Poland dreams of shale
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WARSAW -- About a year ago, Poland lit the "Flame of Hope," the first flare to burn over a shale gas well in the country. Its photo ran as a full-page ad in Poland's leading newspapers. "Don't put out the flame of hope," the caption read, urging readers to express their support for shale gas development. In a deeply Catholic country, the religious subtext was hard to avoid: Poland was the cathedral and this huge flame was a candle of prayer -- a prayer for energy independence.
Ever since the U.S. Department of Energy announced in April 2011 that Poland may hold enormous quantities of shale gas -- 5.3 trillion cubic meters, enough for 300 years of consumption -- hydrocarbon fever has swept the country. Even when the Polish Geological Institute and the U.S. Geological Survey reduced those figures by 90 percent in early 2012, faith in shale remained unshaken.
Nowhere else in Europe has shale gas generated so much enthusiasm. The government has already granted 111 exploration concessions on about a third of the territory of Poland, while polls suggest that more than 70 percent of the country's nearly 40 million people back developing shale.
Shale gas, the narrative goes, would bring in billions of dollars in foreign investments, generate hundreds of thousands of jobs, boost the chemical sector and even make Poland an exporter of natural gas, "a second Norway." But the real reason shale gas has made such a stir in Poland is buried deep in the emotional sediments of history, where Russia embodies the perpetual nemesis, the perpetrator of great crimes against the Polish nation.
The hope is that shale gas would reduce Poland's reliance on Russian fossil fuels while bringing the country closer to its ally the United States, a pioneer of shale gas extraction. "After years of dependence on our large neighbor, today we can say that my generation will see the day when we will be independent in the area of natural gas and we will be setting terms," Prime Minister Donald Tusk told his compatriots when the "Flame of Hope" was lit.
Yet Poland already is relatively energy independent and working toward diversification. Gas constitutes just 13 percent of its primary energy supply, a third coming from Polish conventional wells. The government is also trying to diversify gas routes by investing in a new liquefied natural gas terminal on the Baltic Sea, expanding storage facilities and completing pipelines with the Czech Republic and Germany. There are plans to build 6 gigawatts of nuclear power capacity by 2030. While the push for renewables has been sluggish, growth is speeding up.
Most importantly, Poland generates about 90 percent of its electricity from domestic coal, of which it has a supply that could last hundreds of years. The country would have to move away from coal to reduce its carbon emissions, but a 2012 study by Cornell University suggests that shale gas might not have a significantly lower carbon footprint than coal when looking at the complete cycle of production.
None of this has deterred the Polish government, which has aggressively pushed for development and dismissed all objections, seeing shale gas as a powerful ideological tool. "Our foreign policy was mostly about conventional security, but now it's more about creating and connecting new markets," said energy analyst Agata Hinc.
"New markets" means markets beyond Russia, a country whose investments in Poland are increasingly unwelcome. Early this year, for instance, the Polish parliament passed a politically motivated resolution against a Russian bid for the heavily indebted Lotus Group, the country's second-largest oil refiner. As Reuters reported in October, of 1,621 major foreign companies active in Poland, 389 are from Germany while only five come from Russia.
Economically, energy is the last significant link between the two countries. Russia now supplies nearly all of Poland's oil and two-thirds of its gas. The disputes between Russia and Ukraine in 2006 and 2009, and Russia and Belarus in 2010 over gas pricing, which led to shortages in Europe, have helped convince Polish politicians that the country's energy security lies in reducing reliance on Russia. Shale gas would offer if not complete independence, then at least a bargaining chip to lower the price of Russian gas imports.
But the focus on shale gas has come not only as a response to Russia but also due to prompting by the United States. In April 2010, the U.S. State Department launched the Unconventional Gas Technical Engagement Program to "achieve greater energy security, meet environmental objectives and further U.S. economic and commercial interests." It provides technical and regulatory assistance to selected countries and has become a U.S. tool in the global battle over energy resources and the recalibration of political alliances.
Despite the lack of a scientific consensus on the benefits and drawbacks of shale gas in the United States, the State Department nonetheless has initiated engagement programs all over the world, from Jordan to India to China. Cooperation with Poland has been especially close.
President Barack Obama, on his visit to Poland last May, made a point of endorsing shale gas. After the abandonment of the Bush-era plan to build an anti-ballistic-missile shield in Eastern Europe, shale gas has become perhaps the most significant project in U.S.-Polish relations. Both symbolize the same idea: a U.S. deterrent of Russian foreign-policy interests in Central and Eastern Europe.
Still, shale gas in Poland may be headed the way of the missile shield, which the Obama administration scrapped because of Russian objections. Difficult geology, an uncompetitive service sector, poor infrastructure and lack of rigs have hampered development.
Poland has a venerable oil and gas sector, but most of the transmission pipelines are based in the southwest, while major shale gas areas are in the northeast. Strict European Union environmental laws and unclear regulatory and tax frameworks have further eroded prospects. Only 33 wells have been drilled so far, with just eight of them fracked (at least 200 would have to be drilled just to assess the actual size of reserves).
Some, like Cezary Filipowicz, business development manager of a Polish shale-gas service company, have urged Poland to lower its expectations. "For many reasons -- resources, ecology, the areas where production is possible -- the revolution in gas supplies that happened in America will never happen in Poland. Whoever expects that we'll be an exporter of gas for the European market is dreaming," he says.
Russia added another obstacle in October when it significantly lowered the price of its exports to Poland, further limiting the country's financial incentives to develop shale gas.
Government officials optimistically prophesy production in a year or two, but the International Energy Agency expects significant development "no sooner than the early 2020s." And even if production starts, increasing the share of gas in Poland's energy supply could lock the country in even greater dependency on Russia if Polish shale reserves prove short-lived.
Despite the economic and environmental realities, both politicians and the public in Poland continue to believe in the potential of the country's unconfirmed, unconventional resources. Whether the government and private companies manage to start production, or whether shale gas is just a foreign policy tool to needle Russia, boost the U.S. presence in the region and increase Polish visibility within the EU, remains unclear. The Flame of Hope may just sputter out.
First Published January 6, 2013 12:00 am