Doomed to gas

Wiesława Lewandowska

The history of a Polish fairy tale about shale gas is going to be tempestuous. What will the 'gas revolution' bring to us? - This strong question excites mainly politicians, who are ready to proclaim a chance for preventing the economic slowness, the safety of pensions for our children and grandchildren, liquidation of budget deficit of the state. Experts in the sphere of energy and economy are more careful in estimation of profits; however, they emphasize the biggest profit, that is, Poland's becoming dependent from more expensive Russian gas for us. In Poland the so-called resources gained from shale gas are estimated for 1-5 bln m3. The most important fact is that even the smallest among values of the production exceeds the level of the national gas consumption by several times.

Capture of the Polish gas fever

Today Poland is definitely a country of the highest exploration activity in the world (except for USA and Canada). A few years ago the world's oil industry appreciated the potential of the Polish shale deposits. We have experienced the gas fever. During the past three years the most gas-carrying areas have been covered with exploration concessions. On the basis of the already drilled openings, one can assume optimism, however, in order to have more certain picture of resources, one must do about 150-200 drillings. In order to make it possible for the 'golden age' to appear in Poland, we should cope with ecological challenges and, first of all, provide an excellent organization - the administration in the country must be competently prepared and we should supervise the output of this 'gold'. Suitable legal regulations are surely needed. Justified concerns appear that the EU law may leave its mark on the Polish legal regulations, limiting Poland's free usage from its wealth and that the EU will want to minimize or even make the output of the Polish shale gas impossible. During the recent conference in Krakow concerning the development of gas infrastructure, the commissioner of the EU for energy - Gunther Oettinger denied the rumour that this issue was to become a subject of the European regulations but, in fact, it is not known how this situation will develop...
As the MEP Konrad Szymański says that, although the European treaty excludes the competence of the EU in this matter, the secondary legislation, specially created, mainly around the environment protection, may significantly influence that profitability of the production of shale gas in Poland. Today there have already been over 40 regulations and European directives which may prevent the production of the Polish shale gas. These are various legal acts influencing prolonging administrative procedures, whereas a quick path of giving concessions is needed here. Konrad Szymański emphasizes that we can expect the biggest surprises and difficulties from the European ecological lobby which will surely be supported by the present gas monopoly and by strong lobby of renewable sources of energy in Europe. The environment protection may become a convenient argument against the shale gas even a pretext to resign from its output; because the game is still going on not about the natural environment but about gigantic amount of money which may be lost by somebody. Therefore, Poland should do everything today to avoid these 'blockades'. It seems that Polish politicians are unusually unanimous in this matter. There is only a light thrown on the significance of the problem in the Polish society which may undergo various influences and may support the competition of Poland through its blockades.

Extrusion of money from rocks

A big unknown both for investors and politicians is the issue of economic management of the extraction of the shale gas. It is very difficult to define today the so-called economic resources - that is, those which will be the produced for the purpose of the profitable sale. First of all, the strength of ecological restrictions and the value of demand on close and further markets will decide about it. Today politicians would willingly see a vein of gold in shale gas, whereas potential investors ask whether the extraction of this gas in Poland will be profitable at all. Today nobody - even exploration companies - can give an answer. Specialists, who are analyzing this issue, by extrapolating from American experiments, assume that if even costs of the output will be by 1,5 times higher than in America, the production may be profitable, anyway. Dozens of foreign companies and two native PGNiG and Orlen, having about 20% of the concession area, have got engaged in the exploration work. In the beginning an allegation appeared that the concession on the quest were returned for a song and now the finance minister is already rubbing his hands and is expecting that much money will be pressed out of the gas which has not been pressed out from rocks yet, for the rescue of the state finances. A specialist from the National Geological Institute - Paweł Poprawa estimates that assuming the cost of production on the level of about 300 dollars of 1000m3, the price of market - about 370 dollars and taxation - about the third of the profit, we could have fiscal incomes of several milliards zlotys every year. This is the minimum level. When planning the taxes with an intention of patching a budget hole, first of all, we must take care not to frighten investors. An obvious matter is the fact that we must not postpone creating clear law in this respect or create it in a rush and, as it usually happens in a careless way and with many alternatives, because potential producers - including the high-rank companies of the world's oil sector- mainly count on the predictability and stability of their interests. They must make a decision about their entering into Poland for 20-30 years (this is the time horizon of the exploitation of deposit). The answer to the question how the State Treasury and citizens can gain benefits, is not easy in Poland. For, there has not been a tax system in the world till now, created specially for the output of shale gas. These production activities, binding in a whole, are used. Apart from the ordinary income tax of the country, also a special income tax of the production activity is created - the rate ranges from 30 to 50%. In Canada and USA all producers pay the so-called royalty, a payment which depends on the value of production, and includes not income but the value of a produced raw material. A good solution is participation of the country in production companies - countries nominate special companies which are shareholders in private production companies. In the opinion of many specialists, by building our fiscal system, we should use the patterns used in Western Canada, where economy resembles the European economy the most. At present, Polish production companies are burdened by income tax, VAT, of the property - that is, as all the others. It also concerns companies which would potentially produce shale gas. So, should we think over another taxation method or maintain status quo? It results from the expose of the Prime Minister, that new taxation elements will be introduced. However, we should be very careful - as specialists warn - because in the very beginning in this sector there are huge costs.

Like in British Columbia?

