Poland's shale gas dreams fade as investors complain of red tape
* Executives say firms may quit unless gas flows soon
* They say red tape, tough geology hold up drilling
* Reform plans do not go far enough - industry lobby
By Agnieszka Barteczko
WARSAW, July 5 (Reuters) - Hopes that Poland could lead a U.S.-style shale gas boom in Europe are fading fast as energy companies say red tape is delaying commercial output and Warsaw's draft proposals to cut bureaucracy do not go nearly far enough.
The firms say there is plenty of gas but its exploitation is frustrated by difficult geology and onerous, unclear regulation.
Prospects darkened this year after Marathon Oil and Talisman Energy followed Exxon Mobil in pulling out of Poland, which was once seen as Europe's best shale prospect with substantial reserves and a friendly government.
These companies may not be the last, unless one or more of the 46 exploration wells drilled so far starts producing commercial-scale quantities of gas.
The government, hoping shale gas will deliver Poland from reliance on energy imports from Russia, is proposing new legislation to ease conditions for investors.
"If the law is adopted in its current shape, plus two or three more unsuccessful wells, and other investors will leave," said an official with a foreign firm prospecting for shale gas, expressing views echoed by several other executives.
"The situation is very bad, everyone is discouraged," said a second company official, who also asked not to be identified.
Global players remaining in Poland's shale sector include Chevron, ConocoPhillips and Eni.
Under pressure to retain investors, the deputy environment minister and chief geologist, Piotr Wozniak, has drafted proposals for new rules that are awaiting cabinet approval.
These include allowing firms to extend exploration licenses by two years if needed, instead of the previous proposal of one year; letting them convert exploration permits into production permits without having to bid again; and making it easier to lease state-owned land on and around drilling sites.
But a document from the main lobby group for oil and gas firms operating in Poland, seen by Reuters, said that while some changes were positive, most reforms it had sought were omitted.
The Polish Exploration and Production Industry Organization document said in particular that the government could still use loopholes to force firms to re-tender for production permits.
It was unhappy with a requirement that a new Polish state-owned operator, NOKE, should participate in all concessions and it wanted exploration to be extendable beyond two years.
The lobby group also said penalties for falling behind work schedules were too harsh under the proposals.
"The new proposal is better than the previous ones, but this is not a remedy to the sector's ailments," said Witold Weil, country manager at San Leon Energy, which has licences in Poland. "There are many proposals which were not included in the draft".
He added that San Leon Energy is staying in Poland, but would put some licences under review. This month it announced it was reducing its role in one Polish shale gas field, and bringing in a partner, Wisent Oil and Gas.
Asked about its plans, a Chevron spokeswoman said the company was committed to Poland. An Eni spokesman declined to comment. A ConocoPhillips media representative in Warsaw did not respond to a request for comment.
If shale gas fails to live up to the government's ambitions, the chief beneficiary will be Russia's Gazprom, which will continue to be Poland's biggest gas supplier.
FUNERAL OF SHALE PREMATURE
"The funeral of shale gas in Poland is premature," said Jerzy Nawrocki, the head of the Polish Geological Institute. "However, politicians' optimistic forecasts on fast exploitation of shale gas are fading away."
Poland's push into shale gas was launched with fanfare almost three years ago when Prime Minister Donald Tusk visited a well at Lubocino, in the north, and announced Poland would be producing gas on a commercial scale in 2014.
"After many years of gas (and) energy dependence on our big neighbour we can today say without exaggerating that my generation will, in its lifetime, see a moment when we are self-reliant," Tusk said.
Lubocino's fate illustrates the sector's problems - there is still no firm date for the start of commercial output there.
Two sources familiar with technical aspects of the well say there was a series of missteps, partly due to pressure for fast results at the flagship project.
By the end of 2012, a well had been drilled in preparation for hydraulic fracturing, or fracking, in which water is forced underground at high pressure to release gas. But it was winter and the water waiting to be pumped froze, one source said.
A horizontal well about 1,000 metres long was drilled but technical reasons prevented fracking along half of it, cutting potential output. "The more fracturing, the bigger the potential of the gas field," said one of the two sources, a geologist.
Asked about the well, a spokeswoman for state-run PGNiG , which controls Lubocino, said the firm was analysing hydraulic fracturing results to gauge production potential and planning more fracking in September. Halliburton, the contractor, said all questions should be directed to PGNiG.
Some wells are promising. At a well controlled by Polish refiner PKN Orlen at Syczyn in eastern Poland, contractor Schlumberger has just completed fracking and production tests are under way.
The government has met some of the energy firms' grievances. In June it scrapped a rule requiring companies to seek extra permission if they wanted to extend a well beyond 1,000 metres.
That requirement had been causing some firms to stop drilling for months at a time. The new rule says no extra permit is needed for wells up to 5,000 metres, unless they are in an environmentally sensitive area.
"This is an important step forward," Chevron said in a statement.
Wozniak, the chief geologist, said the package of new regulations would improve matters further by, among others things, making it quicker to obtain permits.
"The changes in the hydrocarbons law are efficient for the country, safe for the environment and friendly for investors," he said at a news conference.
- Tweet this
- Share this
- Digg this
- Masked gunmen slay family collecting body at Honduras morgue, kill 9
- Obama condemns killing of reporter, U.S. hits militants in Iraq |
- U.S. military failed in rescue attempt for journalist Foley |
- UK retail sales growth falls to eight-month low, public finances weak
- Israeli air strike kills three Hamas commanders in Gaza |