unconventional gas - a chance for poland and europe

8/3/2019 Unconventional Gas - A Chance for Poland and Europe

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Izabela Albrycht, Keith Boyeld, Jarosaw M. Jankowski,Maciej Kaliski, Maciej Koaczkowski, Marcin Krupa,Guy Lewis, Ziwase Ndhlovu, Kent F. Perry,

Pawe Poprawa, Roman Rewald, Alan Riley,Mariusz Ruszel, Stanisaw Rychlicki, Jakub Siemek,Andrzej Sikora, Trevor Smith, Piotr Szlagowski,Marcin Tarnawski, Aleksander Zawisza

Unconventional Gas a Chance or Poland and Europe?Analysis and Recommendations


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Izabela Albrycht, Keith Boyeld, Jarosaw M. Jankowski,Maciej Kaliski, Maciej Koaczkowski, Marcin Krupa,Guy Lewis, Ziwase Ndhlovu, Kent F. Perry,Pawe Poprawa, Roman Rewald, Alan Riley,Mariusz Ruszel, Stanisaw Rychlicki, Jakub Siemek,Andrzej Sikora, Trevor Smith, Piotr Szlagowski,Marcin Tarnawski, Aleksander Zawisza

Unconventional Gas a Chance or Poland and Europe?Analysis and Recommendations


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Unconventional Gas a Chance or Poland and Europe? Analysis and Recommendations

Izabela Albrycht, Keith Boyeld, Jarosaw M. Jankowski, Maciej Kaliski, Maciej Koaczkowski, Marcin Krupa, Guy Lewis, Ziwase Ndhlovu, Kent F. Perry, Pawe Poprawa, Roman Rewald, Alan Riley, Mariusz Ruszel, Stanisaw Rychlicki, Jakub Siemek,Andrzej Sikora, Trevor Smith, Piotr Szlagowski, Marcin Tarnawski, Aleksander ZawiszaEditor: Izabela AlbrychtEdition completed: July 2011

The Kosciuszko Institute 2011. All rights reserved. Short sections o text, not to exceedtwo paragraphs, may be quoted in the original language without explicit permissionprovided that the source is acknowledged.

Translation: Justyna Kruk (Preace, Chapter 10), Alicja Chojnacka (Chapter 15),Aleksandra Bigda (Chapter 5), Magdalena Ostrowska (Chapter 12, 17),Katarzyna Sobiepanek (Chapter 1, 6), Karolina Kocielniak (Chapter 16).

Prooreading: George Lisowski

Cover design, layout and typesetting: Magorzata KopeckaCover illustration: PGNiG SAPrint: Dante Media

The Kosciuszko Instituteul. Karmelicka 9/1431133 Krakwemail: [email protected]+48.12.632.97.24www.ik.org.pl

ISBN: 9788393109357

I you appreciate the value o the presented Report as well as The Kosciuszko Institutesmission, we kindly encourage you to support our uture publishing initiatives by makinga nancial contribution to the association.


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ContentsIntroduction Izabela Albrycht .................................................................................................................................................7

Main Thesis ....................................................................................................................................................................................11

BASIC INFORMATION TECHNOLOGY, RESOURCES & SAFETY ...................................................................................21

1. Unconventional Gas Characteristics o Depositsand Technology o Extraction Stanisaw Rychlicki, Jakub Siemek .................................................................23

2. European and Global Resources and the Potentialo Unconventional Gas Pawe Poprawa ................................................................................................................29

3. Environmental Impact o Unconventional Gas Explorationand Production Guy Lewis, Trevor Smith, Kent F. Perry, Pawe Poprawa .......................................................35

AMERICAN SUCCESS ..................................................................................................................................................................47

4. Unconventional Gas: The North American Experience Guy Lewis, Trevor Smith, Kent F. Perry .......................................................................................................................49

5. The Inuence o the U.S. Gas Revolution on International Gas Markets Economicand Political Implications and the Importance o Energy Security Marcin Tarnawski..........................55

6. Transer o American Experience in the Unconventional Gas Sectorto the European Context Izabela Albrycht ............................................................................................................63

EU POLITICS & LEGISLATION ....................................................................................................................................................69

7. Exploitation o Unconventional Gas under EU Law: a Reviewo Relevant Legislation Piotr Szlagowski ...............................................................................................................71

8. European Unconventional Gas Resources as an Alternative to Gas Dependencyon Russia Alan Riley.......................................................................................................................................................83

9. Development o the Unconventional Gas Sector in Europe rom a UK Perspective Keith Boyfeld, Ziwase Ndhlovu ...................................................................................................................................95

10. The Political Impulse or Unconventional Gas Development in Europe the Roleo the Polish Presidency o the EU Council Izabela Albrycht, Mariusz Ruszel .........................................101

CHALLENGES FOR POLAND ..................................................................................................................................................109

11. Resources and Potential o Unconventional Gas in Poland Pawe Poprawa .........................................111

12. Gas Market Liberalisation and Increase in Energy Security as a Resulto Unconventional Gas Sector Development in Poland Maciej Koaczkowski ......................................119

13. Prospects or Utilising Unconventional Gas in Poland: the Potential o the Power Industryas a Possible Direction o Gas Consumption Maciej Kaliski, Marcin Krupa, Andrzej Sikora ...............127

14. Prospects or Utilising Unconventional Gas in Poland: the Potential

o the NonEnergy Sector as a Possible Direction o Gas Consumption and Basic Barriersto Unconventional Gas Sector Development Maciej Kaliski, Marcin Krupa, Andrzej Sikora ..............137

15. Inrastructural Challenges Linked to Extraction and Productiono Unconventional Gas Mariusz Ruszel ...............................................................................................................153

16. Prospects or Unconventional Gas Exports rom Polandto European Countries Mariusz Ruszel ................................................................................................................161

17. Unconventional Gas Sector Development in Poland Concessions and Taxes Aleksander Zawisza ..................................................................................................167

18. Legal Aspects o Unconventional Gas Exploration and ProductionProjects in Poland Roman Rewald, Jarosaw M. Jankowski ...........................................................................175

Authors ..........................................................................................................................................................................................197


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The views expressed in this publication are those o theauthors and do not necessarily reect any views held bythe Kosciuszko Institute and the publication partners.They are published as a contribution to public debate.

Authors are responsible or their own opinions andcontributions and the authors do not necessarily supportall o the opinions made by others in the report.


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7

American Dream

About 20 years ago several pioneers o the energy industry in the U.S. embarked upon the challenging task o building the unconventional gas sector rom scratch. They strongly believedin the American dream and hoped that the new source o energy would contribute to thelowering o gas prices and the strengthening o U.S. energy security. In time, thanks to theirpersonal determination and support rom the U.S. government, governmental agencies andexpert centers, commercial production o unconventional resources was able to successullybegin. According to data or 2010, the annual production o unconventional gas in the U.S.amounted to approximately 137bcmo gas; the unit price had allen rom $12 per 1 mln Btu

in 2008 to about $4 per 1 mln Btu in 2010 and the U.S. had become signicantly less dependent on natural gas imports. Currently, major U.S. energy companies are engaged in the sectorand at the same time, the U.S. government administration is undertaking a number o initiatives that will acilitate the expansion o unconventional gas production technology on aglobal scale. The U.S.s assumption o the leadership position in natural gas production in 2009marked the crowning point o the gas revolution.

Success Story

Europe rst heard about the American shale gas success story over two years ago. A numbero expert centers announced that the Old Continent may also have abundant unconventionalgas resources. However, the prospect o developing the unconventional gas sector did notmeet with enthusiasm rom all bodies responsible or shaping EU energy policy. Since then thepace o development o the unconventional gas sector has been dictated by the watchwordEuropean realism an oblique reerence to the varied interests o individual EU MemberStates. As a consequence, what we can observe is a debate on the development o the unconventional gas sector in Europe that ocuses primarily on unsubstantiated threats linked tohydraulic racturing, instead o emphasizing the opportunities that this source o energy may

open up. A situation like this is not conducive to joint constructive energy undertakings that

Izabela Albrycht

Introduction


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8 Izabela Albrycht

can produce multiple benets or the whole o Europe. On the contrary it creates a climatethat is conducive to lobbying activities which discredit and downplay the potential o unconventional gas. There is no doubt that in the near uture such unavorable opinions will be heardboth in Poland and in the EU, seriously jeopardizing the prospects or unconventional gasdevelopment and negatively aecting the publics perception o this new source o energy.

