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Shale gas in Poland: why companies abandon exploration?

Shale gas in Poland: why major companies abandon exploration?



Mariusz-Orion Jędrysek, Ph.D., full professor of geology, has initiated shale gas and oil exploration in Poland (and Europe) granted first licenses in 2006/7 being state chief geologist and deputy minister for the environment (20057). Now Member of Parliament (Sejm) in Poland, head of the Parliamentary Team for Raw Minerals and Energy, and vice-chairman in the Commission for the Environment and Natural Resources.



"Welcome" we so say - we mean"Go away"?

Yesterday, a major daily in Poland "Rzeczpospolita" revealed apparently a secret note reporting discussion on March 8th this year. This discussion was between the State Chief Geologist (SCT) and foreign investors (mainly US companies) regarding planned legal regulations. In Poland, the SCT (deputy minister for the environment) on behalf of State Treasury, grants geological licenses according to Geological an Mining Law. Several months ago two legal models were proposed by the government: one dealing with taxation (by Ministry of Finance) and the other dealing with exploitation (by SCT) of hydrocarbons including unconventional gas and oil deposits in shale formations. The government is planning to set up the National Operator for Energy Resources (NOKE Polish abbreviation). It is aim is to guarantee Polish interests in future production of the shale gas. This is nearly a copy of the regulations prepared in 2006/7, with one crucial difference: the NOKE is supposed to be a limited company, not the state agency (with much wider activity and responsibility Polish Geological Survey).

Serving in a capacity of the SCT between 2005 2007, I awarded first licenses, thus initiated exploration of shale gas and shale oil in Poland (first in Europe). It was done under a very strict regime: I granted 11 (i.e. c.a.10% of licenses available, in a very dispersed fields), to four different companies. Afterwards, granting licenses was halted, and meanwhile we were preparing Poland to new investments: setting up a new special state agency and advisory controlling governmental bodies, new Geological and Mining Law, developing new own technologies and know how, etc. In my opinion, the State Treasury should have a direct stake in each license, and shares should depend on quality of the deposit. The crucial problem is that in contrast to governmental agency planned in 2006/7, the shares of NOKE Ltd. can be sold any moment. One cannot exclude such action to be carried out in the future and the political situation of Poland can have a bearing upon that.

Both the role of NOKE and the financial model, are highly criticized by investors. This resulted in strong tensions between the investors and the government. In my opinion the taxes should be as low as possible while the state should create its revenue via a fixed stake in each of the license. The induced economic benefits from shale gas and oil are the most important. Fiscal regulations are important from the point of view of investors, while transparency of licenses ownership and exploitation process, are crucial from the point of view of the state. The above mentioned confidential report, contained serious accusations that the goal of the SNG, hence it was the policy of the government, was to squeeze out all US shale gas companies from Poland. However, the present SNG called US companies to stay and promise to treat all NATO state companies equally to all the European Union companies. Sluggish or rather no activity and total mess regarding preparation of legal background increase political risk to extremely high level, far beyond expected profits. This is in addition that gas in Poland is 7 fold more expensive to produce than in the USA.


European perspectives

From European perspective the approach to accept NATO state companies make sense, because there is a hard geopolitical competition in which artificial limitation in access to fossil fuels is used as an important tool. In fact, recent advances in geological exploration and mining technologies proves that there is no global problem on energy resources, and Europe is rich in shale gas and oil, enough to be self-sufficient and independent by far. This is very dangerous for Russian economy. Hence Russia would do as much as it can, by any available method, to ensure high price and monopoly for gas supply to Europe (incidentally, contracts forecasted by me one year ago with Japan seem to be fixed now see "Nikkei Asian Review" 2012.05.20, Japan). The North Stream and South Stream ((Balkan states and Hungary are close to join) gas pipelines surround Europe, and long terms contracts (30 years or so) make position of Russia stronger. Peculiarly, all newly gas pipelines show much higher capacity for gas flow than needed in the predictable future. Russian companies show also strong interest in purchasing shares in major gas consuming companies, especially chemical ones. Such activities have occurred in Poland recently. An alleged lobbying by an ex-prime minister(Bielecki) and an ex-president (Kwaśniewski) shows that this game is of the first importance. This confirms the view that major politicians became a kind of well paid tool of the Russian interests (compare the role of Germany ex-canceller Schroeder in Nord Stream). Anyway, rich gas and oil unconventional deposits, including shale gas and gas hydrates, evidence that the energy temblors, often experienced in Europe, are due to Russian near monopoly gas supply, and have little to do with energy availability and potential of the globe in general.

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