Europe shale push shaken by Exxon's Poland pullout

Mon Jun 18, 2012 6:13pm BST

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* Exxon quits Poland shale gas exploration

* Comes days after govt shelved draft shale law publication

* Europe's biggest shale plans, 112 exploration licences issued

* Poland's reserve estimates slashed by 90 pct in March

By Maciej Onoszko

WARSAW, June 18 (Reuters) - Europe's most ambitious shale gas plans were in disarray on Monday after U.S. major ExxonMobil announced it would pull out of exploration projects in Poland.

Poland's lucrative reserves had spurred hopes of transforming Europe the way a shale boom has left the United States brimming with supplies, potentially turning the Poles into net gas exporters.

That was until March, when a government report revealed the country's likely reserves were about one-tenth the size of previous estimates.

At the weekend, Exxon, which earlier this year cautioned that commercial production of Polish shale was at least five years away, said it would not go forward with exploration.

"The move is not surprising given that Poland's shale potential is still unclear," JBC Energy analysts said in a note on Monday.

A spokesman for Exxon in Poland said the company has not decided yet what it would do with its exploration licences. It controls four and jointly holds two with France's Total .

Poland has granted 112 shale exploration licences to ExxonMobil, Chevron and other firms, even as some countries, including France and Bulgaria, have banned shale exploration pending further environmental studies.

The Poles are keen to wean themselves off their heavy reliance on coal and imported Russian gas, partly due to environmental commitments they face as a European Union member nation.

"Exxon realised that commercial extraction was not possible with currently available technology. This is a general problem in Poland that shale rocks are too tight to allow extraction," an industry source said, asking not to be identified.

Abundant shale gas production in Poland poses a potential threat to Russia's supremacy in Europe, where it supplies a quarter of the gas used in the EU.

Yet Russian gas export monopoly Gazprom has repeatedly played down the threat and on Monday Sergei Komlev, head of contract structuring and price formation at Gazprom Export, told a conference in London that Polish gas would struggle to achieve the low prices of U.S. shale rivals.

"In Poland the price for shale gas will be above $15 per million British thermal units, over three times than in the U.S. where prices will rise to $5-10 (from a current $2.50) once they export gas," Komlev said.

LEGAL FRAMEWORK

Last Wednesday, the government abruptly called off a presentation of a legal framework for the development of shale gas resources, disappointing industry players eager for more clarity before committing further to investing in the sector.

"If this draft was published and Exxon later declared it was leaving the country, it would most likely have been a disaster in terms of the country's image," said Piotr Spaczynski, partner at law firm Spaczynski, Szczepaniak & Wspolnicy, w hi ch advises foreign oil companies investing in Polish shale.

The government now plans to unveil the draft law by the end of the month, and has said it will cover exploration and extraction of oil and gas from both conventional and unconventional sources, including taxation, licensing and environmental issues.

"If I were the government, I would scrap all drafts and let companies work, or publish a draft supporting exploration and not one directed at excessive taxation," Spaczynski said.

Poland had high hopes for shale after a study by the U.S. Energy Information Association in 2011 estimated Polish reserves at 5.3 trillion cubic metres, enough to cover domestic demand for some 300 years.

The government's study in March slashed estimates for recoverable shale gas reserves at 346 to 768 billion cubic metres.

Despite Exxon, the world's most valuable energy company, to deciding to scrap exploration, other firms said they remained committed.

"(Our company) continues to remain extremely optimistic about the outlook for Polish shale gas," said John Buggenhaggen, exploration director at UK-listed San Leon Energy Plc.

(Additional reporting by Henning Gloystein and Dmitry Zhdannikov in London; editing by Michael Kahn and Jason Neely)

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