polish National Assembly election, which took place on October 9th.

He said there were some main assumptions: “It will change as little as possible the existing legal structure. The governing law will still be the Mining and Geology Act, which was changed in June.”

A crucial factor, he said, would be a clear definition between the state and the company which is going to produce the gas. 

“A contract can be no longer than 50 years, and the remuneration is paid in installments or upfront – there’s nothing more in the law,” explained Mr. Rogala, who added: “Old mining companies belonged to the state, but now it’s an important thing for producers. How can you prepare a business plan if you don’t know the government take? Today there is no final arrangement regarding this.”

He spoke of the unbundling of the exploration and exploitation licenses, mentioning explorers’ five years of exclusivity to the information they’d produced. 

“There is still an automatic change from the exploration to the extraction concession,” he said.

Among the key ideas were the establishment of a 100% state owned joint stock company called “Staszic” whose purpose was to manage the state’s interest. Rogala explained: “It will have compulsory interest in each of the SPV’s dedicated for each mining usufruct contract; the SPVs must have registered seats in Poland.”

Rogala thought the minimum government take would be 40% of sales revenue.

According to him, a state owned fund would be created, which was financed by the government’s 40%. Under the authority of the lower house of Parliament, 90% of the money would be invested outside of Poland, and 10% would go towards science and debt financing.

He said the main benefits of the new bill would be the standardization of mining usufruct contracts, and it would minimize risks.

Rogala stated: “It minimizes the need for adaptation for companies, because so little has been changed.”

Discussion continued with Maciej Olex-Szczytowski, Special Adviser on Economics to Polish Foreign Minister Radoslaw Sikorski, talking about Poland’s Policy on Unconventional Gas. 

He said that policy had emerged by the actions from a number of ministries and through their consensus, adding, “Things may become more formal in the future.”

Mr. Olex-Szczytowski took note of national Polish interests versus those of the EU regarding shale gas, noting that energy mix was a national matter within the EU.

He commented, “It’s the most detailed regulatory structure in the world, assuring member states official structures every kind of control over shale gas. There are no unusual environmental risks.”

His slide listed risks such as for water, seismic activity, or fugitive methane.

“It is the inevitable transitional fuel,” he said of natural gas. “It fits in with EU climate policy. What is worth emphasizing is that it also fits in with the EU’s avowed aim of greater economic efficiency.”

He said that Poland was also aware that there was opposition to unconventional gas, noting that there was opposition to it where its success was seen to be against a member state’s national interests.

Mr. Olex-Szczytowski said: “We believe strongly that the EU should not impede the development, but should be developing the capacity, the know-how among these majors and smaller entities.” 

He listed Shell, Total, Eni, BP, OMV, PGNiG, and PKN Orlen and said their development in the sector should not be impeded.

Regarding Poland’s strategy, he divulged that one part of it was to monitor the European Commission’s moves as well as the European Parliament’s reports and hearings on shale gas.

Within Poland he said authorities were working to make the country a better host environment, and facilitate a good price for producers.

Poland was happy, Olex-Szczytowski said, to see Romania and Bulgaria and others getting into unconventional gas. “We have a dialogue with them.”

According to him, European legislation regarding unconventionals should stay as it is.

“We believe that today’s regulatory structures are absolutely adequate, that the current regulatory context is adequate. If it needs to be changed it will be changed with all of the countries involved,” he said.

The Polish Foreign Affairs ministry was also in touch with what was going on in the European Parliament, according to Olex-Szczytowski who noted that the report from the Committee on Environment, Public Health and Food had been heavily criticized.

“The Polish EPP group ran an expert hearing,” he explained. “It’s significant because people they’re not famous for their support of shale gas. PGNiG was one countervailing voice at that particular session.”

“We absolutely understand that what we need to do is create an environment that will have a positive effect on the exploration effort,” said Mr. Olex-Szczytowski, who explained that the Ministry of Foreign Affairs had led the charge and was still the frontrunner with the EU and elsewhere. 

He commented, “We have a plethora of contacts, and understand what motivates companies.”

Given the size Cuadrilla Resource’s find in Blackpool in the UK, he said it could become more of a focus in Europe.

“We’re monitoring it as far as we can, like what’s going on in the field in terms of local concerns. We will support it to the extent we can to convince the population of its rectitude.”

He said that the Ministry wanted Polish local enterprises like Orlen Upstream and PGNiG to succeed more.

“We want to develop the development of local industry,” he explained. “It’s not realistic nor cost effective to bring everybody and everything from abroad.”

Finally, Mr. Olex-Szczytowski showed a chart of the current work on pipelines that was being done, potential routes of shale gas into Poland’s pipeline system.and key investments planned or underway.

He pointed to the Świnoujście LNG terminal as an indication that diversification of sources was a reality.

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