BREAKINGVIEWS-Exxon's Poland exit raises frackers' PR challenge

Tue Jun 19, 2012 11:56am BST

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

By Kevin Allison

LONDON, June 19 (Reuters Breakingviews) - Exxon’s (XOM.N) withdrawal from shale gas exploration Poland is a double blow to Europe’s would-be frackers. It suggests the economics of unconventional gas in Poland – and potentially elsewhere in Europe – don’t stack up. It also raises the public relations stakes for drillers.

Exxon’s future in the country was already in doubt after two of its test wells came up dry in January. Then in March, the Polish government poured cold water on an early, aggressive estimate of its shale reserves.

This is not the end of the story. Big finds might still be lurking in Europe. Data on shale fields is relatively poor. Other companies including Exxon’s U.S. rival Chevron (CVX.N), are continuing to explore in Poland. They might have more success. Still, the fact that the world’s biggest energy company is moving on to greener pastures - including in Russia, where it recently struck a deal with Rosneft (ROSN.MM) to develop ‘tight’ oil reserves in Siberia - is a significant blow to the industry’s European ambitions.

Poland, which relies on Russia for half of its gas supplies, was an enthusiastic supporter of fracking, despite legitimate safety concerns. Drillers who want to step up exploration elsewhere in Europe will have to deal with more sceptical governments. France has banned ban the technique and Bulgaria, which early estimates suggest could hold up to 1 trillion cubic metres of the fuel, has only partly lifted its January ban. Shale drilling in the UK is expected to resume soon – but with new restrictions – more than a year after earthquakes near test wells in northwest England.

The weight of the available evidence suggests that the risks from fracking – using explosives and pressurised water, sand and chemicals to unlock gas supplies trapped in underground shale formations - are manageable with proper oversight. But the industry, which grew up with relatively light regulations in the United States, has failed to win the European public’s heart. Poland looked like a good place to show that fracking can create jobs and diversify energy supplies without causing big earthquakes or damaging the water table. With Exxon’s departure, European shale looks like a harder sell.

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CONTEXT NEWS

- An Exxon Mobil executive confirmed on June 18 that the company had decided not to pursue its shale gas exploration projects in Poland after two test wells failed to produce commercial quantities of gas.

- In March, the Polish government cut an earlier estimate of the country’s shale gas reserves by 90 percent. At the time, Poland said a revised estimate put shale reserves at 346 billion to 768 billion cubic metres of the fuel.

- The U.S. Energy Information Administration had earlier estimated that Poland’s shale formations held more than 5 trillion cubic metres of gas. That would have made Poland the second largest potential source of gas in the region outside after Russia, which has more than 44 trillion cubic metres of proved gas reserves.

- Reuters: Europe shale push shaken by Exxon's Poland pullout [ID:nL5E8HII54] - For previous columns by the author, Reuters customers can click on [ALLISON/]

(Editing by Edward Hadas and David Evans)

((kevin.allison@thomsonreuters.com)) Keywords: BREAKINGVIEWS SHALE/

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