Content o This Publication

The present publication, Unconventional Gas a Chance for Poland and Europe? Analysis

and Recommendations, drawn up on the initiative o the Kosciuszko Institute in collabora-

tion with experts rom Poland, Europe and the U.S., attempts to thoroughly analyze the

potential and opportunities linked to the exploitation o unconventional gas resources in

Europe. At the same time, it aims to identiy the challenges acing the European uncon-

ventional gas sector and ormulate recommendations that will enable it to meet them. Thereport analyses inrastructural, economic, geological, environmental and legal conditions

pertaining to exploration and production o unconventional gas resources in Poland and

selected EU countries. It also presents North American experiences and acts relating to

the unconventional gas sector, especially shale gas, along with conclusions that can be

applied in Poland and in Europe in general. Hence, this publication can be a valuable source

o comprehensive knowledge or investors, decision makers, experts and the public about

unconventional gas a sector which has the potential or dynamic development not only

in Poland, but also in other European countries.

Opportunities or the European Union

The annual natural gas consumption o the European market amounts to approximately520bcm the majority o which is met by third country imports. Although geological and economic conditions aecting the unconventional gas sector in Europe may dier rom thoseobserved in the U.S., or Poland and a number o other EU countries, unconventional gas oersan unparalleled opportunity to not only signicantly increase natural gas production andachieve energy security, but also to reduce CO2emissions and boost economic competitive

ness. Thereore, eorts devoted to exploration and research on unconventional gas resourcesin Europe should receive real support rom the Polish government, a avorable reception romother EU countries and unds rom the EUs budget. The Polish presidency o the EU Councilopens up a perect opportunity to orm a coalition or shales in the EU and to shape thediscussion on unconventional gas. The Polish government should take all necessary steps toensure that the EU does not miss its chance to realize the European dream o energy independence and solidarity together with social prosperity.


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9Introduction

In the near uture, the Kosciuszko Institute intends to promote the ideas contained in this

publication as well as to initiate an inormation campaign with the aim o presenting the

real potential o unconventional gas to key decision makers and opinion leaders in Poland

and the EU.

Acknowledgements

I would like to sincerely thank our partners and authors or their contribution to this publication and to invite readers to amiliarize themselves with its content. I believe this publicationwill become a starting point or an honest and actbased discussion about unconventionalgas and the role it plays in the strengthening o energy security and economic competitiveness o Europe. I look orward to establishing close cooperation with entities interested in thesubject.


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Main Thesis

Technology, Resources & Saety

Unconventional gas resources signicantly exceed conventional resources and can providemankind with a substantial extra energy supply.

(S. Rychlicki, J. Siemek, Chapter 1)

A type o unconventional gas which has recently gained in importance is shale gas.

The technical capabilities o shale gas production have been and still are the subject o deepresearch in the US and Europe.


The U.S. industry has made strong and continued progress in mitigating environmentalimpacts such as surace ootprint, emissions, water usage, waste disposal, or habitat ragmentation. In places where energy development occurs near populated communities, extra measures are put in place to minimize trafc, noise, any impacts on views, and general intrusion.

(G. Lewis, T. Smith, K. F. Perry, Chapter 4)

Increasing the share o gas in the energy sector can contribute to reducing CO2 emissions.

In addition, unconventional resources produce two and a hal times lower carbon emissionsthan burning ossil uels coal, lignite, oil or oil products.


Embracing natural gas as a key part (along with the addition o signicant increases in renewable energy generation) o the most economically attractive mix to achieve 2030 targets anddelivering on 20/20/20 commitments without restricting uture options or increasing costs or2050. This analysis suggests 120 to 140 bcm o additional supply could be required to achievethese objectives. Unconventional gas would be an important supply addition to supplement

new pipeline and LNG imports that will also likely be required in Europe.(G. Lewis, T. Smith, K. F. Perry, P. Poprawa, Chapter 3)


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12

American Success

Unconventional gas reserves in U.S. are estimated at ca. 90tcm. Annual production o unconventional gas in the U.S. amounts to approximately 137bcm, o which 70bcm is produced romshale. This gures constitute respectively 23% and 12% o gas consumed in the U.S. per year.

Gas rom shale is produced at an even lower cost than that o natural gas import through pipelines, LNG or conventional resources exploitation


Unconventional gas, including shale gas, has signicantly aected the price o natural gas inthe U.S. market and is increasingly being considered as a uel which, in the uture, will lead tosignicant changes on the world gas market. The slow decline in natural gas prices in the world

has its origin in an excess o supply o gas, but this is mainly due to: the economic crisis o 2008(a all in demand), the rapid increase in production capacity o LNG and the signicant increasein unconventional gas production in the U.S. Persistent oversupply can put pressure on gasexporters to move away rom oilprice indexation, which can lead to urther lowering o prices.Europe has started to eel the U.S. gas revolution in an indirect way oversupply o gas in theU.S. (an increase in unconventional gas production) has resulted in increased deliveries o LNGto terminals located in Europe rather than in the U.S.

(M. Tarnawski, Chapter 5)

Gazprom was orced to respond by cutting its prices to some o its European customers inorder to they can maintain market share.

(A. Riley, Chapter 8)

Largescale industrial exploitation o unconventional gas, not only in the U.S. but in otherEuropean countries or Asia as well, may seriously upset the existing balance o power betweencountries that export and import natural gas.

Major changes in the U.S. natural gas market can thereore be regarded as the beginning o

changes in the geopolitical balance o power related to energy security.

Due to a technological revolution in the energy sector in 2009, the U.S. became the largestproducer o natural gas in the world.

(M. Tarnawski, Chapter 5)

Given the economic incentives between low priced U.S gas and much higher priced EU gasthere is a compelling economic argument export o shale gas sold as LNG into the Europeanmarket between 2015 and 2020. As a consequence, even without any development o uncon

ventional gas in the European Union unconventional gas will have a signicant impact on our


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13Main Thesis

energy security. The worst case scenario, without any shale gas development in Europe itsel, isan increasing competition or the European market between LNG and LNG shale and existingconventional pipeline deliveries.


EU Politics & Legislation

Given the scale o CEE and German supply dependence and the prospect o gas cut os;increasing supply dependence by virtue o Nord Stream and the German rejection o nuclearpower as well as the prospect o the Russian gas decit the prospect o substantial domesticunconventional gas resources in Europe is welcome. Unconventional gas is likely to have asignicant impact on current European gas supply dependency on Russia.


Based on the EIA and ARI report, Europe has ar smaller shale gas resources than the othermajor continents. Nonetheless, also in this case, their cumulative amount o 15.5tcm, i viewedin relation to some 520bcm o EUs annual consumption, indicate the importance o shale reservoirs as a gas source.

(P. Poprawa, Chapter 2)

Once the European unconventional gas industry has developed to scale and has properly gotits costs under control it will be very competitive against both Russian gas, hauled all the way

rom Siberia and LNG.

Focus on gas would allow the Union to rapidly cut CO2 emissions ... Furthermore, becausemost European gas red power stations only operate at 45% capacity, it would be possibleto increase use to around 65%70% without any additional investment. I a correspondingamount o coal red production were taken out o production, approximately CO2 200mt emissions would be cut. It would also save an estimated renewable investment when currentlycapital is scarce o between 80120 billion. This ability to get signicant CO2 emission cutsat zero capital costs underlines both the value o the role gas can play and also the way it has

not been actored into European climate change policy. As a matter o urgency the EuropeanUnion institutions need to reassess its approach to gas in combating climate change.


It is also important to recognise that there are at least two major obstacles to shale gas providing any signicant alternative to Russian supply dependency: completion o the single marketin gas and the environmental barriers.

Liberalisation both legal and physical needs to be completed as rapidly as possible to open up

the European gas market to new gas sources. The European Commission should be encouraged to ensure ull implementation o the third energy package, and its DG Competition needs


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to be ready to apply the competition rules across the entire European gas sector without earor avour. LNG suppliers and unconventional gas producers will be able to rely on EU rules toensure market access. These suppliers are likely to incentivise network owners to physicallyreinorce the single market in gas with new pipeline connections across national borders. Thisphysical barrier remains in the lack o interconnection WestEast and NorthSouth, making itmuch more difcult or a genuine single market in gas to operate. This lack o physical interconnection is particularly oppressive or CEE States, and the Baltic States as the Russian Eastto West pipelines eectively segment each EU Member State market as ar West as the OderNiesse line.


