BMI View : We remain cautiously optimistic as regards Poland's shale gas prospects but maintain that shale gas production could pick up from 2019 onwards . Positive news form the Lebien LE-2H well points in that direction, and represents a much-needed sign of hope for Poland's shale gas sector. It could lift the negative exploration climate in the country 's shale gas play. H owever , we maintain that further discoveries will be needed to restore industry confidence in Poland's unconventional potential, and much will depend on the pending shale gas law currently being drafted.
In a small but hopeful sign for P oland's stagnant shale gas sector , Lane Energy Poland has announced positive flow rates in the Lebien LE-2H well in Northern Poland . The ConocoPhillips controlled exploration company stated that the well is flowing approximately 8,000 cubic metres of shale per day. While further test drilling will be necessary to evaluat e whether the well can produce at c ommerc ially viable levels , this represents the largest quantity produced in any shale gas well in Europe to date .
This is an important sign of hope for Poland's shale gas sector. The country has been trying to develop it s unconventional resources in the aim of reducing its reliance on Russian gas imports. With a production of 6.1 bn cubic metres ( bcm ) and a consumption of 17.9 bcm in 2012 , Poland relies on gas imports for about 66% of its total demand . We expect Poland 's gas output to rise to 6.7 bcm by 2017, whereas co nsumption will rise to 20.5bcm, representing a n increase in the country's gas import dependence to 67 %.
|Slow Short-Term Gas Production Growth|
|Poland Gas Production, Consumption and Net Gas Exports (bcm), 2008-2017|
Poland's shale gas hopes had dampened over the past months amid geological complications and disappointing results. In a blow to the industry, companies Talisman Energy and Marathon decided to exit Poland's shale gas sector over the last year. This followed ExxonMobil's decision to leave the country in 2012, after two test wells in the Lublin and Podlasie basins failed to flow commercial quantities of gas (see, 'Shale Licence Reshuffle Raises Stake For San Leon', May 9). Initial optimism was further tempered by a downgrade of Poland's recoverable resource estimates to 364-768bcm by the Polish Geological Institute in 2012, down from the US Energy information Administration (EIA)'s initial 2011 estimate of 5.3trn cubic metres (tcm). In the EIA's latest 2013 analysis, estimates of shale gas in Poland were also lowered to 4.1tcm of gas.
Much-Needed Good News
We believe that positive news from the Lebien LE-2H well will therefore partially lift the pessimistic tone that had surrounded Poland's shale gas sector in recent months. This could have reassure shale gas exploration companies drilling in Poland, and could encourage other companies to accelerate exploration work on their concessions. Industry interest remains , with several exploration activities continuing despite initial disappointing results. For example, Total reaffirmed its commitment to Poland's shale gas plays, and San Leon Energy is continuing its drilling activities (see 'Better Fortunes Ahead? ', May 30).
We also note that the there remains strong government support in developing the country's nascent shale gas industry. For example, the country is ticking to Prime Minister Donald Tusk's late 2014/early 2015 schedule for the commercial production of shale gas, in spite of 'humble' results from shale gas exploration this far, according to Deputy Environment Minister Piotr Wozniak. In June 2013, the country's treasury minister Wlodzimierz Karpinski reaffirmed that shale gas exploration would remain Poland's top priority as it seeks to end its reliance on Russian gas - with development of the country's shale resources in the 'national interest'.
While this news will bring a much needed boost to Poland's shale gas exploration, we maintain that further significant discoveries will be needed to restore industry confidence in the country's unproven potential.
W e also note that the future of the country's shale gas production will be highly dependent on the industry's reception and assessment of the risks and rewards offered by the pending shale gas law that is being drafted at the time of writing. Many companies have complained that red tape is delaying the commercial output, and that Warsaw's draft proposals to cut bureaucracy do not go far enough . The proposal would ease the process of obtaining regulatory clearance for operatio ns . However, tax laws which could be as high as 40% of companies' revenues could see a decline of interest in exploiting the country's potential ( see ' Fracking Regulations To Ease Above-Ground Concerns', May 15 ) . Chevron for example has warned that industry interest in Poland's unproven shale gas potential would be highly dependent on the outcome of its draft hydrocarbons bill, which would decide the risks and rewards of engaging in Polish shale plays.
We remain cautiously optimistic with regards to Poland's shale gas prospects. While Lane Energy's latest announcement is a much needed positive sign for the country's exploration efforts, we remain sceptical of Poland's ability to produce commercial shale gas or oil by 2015. However, this is not a dismissal of Poland's potential, with strong government support and industry interest in developing the nascent shale gas industry . In view of the current rate of exploration and discovery, we expect shale gas to have a real impact on total output from 2019, with gas production to hit 13.0bcm by 2022, up from its current level of 6.2.