SHALE GAS – POLISH PERSPECTIVE

Katarzyna KacperczykDirector

Department of Economic Cooperation

Brussels, 22 January 2013, „Sharing Canada's Regulatory

and Industrial Experience”

European gas context

R. Weijermars, et.al., Unconventional gas research initiative for clean energy transition in Europe, „Journal of Natural Gas Science and Engineering”,  Vol. 3, Issue 2, Pp. 365-460 (May 2011).

European gas contextSupply and demand balance

Polish energy context

• High reliance on coal ~60%

• Total dependence on imports ~30%

• Natural gas dependence on imports ~60-68%

Natural gas resources

Dom

estic

nat

ural

gas

pro

duct

ion

(bcm

)

Nat

ural

gas

res

ourc

es (

bcm

)

Domestic natural gas production

Domestic natural gas production and resourcesPrimary energy consumption

Global shale gas resources

Country Tcm

China 36,1USA 24,4Argentina 21,9Mexico 19,3RSA 13,7Australia 11,2Canada 11,0Libya 8,2Algieria 6,5Brasil 6,4Poland 5,29France 5,09Norway 2,35Ukraine 1,19Sweden 1,16Total 173,78

Shale gas – not only European phenomenon

Shale gas in Poland 113 concessions – granted by

Minister of the Environment from 2007 to 1 January 2013 (prospection and exploration of shale gas fields) to 19 consortiums

40 exploration wells completed by January 2013(vertical fracturing 7 wells; horizontal fracturing 2 wells)

309 exploration wells planned until 2021

First horizontal well + multi-stage fracturing: August 2011

Possible first potential production: in 2-4 years (PGNiG)

Shale gas in Europe

Germany: (December 2012): rejection of the motions from the Green Party and Left Party that called for banning hydraulic fracturing

United Kingdom (December 2012): The government has given the go-ahead for to resume hydraulic fracturing to exploit gas in Lancashire

Additional resource potential:Netherlands, Belgium and Luxemburg

Shale gas: multidimensional influence

Economy

Environment

Energy security

Energy security

Developing domestic

resource base

Reducing dominant supplier’s

leverage on importer

Improving market

competition conditions

• Resource base: Doubling global proven gas resource base (BP 2011 – 208 tcm; ARI

2011 – 188 tcm) Doubling regional proven gas resource base: Europe (BP 2011 – 9

tcm; ARI 2011 – 18 tcm) where production by traditional suppliers’ is shrinking (GB: 2000 – 108 bcm; 2011 – 45 bcm)

Local 50 – fold increase: Poland (BP 2011 – 0,1 tcm; ARI 2011 – 5 tcm)

Reduced import needsreduced exporters’ leverage: US: EIA est. 2005 demand for LNG in 2010 = 70 bcm

US LNG import in 2012=10 bcm Regionally: Europe: 2010 main suppliers’: Russia (34%), Norway

(30%), Algeria (15%), Qatar (10%) Locally: Poland’s main gas supplier: Russia (64%)

Improving market conditions: Globally: reducing „energy weaponization”; weakening GECF

market power Regionally/Locally: improving regional and local market

competition/improving importer’s bargaining power

Shale gas arithmeticModerate growth scenario Unit 2012-2018 2019-2025 2012-2025Number of wells (new + converted) 30+65 155-270 220-300Total CAPEX (exploration+production)=shale gas investment

USD bn 1.9 6 7.9

Total workforce (exploration+production)= shale jobs

Thousand annual av.

2.2 6.1 4.1

Shale gas output (at the end of period) m m3 1,032 3,519 3,519

Increased foreign investment scenario Unit 2012-2018 2019-2025 2012-2025Number of wells (new + converted) 30+65 500+175 530+240Total CAPEX (exploration+production)=shale gas investment

USD bn 1.9 9.2 11.1

Total workforce (exploration+production)= shale jobs

Thousand annual av.

2.2 9.1 5.7

Shale gas output (at the end of period) m m3 1,032 5,934 5,934

Accelerated growth scenario Unit 2012-2018 2019-2025 2012-2025Number of wells (new + converted) 30+65 175+1000 1.030+240Total CAPEX (exploration+production)=shale gas investment

USDbn 1.9 14.9 16.8

Total workforce (exploration+production)= shale jobs

Thousand annual av.

2.2 15.1 8.6

Shale gas output (at the end of period) m m3 1,032 11,934 11,934

Source: CASE

Results: shale gas impact = impact of EU accession

GDP growth (0,8 pp. annually)

2019-2025

Job places(510 000)

2012-2025

Tax incomes(87 bln PLN)

2012-2025

• CASE study (May 2012) on economic impacts of shale gas production between 2012-2025:

economic growth: similar influence as in case of Poland’s accession to the EU - for comparison: European Centre Natolin estimated in 2003 that membership in the EU would add about 0.8 pp. to Polish GDP growth annually);

job places creation: drilling a single well lasts 60 days and requires 20-60 people working;

generating additional tax incomes: from VAT and CIT taxes;

- for comparison: 2013 forecasted tax incomes ca. 300 bln PLN

new competencies and innovations in extraction technologies

Shale gas economics

Shale gas economics: US example

Micro-level

• Few years ago the American and Canadian industries, were at disadvantage in the world chemical market due to high costs.