Environmental issues are one o the major political barriers to unconventional gas development o in Europe; thereor the discussion on the environmental impact o unconventional

gas extraction technology should be based on the acts presented, among others in thispublication.

There is no denying that there are impacts o energy development on the environment.Processes used in hydraulic racturing are generally invisible and below the surace. Althoughunconventional gas activities require more water than conventional gas activities, unconventional gas production is still quite efcient relative to other sources including coal, biomass,and nuclear. Fracturing uid migration into resh water aquiers has not been observed. Asnoted earlier, the racturing takes place very ar below resh water supplies and when ractures

are monitored with microseismic measuring they are ound to not reach nearly ar enoughto cause water contamination. Flowback water characteristics are consistent with rangesobserved with produced water generated in the production o conventional natural gas. Thisincludes a low concentration o suspended solids and total organic content. Manmade chemicals o concern are usually at very low or nondetectable levels. The racturing process doesgenerate many small seismic events. Each small crack made in the rock can be measured. Butthese are not elt on the surace by people and there has not been any relationship proven ordemonstrated between racturing and seismic events o the magnitude o small quake.

(G. Lewis, T. Smith, K. F. Perry, P. Poprawa, Chapter 3)

There is no specic regulation devoted to this very method o natural gas extraction, howeverit is already extensively regulated, especially with regard to environmental protection. Most othe relevant EU regulations use exible mechanisms and thereore would not need particularamendments in order to be duly adjusted to unconventional gas production. Furthermore,it is unlikely that there would be any legislation adopted especially with respect to limit theunconventional gas production (i.e. issue a temporary moratorium), since such an action couldbe considered as one that aects the Member States choice between dierent energy sourcesand the general structure o their energy supply and as such they would require unanimity in

the EU Council.(P. Szalgowski, Chapter 7)


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15Main Thesis

One can not underestimate the strong pressure on the EU administration rom Russia acountry whose interests are most at risk o successul unconventional gas production in theEU. How eective could be the pressure, the perectly demonstrates the construction o theNord Stream pipeline having little in common with a common energy policy and the principle o EU solidarity, while stopping the EUs core diversication investment the Nabuccogas pipeline.

Member States have to be prepared to create a robust but attractive regime to encourageinvestment into shale gas exploration and production.


Challenges or Poland

U.S. Energy Inormation Agency report presents high recoverable gas resources in Polandwhich amount to 5.3 tcm. However it is important to note that shale gas resources are estimated based on an insufcient amount o currently available data and thereore might diersubstantially rom actual resources. The list o concession holders or shale gas explorationincludes a signicant number o global majors, shale gas sector specialized operators, Polishgas and oil companies that have been built up on the basis o conventional hydrocarbonexploration and production, as well as small independents. Most o these wells will be drilledduring the period 20112014. So ar, some 10 wells have been drilled and one shale gas wellhas been ractured. Reports and releases o BNK Petroleum (2 wells) and 3Legs (3 wells) indi

cate positive rst results.(P. Poprawa, Chapter 11)

In the optimistic scenario, the growth potential o natural gas consumption in Poland may bemore than 15bcm per year. In the realistic variant, the increase in demand or gas may be lessthan 5bcm per year.

In the optimistic scenario, we assume the continuation o the anticlimate change trend inthe EU policy, and thus a dynamic development o power and heat capacity based on natural

gas, which would reach approximately 2021% share in total production capacity, and in otherareas, substitution at the level o 2030% o the consumption o other uels, which impliesnot only the replacement o liquid uels (LPG, LFO, HFO), but also o coal, as well as return othe demand or natural gas rom the chemical industry to the precrisis level. In the intermediate scenario, the increase in gas consumption in the energy sector ensues only rom theconstruction projects o new blocks based on natural gas, while in other areas, primarily romthe substitution o liquid uels and only to a minimal extent solid uels; the chemical industrypermanently reduces the demand or natural gas to the current level.

The largest increase in demand or natural gas may come rom the backward energy sectorbased on solid uels being potentially the largest recipient o unconventional gas. Natural


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gas currently provides only a little bit more than 19% o energy or heating or households4.Thereore, it seems quite possible to increase gas consumption by the household sector andthe chemical industry.

It should be remembered that this potential can only be evaluated correctly in relation to theincrease, in supply o natural gas rom domestic production, including primarily rom unconventional deposits. Lack o adequate supply o natural gas translates into an increased risk ointerruption o supply in the case o turbulence associated with gas imports rom Russia, andthis situation is still eective in deterring most potential consumers o the above mentionedraw material, especially in the most sensitive areas o energy and industrial processing.

Taking into account the specicity o shale gas extraction prole, characterised by an enormous increase in productivity o the deposit in the rst periods and subsequent strong decline,

as well as poor use o domestic resources by Polish mining companies, reected in the veryhigh reservestoproduction ratio (R/P), we may expect extraction at the level o even 100bcmo gas per year in the next 1015 years.

(M. Kaliski, M. Krupa, A. Sikora,Chapter 13 & 14)Production o unconventional gas at a level o just 15bcm annually would totally sufceto cover Polands gas demand (even taking into account the expected 5bcm consumptiongrowth) and would mean independence rom oreign gas suppliers. Provided productionexceeds the above mentioned levels, Poland could become an important gas provider or

European markets.(M. Koaczkowski,Chapter 12)

In Europe, Poland represents one o the major potential sources o shale gas supply. In the lighto its own dwindling natural gas reserves, Britain may well become one o its main customers.

(K. Boyeld, Chapter 9)

Unconventional gas extraction and production may thereore contribute to increasing Polandsenergy security and to eliminating numerous geopolitical and inrastructural risks, which up

till now have aected the Polish gas imports.

Shale gas could help Poland to reduce CO2 emissions.

For the unconventional gas revolution to became a reality, changes are necessary in thePolish gas market.

The unconventional gas production is the actor which could be tremendously positiveand it could contribute to developing a competitive and commercial gas market in Poland.

Liberalising the gas price on the domestic market seems to be the sine qua non condition or


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17Main Thesis

unconventional gas production. In parallel that would alleviate the negative aspects o the oilindexation. It is reasonable to expect that once large scale production o unconventional gas isunder way in Poland it will trigger o a reduction in price both o domestic and imported gas.

In a pessimistic scenario, it is estimated that the costs o unconventional gas production inPoland may be up to 50% higher than in the USA. From October 2009 to June 2011 gas priceson the NYMEX2 uctuated rom $3.73/mBtu to $6.01/mBtu, with an average o $4.5/mBtu.Thereore, the calculated price per cubic meter varied rom $133/1000 m3 to $214/1000 m3,with an average o $161/1000 m3. Assuming that unconventional gas production costs are50% higher in Poland than in the U.S. and that the prices quoted on NYMEX reect productioncosts, it is sae to assume that the prices in Poland could oscillate between $200/1000 m3 and$321/1000 m3, with an average o $240/1000 m3 approximately. As was stated beore, the ullcontractual price o Russian gas (which constitutes 90% o gas imported to Poland) given in

the intergovernmental agreement is not disclosed. However, reliable media sources state thatto obtain comparable prices o Russian gas, oil would have to be priced at around $4570 perbarrel. Similarly, to achieve a price o $240/1000 m3, oil would have to be valued at $55/bbl. Itis worth noting here that, on average, oil was traded at $80/bbl in 2010, with the price risingup to $95/bbl at the end o 2010 and $127/bbl in April 2011. The price has been uctuatingaround $105125/bbl in the last three months, i.e. rom April 12, 2011 to July 12, 2011 andurther price increases are anticipated. These calculations clearly show that the Russian gasprovider would have to reduce prices signicantly in order to compete with unconventionalgas producers on the Polish market.

(M. Koaczkowski,Chapter 12)Another challenge or the shale gas revolution in Poland is to create avourable conditions ounconventional gas production or investors, but Polands long term intergenerational interests must also be taken into account.

The elements comprising avourable conditions are:

1. dening the maximum extraction volumes at state and concession levels in order to avoid

excessive and reckless exploitation;

2. linking concession charges and taxes with the gas market and gas prices;

3. establishing a company modelled on Petoro (Norway) or EBN (Netherlands) which would

legally own 15-25% shares o all the concessions and that would act as a means o govern-

mental control and protection o the states energy interests;

4. launching an investment und out o a portion o the operating ees aimed at supporting the

research and development sector.(A. Zawisza,Chapter 17)


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Unconventional gas exploration and production in Poland require special drilling appliancesand an appropriate technical inrastructure, as well as experienced sta are needed to carryout the processes o horizontal and vertical drilling as well as hydraulic racturing.

The prospect o probable unconventional gas sector development in Poland means that hugeinrastructure investments need to be planned and implemented. Due to this, the development and modernization o transmission, transportation and storage inrastructure or unconventional gas constitute a big investment challenge. The existing gas pipeline structure issuited to importing gas rom the East. Naturally, the development o a gas transmission anddistribution inrastructure in Poland will be yet another crucial issue. A properly developed gaspipeline network (including distribution pipelines) will enable supplying o unconventionalgas to end users throughout the whole country as well as transportation to underground gasstorages. It will also enable potential export through interconnectors and the LNG terminal in

winoujscie, or in the case o bigger volumes, through the second part o the YamalEuropepipeline. It is important to realize that unconventional gas production will require the creationo inrastructure connecting the extraction plays with gas pipeline networks. The realisationo these immense undertakings, which will develop and modernize the transmission inrastructure o natural gas in Poland, requires huge nancial resources. The development o theunconventional gas sector in Poland could, however, eventually lead to the enhancement andmodernization o the Polish natural gas transportation and transmission network. Also thecreation o unconventional gas R&D centers is in Polands best interest.

(M. Ruszel, Chapter 15&16)

Business operators should promote the introduction o important changes to unconventionalgas legislation that would bring more stability to the relevant legal environment in Poland.Transparent rules o the law would have a major inuence on increasing investment saety orbusinesses commencing licensed activities in Poland.

(R. Rewald, J. M. Jankowski, Chapter 18)

At present, despite the conclusions o this publication there are a signicant number o potential opponents, who stand against unconventional gas exploration and production. They can

be ound both amongst EU countries and amongst exporters supplying natural gas to the EUmarket. That is why or the past ew months a heated debate on unconventional gas could beobserved at the EU orum, initiated mainly by opponents and skeptics o this new natural gasproduction technology.

Poland, or which the development o the unconventional gas sector is an unprecedentedopportunity, must take decisive and integrated actions both internally and at the EU level tooppose the lobbies which seek to deprecate the importance o unconventional gas, and toprovide actbased and reliable inormation about the impacts o this resource on the environ

ment and on the EUs energy security.


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19Main Thesis

Poland can lead and, to a large extent, direct the discussions at the EU orum on unconventional gas production and use. The Polish presidency o the EU Council is a particularly suitableplatorm or instigating such actions. During this presidency, it is crucial or all Polish bodiesparticipating in the EU decisionmaking processes with support o energyoriented think tanksas well as expert and research centers to undertake coordinated actions. Such a chance mightnot be repeatable and thereore the Polish government should take the consistent actions onthis important issue.

(I. Albrycht, M. Ruszel, Chapter 10)


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BASIC INFORMATION TECHNOLOGY,RESOURCES & SAFETY


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Stanisaw Rychlicki, Jakub Siemek

1. Unconventional Gas Characteristics o Depositsand Technology o Extraction

Unconventional gas resources signicantly exceed conventional resources and can provide

mankind with a substantial extra energy supply. In addition, unconventional resources produce two and a hal times lower carbon emissions than burning ossil uels coal, lignite,oil or oil products. The diagram below captures well the essence o classiying natural gasresources into conventional and unconventional ones (Holditch 2006 and Masters 1979,as presented in IEA 2009).

Fig. 1.1 Typology o natural gas resources

Conventional

Unconventional

Volume

Larger volumes

More permeable

More advancedtechnologiesneeded

Easier to develop

Higher concentration100 mD

High quality reservoirs

10 mDLow quality reservoirs

Tight gas 0,1 mD

Coalbed methane 0,1 mD Shale gas

Gas hydrates

0,001 mD

Source: Own gue based on: IEA 2009, World Energy Outlook


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24 Stanisaw Rychlicki, Jakub Siemek

Unconventional natural gas resources include:

natural gas reservoirs with low permeability (rom 0.1 mD to 0.001 mD) located in porespaces o limited connection between one another, socalled tight gas;

natural gas (methane) contained in coalbeds (socalled coalbed methane CBM);

natural gas contained in loamy and mud rocks (socalled shale gas, gas in shale ormations);

Gas contained in hydrates. Despite strong eorts and developments in research, no efcient technology o shale gas production has been developed so ar. Natural gas hydratesoccur in northern Arctic areas and in underwater deposits. It was hydrates which preventedthe success o rescue operations to close the underwater oil spill ater the explosion on

the BP oil platorm in the Mexican Gul (2010). Reviews estimate hydrates resources to bebetween 1 0001012 and 51012 cubic meters and thereore in excess o the worldwide totalamount o natural gas resources.

The technical capabilities o shale gas production have been and still are the subject o deepresearch in the U.S. and Europe. Currently 12% (70bcm a year) o U.S. gas is produced rom shaleat an even lower cost than that o natural gas import through pipelines, LNG or conventional

Fig.1.2 Exploitation o conventional (on the right) and unconventional (on the let) deposits

GAS/SOURCE ROCK

(shale, coalbed methane)

SEAL

GAS RESERVOIR

(sandstone)

Source: Own gure based on: DTE Energy, Unconventional gas production


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25Unconventional Gas Characteristics o Deposits and Technology o Extraction

resources exploitation. The commitment o U.S. companies to exploration and exploitationo shale gas deposits (Barnett Shale, Forth Worth basin, central Texas) is illustrated by thedata on the number o wells since 1981. In the rst 15 years rom that date, only 300 verticalwells were drilled, whereas in 20022006 as many as 2000 horizontal wells (Devon Energy)were drilled.

Shale plays containing gas are characterised by the ollowing eatures (Boyer 2006,Schlumberger):

great thickness and regional extensiveness;

lack o obvious seal layers and structural traps;

absence o well dened gas/water contact, though the water saturation can amount to7580%;

natural racturing;

estimated ultimate recovery (EUR) that is signicantly lower than that o conventionalresources and amounts to around 2040%;

very low matrix permeability;

Fig.1.3 Gas exploitation rom the typical shale deposit, Barnett Shale (USA)

VIOLA

(Frac Barrier)ELLENBERGER

(Water Bearing Formation)

BARNETT SHALE

Source: Own gure based on: DTE Energy


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26 Stanisaw Rychlicki, Jakub Siemek

An important indeed, perhaps the most important element o shale gas extraction is shalestimulation treatment. The aim o the stimulation is to upgrade very low matrix permeability, which is achieved by hydraulic racturing intensiying the gas ow. During the processo racturing a tight stream o lowviscosity, water based uid is pumped down the wellboreunder high pressure. The next step is pumping down the gel. The ssures created are penetrated a ew hundred meters (more than 300 m) rom the well. Granulated sand or granule oceramic, socalledproppant, is pumped down together with hydraulic racturing uid to allowthe edge o the ssures to remain open.

Hydraulic racturing consumes large amounts o water, up to 10 00020 000 m3 per well. A single racturing consumes 2000 m3 and there are 510 operations needed or each well. Table 1.1below lists chemical additives, comprising 0.49% o hydraulic racturing uid.

Table 1.1 Composition o chemical additives in hydraulic racturing uid with their common applications

Ingredient Overall % Purpose Common applications

Acids 0.123% Dissolves minerals In swimming pools

Glutaraldehyde 0.001% Eliminates bacteria in the water Sterilizes

Sodium Chloride 0.010% Delays break down o the gel polymer chains Table salt

Formamide 0.002% Prevents corrosion Plastics

Borate salts 0.007% Maintains uid viscosity Soap, cosmetics

Petroleum distillates 0.088% Minimizes riction Cosmetics, pharmacy

Guar gum 0.056% Thickens the water E-412, ood industry

Citric acid 0.004% Prevents precipitation o metal oxides Food additive

Potassium chloride 0.06% Creates a brine carrier uid Salt substitute

Potassium carbonate 0.011% Maintains the efec tiveness o other components Detergent, soap

Ethylene glycol 0.043% Prevents scale deposits in the pipe Antireeze, windscreen washer

Isopropanol 0.085% Increases the viscosity o the racture uid Washing liquid, hair dye

Source: A.R.H. Datuk, 2010, Talisman Energy/Canada


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The abstract was written on the basis o the ollowing article: Rychlicki S., Siemek J., Shale Gas Resources and Technology(Gaz upkowy zasoby i technologia), Rynek Energii 3/2011.

