By Marcin Roszkowski and Malgorzata Halaba, MSLGROUP EMEA

The Environment Ministry has so far granted over 100 concessions for shale gas exploration. The first drilling results have been encouraging and Poles are very enthusiastic about this potential new energy source.

Largest reserves of shale gas

In April 2011, the U.S. Energy Information Administration (EIA) announced that Poland has 5.3 trillion cubic meters of recoverable shale gas resources. This is the largest amount among the 32 European countries where geological surveys for shale gas have been conducted.

According to the EIA, these reserves are large enough to meet Poland’s demand for natural gas for 300 years. If these calculations prove correct, the country could become a major player in shale gas.

Support From Citizens

The Environment Ministry has so far granted over 100 concessions for shale gas exploration. The first drilling results have been encouraging and Poles are very enthusiastic about this potential new energy source. They hope that shale energy might solve many of countries problems, enabling them to catch up with their western neighbours more quickly, or guarantee higher pensions in the future.

According to a September report by CBOS (polling institution) (PDF here), most Poles are in favour of shale gas exploration in Poland. 73% of respondents support shale gas production against only 4%, who say ’no’ to drilling for the new energy source. Since then, opposition to shale is increasing, but over 50% of citizens still support it.

The reason is simple – at present Poland is dependent on Russian gas and crude oil and has been desperately looking for ways to diversify the list of its suppliers in recent years.

New Law To Ease Access

In January 1, 2012, the new Geological and Mining Law came into force. The new bill aims to help companies to get easier access to potential shale gas reserves. It also introduces the possibility of maintaining mandatory reserves of natural gas in storage installations located outside of Poland (in EU and EFTA countries).

The law also states that if a company finds a gas deposit it will have precedence in receiving the production concession.

According to the EIA, these reserves are large enough to meet Poland’s demand for natural gas for 300 years. If these calculations prove correct, the country could become a major player in shale gas.

International & State-owned Companies Participating

Such huge potential shale gas deposits have drawn interest from international companies, including such global players as ConocoPhillips - the fifth largest refiner in the world, ExxonMobil - another American oil and gas multinational and Chevron Corporation.

Polish companies are also involved and get encouragement from the Government which would like to see a consortium of the largest state-owned companies — crude oil refiners PKN Orlen and Lotos; gas monopoly Polskie Górnictwo Naftowe I Gazownictwo (PGNiG); power companies Polska Grupa Energetyczna (PGE), Tauron, Enea and Energa, or even copper producer KGHM Polska Miedz SA.

Analysis

However, analysts are sceptical about the idea.

• Firstly, all the companies have their own massive, long-term investment programs in their respective core businesses.
• Secondly, while the scale of necessary investment into shale gas exploration and excavation is more or less known, potential revenues are still difficult to establish.

In the meantime, shareholders will have to brace themselves for a share price roller-coaster ride – for example the case of Dublin-based and London-listed San Leon Energy Plc.

San Leon is focused on the exploration and production of oil and gas projects in Poland, Ireland, Italy, Morocco, Netherlands and North America. In Poland, the company holds six concessions and hopes they have the potential to change the shape of gas supply in the future.

At present, San Leon’s share price performance remains volatile, depending on market reports of recent finds—or lack of them: over the last year the share price swung between a high of £39.50 and a low of £7.76. This neatly showcases how great the market’s expectations are and how closely it is following shale market participants – particularly in Poland.
This article is part of a report “Europe’s Energy – At A Crossroads”, published on April 15, 2012 by MSLGROUP on the state of the energy industry in Europe. With the backdrop of socio-economic challenges facing other countries including climate change, growing fuel poverty and security of supply, MSLGROUP’s dedicated energy team has to confront various issues every day on behalf of our clients and in this report, we share our thoughts on these issues.

MSLGROUP has a growing footprint across Europe and beyond, and a fantastic team in place to help our clients rise to the challenge of communicating effectively with stakeholders around the world on these and other critical issues.