"The secret of success is to know something nobody else knows"

Aristotle Onassis

Poland's Energy Production Dreams at a Crossroads

26 July, 2013 Ben McPherson Ben McPherson Energy Markets Researcher
Brussels Energy Club

Polish dreams of being an energy exporter are at a critical moment. A debate rages around gas reserve estimates and the balancing act between EU environmental policy on the one hand, and the need for investor-friendly regulation to attract the companies capable of extracting the resources on the other.  An estimate two years ago by the US Energy Information Administration (EIA) started a whirlwind of shale gas excitement in Poland, as their potential gas reserves were initially pegged at a 300-year supply for the country.  Currently, Poland (and much of Europe) gets a substantial portion of its gas from Russia, and the economic and political possibilities of lessening this dependency excited local policymakers and global investors. 

Unfortunately, these hopes might run dry.  A more recent estimate by the EIA cut the shale reserve number by twenty percent, and the Polish government itself has released lower figures.  The lower estimates are worrying, but tempered by reports that only a few wells have completed multi-stage hydraulic fracturing, which is the most accurate way to gauge reserves.  More pressing, however, is the drawback of global companies actually doing this testing.  In the last few months, Canadian Talisman Energy and American Marathon both pulled out of Poland, echoing ExxonMobil's exit last year.  This drawback is partly due to geology, as both Marathon and ExxonMobil cited their exploratory wells' failure to provide commercially viable amounts of gas.  However, other involved companies such as Chevron, ConocoPhillips, and Eni are still in the country and now the debate heats up about how to keep the plan on track.

Legislation is in the works in Poland to keep the companies happy and shale development moving.  Proposals include letting exploration permits be extended by two years, instead of one, and letting firms convert exploration permits into production permits without having to go through the bidding process.  Unfortunately for proponents of shale, the industry does not think the government is going far enough.  Anonymous executives are being widely quoted, putting pressure on the government to ease things further: "If the law is adopted in its current shape, plus (we see) two or three more unsuccessful wells, other investors will leave," says one official.  "The situation is very bad, everyone is discouraged," opines another, unidentified source (Reuters).  Chevron executives are willing to go on record, expressing the desire to get more consultation with the government on potential regulations.

The Polish Exploration and Production Industry Organisation (OPPPW) is the main lobbying organization for the industry, and it and the involved corporations highlight a number of issues they would like addressed by regulation:


  1. Bureaucratic and red-tape hold-ups.  Corporations complain about the difficulties of current regulations when trying to adapt to changing conditions.  It can take over a year to get a permit change to drill deeper, for instance.  Determining the viability of a shale well is a long and difficult process compared to traditional drilling, and the industry argues that current permits expire too quickly.  Furthermore, if a well proves viable, it is another lengthy process to convert the exploration permit into a production one and success is not guaranteed.
  2. Taxes.  The government is considering a new tax cap of 40% to be levied on operators' profits, with no guarantee that this rate would not be raised in the future. 
  3. NOKE.  The National Energy Minerals Operator (NOKE) is a still-to-be-created state-run energy company which follows the Norwegian model.  Poland maintains that the company will be involved in all gas concessions in order to keep the state's interest in the industry.  However, the specifics about this company are unknown and multi-nationals are wary about being forced into association with it.


All-in-all, the Polish gas revolution is at a critical juncture.  The government must try to balance the corporation-friendly rules they say are required with the broader EU-trend away from drilling.  France, for instance, has completely ruled out shale exploration, and many other EU officials are on record saying that conditions in Europe preclude a similar economic miracle to that of the US.  For the moment, however, Brussels says it has no plans for a blanket shale ban, and so the Polish debate continues.