Literature:1. Boyer Ch., Kieschnick J., SuarezRivera R., Lewis E. R., Waters G., Producing Gas rom Its Source,

Oileld Review, Schlumberger, Vol. 18, no. 3, 2006.2. Datuk A. R. H., Shale Gas A True Energy Game Changer, World Gas Conerence, Dallas, 2010.3. International Energy Agency, World Energy Outlook, 2009.


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29

Pawe Poprawa

2. European and GlobalResources and the Potentialo Unconventional Gas

Unconventional gas exploration is globally still at a very early stage a long way rom the

production stage except in the U.S. and Canada. For this reason, anywhere outside NorthAmerica, there are no data available which are essential or calculation o resources. Even in

countries where exploration has already begun and unconventional gas wells are currently

being drilled, like Poland, new data are still condential. Thereore, at the current stage, all

attempts to calculate shale gas resources in rontier basins are very preliminary and charac-

terized by very high possible error bars. A common practice is to calculate resources with the

volumetric method, which involves outlining in some way the acreage in a given basin which

might produce gas, and looking or the closest possible U.S. or Canadian analogues to esti-

mate the amount o gas per acre. With time, once production has started in a new play and

has been recorded or at least a year or two, it will be possible to estimate resources in moredetail by production decline curve analysis. This might bring signicantly dierent estimates

o global shale gas resources than the ones currently available.

For a clear understanding o the meaning o gures characterizing unconventional gas

resources, it is necessary to bear in mind that there are dierent categories o resources, which

vary considerably in relation to each other. The most objective and straightorward category

is geological resources o gas in place (GIP), reerring to all gas accumulated in the unconven-

tional reservoir ormation. This gure, however, is o limited use since the major part o this

gas cannot be extracted rom shale. Gas which can be exploited and brought to the suraceusing current technology is reerred to as recoverable gas. In the case o shale gas, usually only

some 20% o GIP can be recovered, and the other 80% remains in the ormation. However,

as technology improves, this percentage is changing. A ew years ago, gas recoverable rom

shale constituted only about 10% o GIP. Another category is the economic resources, which

is the part o accessible recoverable gas which may be commercially produced. However, it

changes signicantly over time with varying costs o production and gas prices. In the ollow-

ing part o this chapter, as well as in Chapter 11 all gures represent recoverable gas reserves.

As there is still very little knowledge about the potential o shale gas basins across the worldexcept or North America, the discussion about resources is still at a rather preliminary stage.


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31European and Global Resources and the Potential o Unconventional Gas

signicantly. India and Pakistan even i the prospects are smaller might still have considerable shale gas resources. The EIA and ARI report also suggests gigantic shale gas resources orAustralia, equal to ~11tcm (see Figure 2.2).

The other continent rich in shale gas is Arica, mainly northern (Arab) Arica and the Republic oSouth Arica. Recoverable shale gas resources or RSA are reported by EIA and ARI as equal tosome 13.7tcm (see Figure 2.2). Gigantic resources are also reported or Libya and Algeria, equalto 8.2 and 6.5tcm respectively.

Based on the EIA and ARI report, Europe has ar smaller shale gas resources than the othermajor continents. Nonetheless, also in this case, their cumulative amount o 15.5tcm, i viewedin relation to some 520bcm o EUs annual consumption, indicate the importance o shale res

ervoirs as a gas source. Assuming that gure is correct, shale gas could supply ca. 30 yearsworth o European gas consumption. Making a more realistic assumption o European consumption being supplied rom the shale reservoir, this amount o gas would be sufcient ormore than 100 years.

The two European countries with the most signicant potential or shale gas are certainly

Poland and France, with resources o ~5.3 and ~5.1tcm o recoverable gas respectively (see

Figure 2.3). In the case o Poland, these resources are related to the Ordovician-Silurian basin,

creating a strip crossing the country rom NW to SE (see Figure 2.4). In France, the shale gas

Figure 2.2 Recoverable shale gas resources in Asia, Australia and Arica

bcmo

recoverablegasresource

s

40 000

35 000

30 000

25 000

20 000

15 000

10 000

5 000

0

Source: EIA i ARI Report, 2011


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32 Pawe Poprawa

resources are related mainly to the Mesozoic basin in the SE part o the country in the Marseille

region (see Figure 2.4). The Paris basin could also have some limited shale gas resources, and,

urthermore, there are better prospects or shale oil exploration.

The other European countries do not have such great shale gas potential, except or the

2.3tcm o recoverable gas reported or Norway (see Figure 2.3). However, on the scale o an

individual countrys energy mix, shale gas resources might be o some importance. Shale gas

exploration has already begun in Germany, in the Lower Saxony Basin (Jurassic shale), and

some potential is also suggested or Lower Carbonierous shale in NW Germany (see Figure

2.4). However, cumulative resources given by the EIA and ARI report are low and equal to

226bcm (see Figure 2.3). The same shale ormations continue to the Netherlands, where

their gas resources might be preliminarily estimated at 481bcm (EIA and ARI report). Slightly

higher resources o Lower Carbonierous shale (566bcm) are reported by the same sourceor Great Britain. In northern Denmark and southern Sweden, gas might be accumulated in

Cambrian Alum shale (see Figure 2.4), and resources have been reported as equal to 651bcm

and 1160bcm.

A ew other basins in Europe are currently being considered or shale gas exploration. An inter-

esting case is the Vienna Basin in NE Austria and its borderland with Slovakia and the Czech

Republic. In this case, the great burial depth o the ormation might limit the possibilities o

commercial shale gas production. The other cases are Silurian basins in southern Romania,

northern Bulgaria and SE Turkey (see Figure 2.4). Much attention has also been ocused on theDniepro-Donieck Basin in Ukraine and to a lesser degree, the Prypiat basin in Belarus. In both

Figure 2.3 Recoverable shale gas resources in Europe40 000

35 000

30 000

25 000

20 000

15 000

10 000

5 000

0

bcmo

recoverablegasresources

Source: EIA i ARI Report, 2011


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33European and Global Resources and the Potential o Unconventional Gas

cases, the shales are o the Upper Paleozoic age. In western Ukraine, a Silurian shale, which

extends to that location rom the main basin in Poland, might also contain unconventional

gas accumulations. The very early stage o reconnaissance studies and the lack o key data

are reasons or the current limited ability to estimate resources or Romania, Bulgaria, Ukraine

and Belarus.

Figure 2.4 Location o major European basins with potential or shale gas exploration


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35

Guy Lewis, Trevor Smith, Kent F. Perry, Pawe Poprawa

3. EnvironmentalImpact o Unconventional GasExploration and Production

Unconventional gas development contributes to the supply o aordable and secure

energy rom the worlds cleanest burning ossil uel. This versatile uel provides an efcientsource o power, aordable transportation in terms o natural gas vehicles, and efcient

and aordable gas or end users. The environmental benets o utilizing natural gas are

well documented. In comparison to coal per unit o energy generated, natural gas emits

99% less mercury and sulur dioxide and 82% less nitrous oxides than burning coal in a

pulverized coal unit. A natural gas combined cycle power plant generates 50 to 60% less

greenhouse gas than a comparably sized coal plant, although the net greenhouse gas lie-

cycle benets have recently been questioned over concerns on the amount o methane

potentially released during exploration and production activities. Natural gas power plants

are also a superior complement to renewable power generation given their ability to beefciently ramped up and down in output. As a transportation uel, natural gas generates

at least 30% less greenhouse gas than liquid uels. Natural gas also provides improved

efciency or homes and businesses based on ull uel cycle analyses. For example, the

production and delivery o natural gas to a customer is 91% efcient as compared to an

average or electricity delivered to a customer at around 27% efciency.

For the U.S. situation, the Gas Technology Institute has calculated that by embracing natural

gas in all o these uses in addition to increasing its energy rom renewable sources, the U.S.

can reduce its greenhouse gas emissions by 25% in 10 years and 42% by 2030 (as proposed bythe U.S. House o Representatives). In doing so, the U.S. can rely on generally already proven

technologies to achieve this environmental benet o 3.000 metric tons by 2030 and save

trillions o U.S. $ in imported energy. This path provides time to develop new technologies

that urther reduce the carbon ootprint o natural gas utilization to enable targets beyond

2030 to be achieved. The benets o enhancing natural gas supply in Europe has been high-

lighted by the European Gas Advocacy Forum as an efcient pathway to achieving Europes

CO2

abatement targets o 40-45% by 2030 and 80% by 2050 relative to a 2010 baseline. Their

assessment identied embracing natural gas as a key part (along with the addition o sig-

nicant increases in renewable energy generation) o the most economically attractive mixto achieve 2030 targets and delivering on 20/20/20 commitments without restricting uture


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36 Guy Lewis, Trevor Smith, Kent F. Perry, Pawe Poprawa

options or increasing costs or 2050. This analysis suggests 120 to 140bcm o additional sup-

ply could be required to achieve these objectives. Unconventional gas would be an important

supply addition to supplement new pipeline and LNG imports that will also likely be required

in Europe.

However, all industrial activities including energy resource development have an impact

on the environment and the benets o cleaner burning natural gas are being evaluated in

comparison to the environmental impact o unconventional gas exploration and production

activities. This section will highlight the issues associated with unconventional gas develop-

ment, identiy the potential impact and the importance o addressing each issue, and con-

sider these issues rom the Polish perspective.

The issue that gets the most attention associated with shale gas is hydraulic racturing

and the impact o hydraulic racturing will be considered beore considering other issues.The hydraulic racturing technology is used to create permeability in the unconventionalresources beyond what Mother Nature has provided and enable commercial ow rates.

One o the rst experimental racture stimulation treatments on record is reported to have

been in 1947 in the Kansas portion o the Hugoton eld, which targeted our limestone gas

pays at depths ranging rom 2340 to 2580 eet deep. That stimulation job was conducted

in our separate hydraulic racturing treatments or stages, each o which involved pumping

1000 gallons (4000 l) o napalm or thickened gasoline through jointed tubing. Since then,

over 1 million hydraulic racturing jobs have been completed and the uids used are much

more benign. Today work continues to urther ne-tune the approach with more precise siz-ing and placement by multi-stage racturing. The industry has become more efcient over

time and can continue to do so.

There have been many concerns raised associated with this process. Some o these concerns

have been sensationalized in the documentary Gasland, in a series o articles in March 2011

published in the New York Times, and outlined in many internet blogs. There is no denying

that there are impacts o energy development on the environment, but some o these treat-

ments neglect and distort acts. This is a lot o new attention to a process that has been used

or over 2 million wells utilizing billions o gallons o uid over a 60 year period. In part, thisis due to signicant activity taking place in populated areas that have little experience with

natural gas production. There is a large amount o water required, chemicals are introduced

into the water, and the processes used are generally invisible and below the surace. The

vast majority o applications are perormed without incident, but good news is not news.

The internet allows many points o view to be shared and supporting evidence does not

need to be provided. The solution is doing good science and providing transparency to

exploration and production activities. This can lead to a separation between act and ction

and allow or the ocus to be put on any risks to the environment that might be real and the

mitigations to urther reduce impact over time.


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37Environmental Impact o Unconventional Gas Exploration and Production

The potential or environmental impact does exist and operators have not always been

very aggressive on reaching out to aected communities and explaining the process.

As a result, there is oten conusion and several potential concerns get combined under

the heading o concerns associated with hydraulic racturing. These include the volume

o water required, the potential or ground water contamination, the potential or spills

o water at the surace, and the potential or seismic activity. Each o these will be assessed

in this section.

The water requirements are signicant. Water demand is 3 to 5 million gallons (ca.

110 000-190 000 hl) per multi-stage horizontal well with 89% o this water used or rac-

turing. By 2015, activity in the U.S. Marcellus shale drilling program is projected to use

28 million gallons (more than 1 million hl) per day. It is not expected that shale gas activity

in Poland will reach this same high level. But even i it did, this is still less than the water

required to support one electric generation station scrubber and less water than requiredor many other uses. A 2007 assessment organized by the Gas Technology Institute o

water consumption in the Dallas-Ft Worth region o Texas identied that the combined

water consumption or activity in the Barnett gas shale was less than many other uses o

water including even watering gol courses. In total, water or Barnett Shale development

was ound to represent less than 1% o the total reshwater use in the Dallas-Ft. Worth

Region. This is a signicant amount o water but all energy generation requires water.

Although unconventional gas activities require more water than conventional gas activi-

ties, unconventional gas production is still quite efcient relative to other sources includ-

ing coal, biomass, and nuclear.

Operators have continued to make great strides in recent years to manage the environmen-

tal challenges o sourcing resh water or hydraulic racturing and treating. One o the most

important developments has been the practice o reusing the ow-back water rom one

well or part o the volume required or the next wells hydraulic racturing eort. Typically,

about 25% o the water used ows back over the rst ew weeks ater the hydraulic rac-

turing and, as a result, this reuse reduces the potential or environmental impact, reduces

ton-miles required in water transportation, decreases air emissions, decreases carbon oot-

print, lowers truck trafc densities, reduces road wear and generally leads to greater stake-holder acceptance. These eorts are still transportation-intensive with 1 million gallons

(ca. 40 000 hl) owing back rom one well requiring over 200 truck loads and our times

that typically needed in total or the next well. In addition to reuse, operators sometimes

dispose o ow-back and produced water by deep well injection at Class II wells, but this

option is only available in regions where the geology is suitable or deep injection and the

wells have been drilled. Re-introducing the water rom hydraulic racturing into surace or

ground water can be environmentally sae i the water rst is sufciently treated but these

treatment technologies can be very expensive. Developments continue within the industry

to reduce the cost o these treatment technologies. In the meantime, some water treatment


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is important or re-use as well to protect equipment and the shale ormation rom damage.

This portolio o options allows operators to be exible and allow or the reshwater require-

ments or shale gas development to be minimized.

Fracturing uid migration into resh water aquiers has not been observed. As noted ear-

lier, the racturing takes place very ar below resh water supplies and when ractures are

monitored with micro-seismic measuring they are ound to not reach nearly ar enough

to cause water contamination. One source o conusion is that the majority o the water is

not recovered back at the surace as ow-back water. This has led some to believe that this

non-recovered water seeps back to the surace through the earth and contaminates resh

water aquiers. This is not the case. This water stays deep in the earth, kept rom migrat-

ing by the same low permeability that causes the need or hydraulic racturing in the rst

place. Although it is not demonstrated that ractures can reach resh groundwater, there is

the potential or spills at the surace and leaks and ruptures in surace casing i cementingjobs are not perormed properly. As a result, it is important to understand what is put into

racturing uids. The content o hydraulic racturing uids has changed over time. Today,

there is a movement towards green uids. There is much conusion over what these uids

contain. Fracturing uid is typically 90.6% water and another 9.0% is the proppant or sand

that is used to keep the ractures open. The proppant is generally sand or coalbed meth-

ane applications as well but light strength proppants such as sintered bauxite or medium

strength compounds are also used when required to handle higher pressure situations.

The remaining 0.4% is made up o chemicals added or eatures such as to reduce riction

and protect equipment rom corrosion. These chemicals are not unique in their use orracturing. They are chemicals encountered in other uses including household detergents,

ood additives and maintaining swimming pools. The risk should not be diminished and

ignored, but it is important context to note that these are chemicals generally encoun-

tered elsewhere in human activity.

Another key issue with produced and ow-back water is salt content. Solids content rises

dramatically rom a shale well ater the rst ew days ollowing a racture application. The

good news as an operator is that the ow rate has usually allen dramatically so the total

salts generated are limited. This uid should not be reintroduced untreated into the drinkingwater supply. For CBM, the seams must be dewatered or a long period o time. The water

rom dewatering eorts is brackish but has less dissolved salt than in produced water rom

shale wells. GTI has supported the industry by leading some o its sampling eorts. Flowback

water characteristics are consistent with ranges observed with produced water generated in

the production o conventional natural gas. This includes a low concentration o suspended

solids and total organic content. Man-made chemicals o concern are usually at very low

or non-detectable levels. Oils and greases are also at very low and non-problem levels, but

some control may be needed. Heavy metals are lower than in municipal sludge which among

its other uses includes use as ertilizers. What ows back is mainly water with a degree ototal dissolved solids in a mixture o carbonates, chlorides, sulates, nitrates, sodium and


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other minerals. So there is a treatment challenge i these waters are to be reintroduced into

the natural ecosystem. But i handled properly with sustainable operating practices, there

should not be contamination.

There have been some documented cases o localized surace releases o uids at the sur-

ace caused by spills and casing ruptures. In these cases in the U.S., regulators have ned

the operators and the operators have cleaned up the local spill and provided alternate

sources o resh water until monitoring provided assurance that the water quality was

restored. These cases provide the strong case or voluntary release o inormation on rac-

ture uid constituents and identication and adoption o sustainable operating practices.

There have been assertions as highlighted earlier o more general contamination o water

resulting rom shale gas development. The most recent example is a Duke University study

nding that methane concentrations in surace water near Marcellus shale drilling sites are

higher than in nearby surace waters not near drilling sites. The details o this study meriturther review. However, it is premature to draw conclusions. Actual baseline measure-

ments o sites were not taken prior to drilling activity and it is possible that this methane

concentration was already higher in the measured locations. It is also possible that the

higher methane concentration was the result o older wells already drilled in the area that

may not have had adequate cement treatments or were abandoned without adequate

plugging. Additional evaluation o this report and a ew o the assertions made by the

public and media will help separate act rom ction and enable experts to ocus on any

real sources o risk.

The nal issue associated with the hydraulic racturing process is that the process causes

earthquakes. This concern has been raised in association with a small quake in Texas, a

cluster o small quakes in Arkansas, and the most recent event in the UK in a region o

shale gas development. O course, the racturing process does generate many small seis-

mic events. Each small crack made in the rock can be measured. But these are not elt on

the surace by people and there has not been any relationship proven or demonstrated

between racturing and seismic events o the magnitude measured in these specic

instances. The prevailing view is that these very small ractures do not induce larger seis-

mic events but evaluations continue. There has been more concern highlighted associ-ated with injection o uids into deep injection wells (or water rom unconventional gas

activities and rom other sources). In these cases, the wells were being operated in regions

near natural aults. One example is an injection well in Texas that was potentially linked to

a small quake and that Chesapeake shut down ater it was shown to be near a previously

undetected natural ault. The recent Arkansas swarm was in an area that has had similar

clusters well beore racturing began but this event has led to a moratorium on new injec-

tion wells in Arkansas. Scott Ausbrooks, geohazards supervisor o the Arkansas Geologic

Survey, has said, What we believe is happening is when the old (racking owback) water

is put into the deeper (disposal) wells, it reduces the riction in the ault (ault-line). Thisdoesnt cause a quake, it just speeds up the process. The quake will happen somewhere


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down the line anyway, but this process may be making them happen sooner. Although

not caused directly by hydraulic racturing or shale gas, this is an area that would benet

rom additional research to understand the risks o deep well injection in regions with

these wells located near natural aults.

There are issues beyond hydraulic racturing and water consumption that generate con-

cerns associated with unconventional gas resource development. These include surace

disturbance, the impact o trucks used to transport water, solid waste generation, noise,

and emissions. Each o these is getting attention by the industry. One activity ocused on

this is the Environmentally Friendly Drilling Program led by the Houston Advanced Research

Center, or HARC. In addition to a ocus on lower impact drilling rigs, construction o roads to

remote drilling sites that naturally disappear ater activity is completed, and development

o lower impact site logistics, this program has developed a voluntary best practice score-

card that can be utilized by each operator to provide transparency on the environmentalquality o their operations. This eort is now being brought to Europe as the European

Environmentally Friendly Drilling Program being led by the University o Leoben in Austria.

An example o reducing surace impact is the use o multiple wells o a single pad and

other steps that allow operators to now arm more surace area o resource rom the same

surace area. The progress has been amazing, rom 502 acres (~200 ha) per wells in 1970 to

over 32 000 acres (almost 13 000 ha) possible today. In any case, unconventional gas devel-

opment is quite efcient. The energy content generated over the lie o one Marcellus shale

gas well on a 0.25 acre (0.1 ha) o land is equivalent to 500 acres (~200 ha) o windmills. Theindustry continues to advance on this ront. The best capabilities developed to date need

to be transerred to new production areas. In addition, the industry continues to increase

reservoir coverage by extending laterals urther out and adding more racture stages. Shale

gas laterals are now reaching 6500 eet and being ractured with as many as 38 stages.

Some operators are reducing the distance between laterals. But opportunities to urther

reduce impact and raise productivity remain. For example, it is estimated that only hal o

the hydraulic racturing stages generate their potential in production. Increasing ractur-

ing eectiveness through better models and design will generate more natural gas or the

same surace area, trucking, and water requirements.

In addition to issues associated with possible contamination rom ow-back and produced

water rom shale gas activities, recent New York Times articles highlighted concerns o

contamination rom solid wastes generated by the drilling activity. These concerns have

included the potential mobility o contaminants, including naturally occurring radioactive

materials, rom landlls where these solid wastes have been deposited. Highlighted sources

o potential contamination have been drilling mud additives and compounds present in

the rock itsel that could get concentrated into the drilling uid and returned to the surace.

Testing to date has indicated that these solids are suitable or municipal landlls, but con-cerns continue to be highlighted in the media. An example is the reported radiation level o


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the solid wastes generated by the U.S. Marcellus shale play. However, actual analysis o the

generated drilling waste solids suggest radioactivity levels at or near background radiation

levels already present at the surace and below limits set or municipal landlls. Another

issue associated with solid wastes is the volume o material generated that needs to be

disposed o. A typical long lateral horizontal shale gas well can generate 1700 tons o solid

waste ater dewatering. By the th year o exploration in Poland at the pace suggested by

some recent projections, the total solid waste generation will be over 200 000 tons per year.

This volume o material is high enough to warrant consideration o efcient and economic

benecial use alternatives.

The nal issue to be addressed in this chapter is air emissions generated by exploration

and production activities. These emissions can include smog producing nitrous oxide com-

pounds as well as methane which is a signicant greenhouse gas. In the rst years o shale

gas development, these emissions were higher than they are now. An example o reduc-tions in nitrous oxides is the experience o Pinedale in the U.S. where the U.S. Bureau o

Land Management recognized the eorts to address air quality issues in 2009. New emis-

sion technologies had reduced nitrous oxide emissions by over 80% rom 2005 levels. In

the case o methane emissions, the cumulative emission reductions by the partners in the

voluntary STAR program organized by the U.S. Environmental Protection Agency between

2000 and 2008 totaled over 800 bc. This was achieved by adoption o improved equipment

and practices to limit methane emissions during the production and gathering o natural

gas. This is very important given that methane has 21 times the impact as a greenhouse gas

as carbon dioxide. A recent report issued by Proessor Howarth o Cornell University high-lights the importance o these emissions. This report alleges that the methane generated

during unconventional gas resource production is sufcient to negate the benets high-

lighted earlier in this section or natural gas as a source o power relative to coal. The report

cites a recent revised inventory o methane emissions issued by the U.S. EPA. However,

a number o recent detailed evaluations o the Cornell report highlight issues with the

assumptions made. Included in these are that the Cornell report assumes methane is 105

times worse than CO2

as a greenhouse gas (instead o 21 times), that the EPA inventory did

not actor in the improvements measured by the STAR program, and that unaccounted or

inventory losses were counted as emissions which is not accurate. Correcting or these ac-tors supports the conclusion that natural gas used or power plants generates less than hal

the greenhouse gas impact as coal plants.


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The Polish Perspective on the Environmental Impacto Unconventional Gas Exploration and Production

Some aspects o the environmental impact o shale gas exploration and production are spe-

cic to a given geological structure (basin) or a given region/county. This is related to specic

eatures o the geological setting, the type o landscape and the dominating land use, as

well as legal regulations. From this perspective, Poland is a particularly interesting case, as

this is the rst country outside North America (U.S. and Canada) likely to develop shale gas

production on a signicant scale, and thereore also the rst such country in Europe. A spe-

cic geological characteristic o ormations that are a target or exploration in Poland is their

relatively old Ordovician to Silurian age (~420 to ~460 million years old), whereas most U.S.

and Canada basins produce gas rom Devonian-Carbonierous or Mesozoic shales (~390 to

~65 million years old). Due to the evolution o the biosphere on the Earth, having an impact

on the organic matter rom which gas is generated, this might have some importance orshale gas exploration. The only other known old gas-bearing shale is Utica shale in NE USA

and SE Canada.

