There is future in shale gas
26-06-2014   

The attractiveness of developing shale gas is obvious, and there is no shortage of investors around the world ready to take on the associated financing risk. To attract them however, a favourable legal, fiscal and social climate is needed. In this respect, Poland enjoys a good starting point, was the conclusion of the debate which took place on the last day of the 4th European Financial Congress. One of the panellists was Wiesław Prugar, President of the Management Board of ORLEN Upstream.

Starting from the 1st edition of the European Financial Congress, of which PKN ORLEN is a co-organiser, the energy future of Europe has been a prominent theme in debates. In its Recommendations of two years ago, the Congress stated it was imperative to take advantage of the opportunities that shale gas offered for Europe and its competitiveness. Over the recent months, given the changing geopolitical backdrop, the discussion about Europe's energy self-sufficiency has gained particular importance. This is why, this year the Programme of the European Financial Congress was for the first time formally extended to include topics related to energy security.

A debate devoted to the issue (“The investment attractiveness of shale gas exploration and production in Poland”) was organised on the last day of the Congress. Participants of the discussion, which was moderated by Agnieszka Łakoma of the Polish Press Agency, included Wiesław Prugar, President of the Management Board of ORLEN Upstream, Zbigniew Skrzypkiewicz, Vice-President of the Management Board of PGNiG, Mateusz Pociask, a Partner at EY, Andrzej Sikora, President of the Institute of Energy Studies, and – as a special guest – the Polish Minister of Environment Maciej H. Grabowski, who presented an overview of the current legal framework regulating the exploration for and production of shale gas in Poland. “One of my priorities has been to accelerate the legislative work. Drawing on the best global practice, we have proposed changes which go in the right direction, safeguarding the interests of the state, the environment, and investors,” said Maciej H. Grabowski.

Wiesław Prugar, President of the Management Board of ORLEN Upstream, also commented on the legislative changes: “There have been many improvements. The over-regulation has been removed, but we still need to look for solutions that would encourage Polish and international firms to get involved in this risky though highly promising business. The simpler the law, the better for all parties concerned, including the business and the government,” argued Mr Prugar. “The changes already made create quite clear and reasonable operating conditions. The possibility of setting up consortia is a very important novelty – risk sharing is a common practice in the industry, but so far it has been objectively difficult in Poland,” said Mateusz Pociask, a Partner at EY.

The President of the Management Board of ORLEN Upstream noted that, from the business point of view, it was good that the first wave of excessive hopes related to shale gas in Poland had somewhat subsided. “We are past the infantile euphoria and fascination. Now, the Polish shale gas project is entering maturity. All parties to the process understand that what we need now is prudence, patience, determination, good judgement and ...lots of hard work to search the vast prospective areas for resources that would offer the best potential for successful commercialisation,” explained Mr Prugar.

ORLEN Upstream, a company of the ORLEN Group, is the leader in terms of the number of boreholes drilled in Poland. “We have drilled ten wells, performed two large-scale fracking treatments and are preparing for a third one, scheduled for August,” said Mr Prugar about the company's achievements to date and plans for the future.

“I remain optimistic: compared with other European countries, Poland is much more advanced in shale gas exploration and production,” added Maciej H. Grabowski. On the other hand, the debate participants admitted that the role of the unquestionable leader, besides the clear first-mover advantage, had also its downsides. “Pioneers are easy to recognise for bullet holes in their backs,” the Minister of Environment concluded. “Given the small number of shale gas production projects in Europe thus far, no professional service providers have yet emerged. For the sake of comparison, the competitive pressure on prices offered by drilling companies in the US is much stronger, which helps optimise investment costs” said Zbigniew Skrzypkiewicz, Vice-President of PGNiG.

In 2010-2013, companies operating in Poland spent over PLN 2bn on shale gas exploration and production. The Hydrocarbon Upstream Industry Organisation estimates that by 2021 the value of such investments will have reached PLN 14bn. “There is no shortage of capital globally ready to accept such risk levels and provide financing for such projects. But in the end that capital will go to where the premium is the highest. In the US there are states which drill up to 1,600 boreholes per year, and it is no problem to raise financing for such drilling campaigns,” said Wiesław Prugar.

In Wiesław Prugar's opinion, to be able to attract that capital to Poland we need to create the right climate for shale gas as well as a friendly legal, regulatory and fiscal environment. “The global map of places offering the most attractive investment opportunities changes dynamically, which explains why some companies have abandoned their plans to drill in Poland. If opportunities reappear, they will come back,” added Mateusz Pociask, a Partner at EY.

Much of the discussion was devoted to the new geopolitical landscape in Poland and Europe. Participants of the debate agreed that common European thinking about shale gas would be a chance to strengthen our energy security, especially in the face of shrinking conventional reserves. “The events in Ukraine have changed the way in which EU leaders think about secure energy supplies,” noted Maciej H. Grabowski. At the same time, the Minister of Environment announced that Poland and the UK would draft a report for the new European Commission showing how the developing shale gas industry could positively affect European economy.

“Brussels' key problem is that only five years ago each member state was left to its own devices regarding energy security. A common economic policy is also lacking. We are not United States of Europe, and so talking about a ‘bloodstream’, or joint purchases of gas, is nothing but wishful thinking. If we want to have a European industry, be it steel, car making or chemicals – we need our own resources,” was the strong conviction expressed by Andrzej Sikora, President of the Institute of Energy Studies.

Wiesław Prugar, President of ORLEN Upstream, added: “I am not a politician, but as a EU citizen I would like Europe to go for projects consistent with the current trends of energy saving, reduction of CO2 emissions, and mitigation of the environmental impact of business. This is why shale gas development should be a broader, pan-European project,” said Mr Prugar.

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