• Now, they are deriving profits from the cheap shale gas domestic production:

ExxonMobil Chemical's tripled in 2010 revenues to 3.14 billion USD,

smaller Georgia Gulf Corp., reported a 40% surge in sales, reaching 2.8 billion USD in 2010;

reopening of the factories that were shut down a few years ago due to high world gas prices. (the biggest American fertilizer producers – Potash Corp. and giant Dow Chemical)

Macro-level

• According to the CEPE research:• one single Marcellus shale = 4 million

USD of economic benefits

• 2008 job gains from Barnett shale in Texas and Fayetteville in Arkansas were estimated at ca. 200 000

• It has been proved that economic activity associated with Marcellus shale development generated over 2 billion USD in federal, state and local taxes, plus 62 jobs per each drilled well.

Environment: challenge that can be mitigated

• There are appropriate regulations and procedures on the Community and National level to ensure safety of the environment.EU level: Directive 2011/92/EU (EIA Directive ), Directive 92/43/EC (Habitats Directive), Directive 79/409/EWG (Birds Directive) Water Framework Directive 2000/60/EC, Directive 2006/118/EC (Groundwater), Directive 75/440/EEC (Surface water) Directive 2008/98/EC (Waste), Directive 2006/21/EC (Mining waste), Directive 1999/31/EC (Landfill of waste), Directive 96/82/EC (Seveso II) PL level: Environmental Protection Act, Nature Conservation Act, The Act on Providing Information on the Environment and Environmental Protection, Public Participation in Environmental Protection and on Environmental Impact Assessment, Water Act, Act on Waste, Act on Mining Waste, Geology and Mining Act, Spatial Planning and Development Act, Building Act, Regulations to these acts.

• Poland has a system of administrative bodies that efficiently controls the „new industry” and pays close attention to the environmental protection.Ministry of Environment, State Mining Authority/ District Mining Offices, General Directorate for Environmental Protection /Regional Directorates for Environmental Protection, Chief Inspectorate of Environmental Protection/Voivodship Inspectorates of Environmental Protection, National Water Management Authority/Regional Water Management Authorities

• Initial field studies indicate minimal threat of the hydraulic fraction technology to the environment.

Environment: case study

Polish Geological Institute conducted a miltidimensional research project designed to monitor an impact of a hydraulic fraction process in the mining plant in Łebień (August 2011).

Study findings confirm that:no seismic events have been registered;emissions of gaseous pollutants in ambient air comply with existing requirements;radioactivity of shale layers (depth of 3 500 - 4 500 m) complies with existing requirements;there is no impact of drilling and fracking on ground and surfacewater aquafiers.

Tested issues

RadioactivityEmissio

ns

Wat

er q

ualit

y

asse

smen

t

Seismicity

Environment: positive effect on CO2 emissions

CO2 emissions from processing the unconventional gas are higher by 1-5 % than from natural gas. Nevertheless, they are significantly lower than from coal used for electricity production.

Taking into account the lower CO2 emission level this allowed to bring down the US CO2 emissions by 450 million tonnes. The US CO2 emissions from domestic energy have declined by 8.6% since a peak in 2005, the equivalent of 1.4% per year. Part of this decline is related to the switch from coal to gas in US power generation. (Fig.1)

In the first quarter of 2012, US carbon emissions hit a 20-year low. The US achieved approximately 70% of the CO2 emissions reductions targeted under Kyoto (as compared to the 1998 EIA CO2 forecast). (Fig.2)

Gas is fast becoming the new fuel of choice for the US power sector. Appearance of cheap shale gas is responsible for a significant drop in the consumption of coal. According to DOE in 2011, coal generation has slumped by 19% while gas generation has increased by 38%. If shale gas were to displace coal entirely in the US, US carbon dioxide emissions would fall to 24% below 2005 levels by 2020. (Copenhagen Summit 2009, USA pledged to reduce its GHG emissions to 17% below 2005 levels by 2020).(Fig.3) Source: EIA

US CO2 emissions from energy consumption (million metric tons)

Fig. 1 Fig. 3Fig. 2

Cooperation with Canada

• Poland has developed extensive cooperation with Canada to benefit from the Canadian experience in shale gas:

BC and Alberta experience in social dialogue and environmental aspects; Alberta experience in development of the regulatory system; Activities of Canadian companies in Poland; Study visits to Canada; Canadian experts’ visits to Poland .

Shale gas - summary Shale gas is the most important revolution in fossil fuels after WW II

Geo-economic (and geo-political) impact already taking place on the market

Global shale gas (and shale oil) revolution may occur at the end of this decade, with the start of production in many countries (ex. China, India, Argentina, RSA, Mexico)

Shale gas sector can be economically-viable and environmentally-safe (provided the proper technology and oversight)

– Can Europe just wait and look…Let's get down to (shale) business!

Thank you for your attention!

Additional info: resources estimates

Additional info: gas consumption forecast for

Poland