Environmental protection is, rom this countrys perspective, one o the motivations or

shale gas exploration. Currently, Polands energy sector is highly dependent on hard coal

and lignite, and thereore is characterized by high emission o greenhouse gases. Hard coal

and lignite account or some 60% o Polands energy mix and or roughly 90% o electricity

production. Partly or this reason, Poland is the second lowest gas consumer per capita in

the EU ater Sweden. The importance o natural gas as the cleanest burning ossil uel willgrow in Poland in the near uture; however, an efcient, reliable and economic source o gas

is required or this. Shale gas might thereore become or Poland an energy source which

would allow it to reduce greenhouse gases emission.

To achieve this, however, venting and emission o methane to the atmosphere, addressed

by Proessor Howarth o Cornell University, must be managed properly. This requires regula-

tions as to obligatory aring o methane coming to the surace and ow back waters, as well

as good technical standards o the gas transport inrastructure. As one o the main sources o

methane emission is leakage rom the pipeline system and compressor stations. The act olocal production o gas in Poland and thereore only short transport to consumers through

newly built inrastructure would have an advantage in comparison to gas coming rom the

NE part o European Russia or rom western Siberia, transported in a very long, partly old,

pipeline system, proven to be a source o continuous methane emission.

Water consumption or racturing is a common concern in public discussion on shale gas,

as discussed in a previous paragraph. However, water availability characteristics are always

unique or an individual sedimentary basin or even or its individual zones. Poland is not a dry

country, and water use or hydraulic racturing certainly cannot aect aquiers to a consider-able degree. Available resources o aquiers in Poland are equal to 13 626mcm/year, currently


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consumed at an average rate o approximately 11.5% (per year) (Polish Hydrogeological

Survey data). However, it is important to note that the shale gas basin is located in central

and southern Pomorze, eastern Mazowsze and the eastern Lublin region, which are regions

with signicantly lower water consumption. In the case o renewable water resources rom

aquiers, the amount o water extracted is less important than its rate. In each local case

regulations as to the maximum rate o water extraction rom the given aquier are required,

and such a system is already successully unctioning in Poland.

The cumulative amount o water required in the uture or the shale gas industry in Poland

is large, however, not i compared with other types o water consumption. In current sim-

ulations by the Polish Geological Institute, the city o Warsaw alone consumes 4-10 times

more water annually than could be anticipated as the cumulative annual water consump-

tion or hydraulic racturing in the whole o Poland. Nonetheless, aquiers are not the only

source o water or hydraulic racturing. The other sources are surace water, particularlyrivers and deeper ormations o brackish waters or brines. These sorts o brines are avail-

able in the discussed region o Poland at a depth o several hundred meters. Reuse o ow

back water rom previous hydraulic racturing will also help to reduce water consumption.

Possible water pollution by drilling or racturing must, urthermore, be discussed in the con-

text o the specic local characteristic o the given basin, as the probability o the impact o

such activity on aquiers is to some extent related to the geological structure and setting.

However, concern that drilling through aquiers could aect their quality is in general irrel-

evant, as casing and cementing during drilling is sufcient to prevent any contact o drillingmud o racturing uids with aquiers. The technological process o drilling itsel is identical,

irrespective o whether it is conducted or shale gas, conventional hydrocarbons or deep

hydrothermal resources or or scientic purposes, and only at the completion stage is a spe-

cic technological approach applied to unconventional hydrocarbon resources. In the case

o Poland, a cumulative number o more than 7100 deep wells (>1000 m) have been drilled

to date, each involving drilling through aquiers, and no cases o water contamination have

been reported.

A separate issue is concern or the possible impact o hydraulic racturing on aquiers due toconnections created by induced ractures. This concern is generally based on a misconcep-

tion and a lack o geological knowledge, but in the case o Poland there are additional rea-

sons to exclude such a possibility. The ractured ormation is located at a depth o 3500-4500

meters below the surace, and induced ractures have penetrated some 200 m laterally and

100 m vertically at most. Above, there are some 2000-3000 m o isolation by Upper Silurian

mudstone and marl, as well as locally by Zechtein evaporates and Triassic mudstone and

shale, while aquiers are present at a depth o several meters to 100-300 m below the surace

at most. The only way o contact between racturing uids and aquiers is thereore a spill on

the drilling pad. The drilling pad, however, might/can be maintained by proper regulations,monitoring and execution o best practice.


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A discussion on possible concentrations o naturally occurring radioactive materials in solid

wastes rom racturing is also hardly relevant to shale as an exploration target in Poland. The

Upper Ordovician and Lower Silurian shale in Poland does not contain elevated concentra-

tions o natural radioactive elements. Also, concern or Earth tremors triggered by hydraulic

racturing is irrelevant in the case o Poland, being a non-seismic country.

Since shale gas production requires a denser grid o wells in a larger area than in the case o

gas production rom conventional elds, a conict between nature protection on the surace

and land access required or gas exploration might be an issue locally. In Poland, the acreage

with potential or shale gas production is, however, generally located outside areas covered

by the Nature 2000 protection program.

More intense drilling or shale gas than in the case o gas production rom conventional

elds also raises some concerns as to the surace ngerprints o drilling activity. Current tech-nological improvement, in particular longer horizontal intervals and multi well drilling pads,

allow or a signicant reduction in the surace impact o shale gas exploitation. Such technol-

ogy could reduce the amount o drilling pads per one concession block in Poland (usually

about 250 000-300 000 acres/1000-1200 km2) to 50-100, each occupying around 2,5-10 acres

(1-4 ha). The cumulative acreage o drilling pads on an individual block might thereore be

in the range o around 124-990 acres (50-400 ha), and assuming that on the national scale in

Poland no more than 30-50 blocks out o a total o some 80 allocated blocks might produce

gas in the whole country, some 3700-49 400 acres (1500 to 20 000 ha) might be used or

drilling. This is, however, only a temporary use or a ew to several months at each location,and aterwards the land would be recultivated and returned to its previous use, which is usu-

ally agriculture. Reaming permanent production inrastructure is minor and has virtually no

surace impact.

What should be regarded as important or shale gas production in northern and eastern

Poland (central and southern Pomorze, eastern Mazowsze and the eastern Lublin region),

where the shale gas basin is located, is the relatively low population density and the mostly

agricultural use o land. In the zone o probable gas production, the population density is

mostly in the range o 20-60 person/km2. The only exceptions are the vicinity o Warsaw andGdask agglomerations.

In addressing the potential environmental impact o unconventional gas exploration and

production activities, it is important to acknowledge that lack o trust is an issue. The pub-

lic is seeking inormation rom a knowledgeable and credible source and may not see the

industrys view or even the view o regulators to be credible. As a result, acts alone may

not be sufcient. How stakeholders are engaged will be as important as the acts as this

will not be an academic scientic discussion. It is vital that there be an authentic sharing o

inormation and careul listening to alternative viewpoints. Environmental groups and com-munities need to be part o the conversation on these activities and joint evaluation o the


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acts can help provide assurance and build the required credibility. O course, the industry

should consistently and proactively adopt best practices tailored to the Polish situation. R&D

opportunities remain to urther reduce the impact and these can be prioritized. Poland has

an opportunity to lead the way or Europe by consistently utilizing sustainable operating

practices and engaging in transparent dialogue rom the very start.


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AMERICAN SUCCESS


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49

Guy Lewis, Trevor Smith, Kent F. Perry

4. Unconventional Gas:The North American Experience

The unconventional gas plays o North America are numerous, covering substantial areas o

the eastern, southwestern, northern, southern, and western states o the U.S.; vast areas oCanada have extensive unconventional gas plays as well. Some have estimated that shale gasin particular could provide as much as hal o the natural gas production in North Americaby 2020 which would amount to over 14tc o natural gas per year representing more than$70 bln o revenue at current market prices.

It has been called a revolution. However, the making o this revolution has over a 20 year history. Few people had heard o unconventional gas just 5 years ago. Even or those in the UnitedStates that had some knowledge o unconventional resources such as shale gas, tight gas, and

coalbed m

unconventional gas - a chance for poland and europe

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