It is expected that the first production of the shale gas in a little range may occur in 2015. Despite some situation indefiniteness of the Polish 'shale sector', it is high time to think over sorting out all legal and fiscal issues and administrative procedures. There are many issues demanding the regulation immediately in order to make explorations easy (property issues, hydro-legal permissions, a problem of maintaining dates by the state organs, an access problem to geological information, etc). The recently novelized mining and geological law, which is not perfect, is not enough. There are not regulations in it which would concern the geological control and service. Very good legal regulations in the production sector, including the shale one, are owned by British Columbia. This Canadian province comparable with Poland has also got a special agency composed of highly qualified specialists who are able to supervise and enforce the fulfilment high environment demands, completing legal procedures and also inspiring suitable proceeding by investors with local communities. It seems that in Poland such work coordination of several resorts is needed. For example, let's take the elaboration of concessions with which the Environment Ministry deals, but it is known that this is an issue which exceeds far beyond the competence of this sector. The whole regulation requires coordinated revision and legislative attitude, novelization of existing rules and their unification. Only within the range of the environment protection we have rules more than sufficient.

The change of flow direction

Poland annually uses 13,5-14 mld m3 gas, including about 4 mld m3 from the national sources. Gas flows to our country mainly from Russia, and only about 1 mld m3 - from Germany. In connection with the strong position of coal in economy, Poland is the smallest consumer of gas per person in Europe today. However, it should be expected that the growth in the consumption of gas in Poland will be unavoidable, especially that a strong pressure of the EU exists in order to reduce the usage of coal significantly. It seems that - as against the uncovered resources of shale gas, if they are confirmed - we can be doomed to energy based on gas. If one of the reasons does not become profitable in production, the Polish market may wholly use its native gas. A great challenge of the possible 'gas revolution' will be the industrial infrastructure - the Polish system of transmitting gas has been mainly adjusted to the transit from the East to the West till now; we do not have properly thick net of pipelines to cope with the optimistic future.
- We managed to gain European means for building connections on the Southern and Western border - assures Małgorzata Szymańska, a director of Oil and Gas Department in the Economy Ministry. And, moreover, the initiative of the European Commission 'North - South' aims at building an axis balancing this old historical dependence of transmitting gas from the East to the West. If we managed to realize this project, we could transmit gas in any direction.
According to ministerial assurances there is quite a real possibility that already existing and future gas mains could change the direction of gas flowing and-export gas to the whole Middle Europe, mainly to Baltic countries, and also to Slovakia and Balkans. Of course, great infrastructural investments are needed, as well as the support by the EU is essential. Let's hope that it will not be missing...The problem is based on the fact that this infrastructure should be ready today so that we could use it in 3-4 years.

Methane from a tap

Dangers are various, not only because of the production but also because of the production of gas from shale. One of them is strategic interests of competitors; another one - which is often instrumentalised for the sake of the first one - the environmental aspects of the production of shale gas. We can undoubtedly count here on the black PR of Gazprom. And in the European Parliament there are initiatives whose intention is 'moderating' the production of the Polish shale gas with using ecological arguments. In Poland we have first protests. And rather pretentions - people demand at least talks and clear explanations what this whole thing is about, what dangers are and what benefits they can expect. Although the benefits and a great chance for the country have been being discussed for a long time, small local communities are neglected, as usually, which are going to suffer this strenuousness the most. Today many disagreements or objections come from the fact that the European discussion was dominated by an American film 'Gasland' which frightens with methane flowing from a tap, and which replaced the social education because of the lack of professional information. It directly influenced politicians' decision - for example in France where the production of shale gas was rejected. In order to have successful production of shale gas in Poland, even in the most modest variant, today, a wide explanatory action should be introduced on the level of the countryside, village administrator's offices and parishes. The representatives of oil companies and suitable state organs must take the trouble of talking and, if necessary, at least negotiating with local communities. The mechanisms of building social acceptance may be various. It would be good to maintain this existing one - that is, the payment for mining utilizing which in 60% gets to the budget of a commune - thanks to which Kleszczów commune including the Bełchatow mine on its area- has become the richest commune in Poland. In virtue of the similar payment -according to the estimated calculations by Paweł Poprawa from the National Geological Institute (Pol. PIG) - there would be annually at least 100 mln zl for partition among interested communes. There is nothing to hide that ecological dangers exist but they must not be demonized. For example, that's true that drilling works are more oppressive here than in the case of conventional deposits that they require much amount of water and we do not have water in much quantities in Poland... But specialists say that - in Poland the same water is going to be used for several times. The production of shale gas - they assure - will not consume the resources of drinking water in our country. There is also a concern about the contamination of deep-sea water. Experts assure that it can appear only incidentally because of an accident because the whole process is already safe today. It is very essential that after drillings an area is re-cultivated and returns to the previous usage. Geologists also assure that the drillings on the area of Poland will not cause earthquakes. The Main Inspector of the Environment Protection states that today he has legal instruments at his disposal, which can civilize the production of shale gas. He believes that in a short time more modern and environment-friendly technologies will come with help. A reliable supervision is, certainly, needed as well as a requirement of reliability from explorers of this still assumptive Polish wealth.


"Niedziela" 51/2011

Editor: Tygodnik Katolicki "Niedziela", ul. 3 Maja 12, 42-200 Czestochowa, Polska
Editor-in-chief: Fr Jaroslaw Grabowski • E-mail: