Friday, April 09, 2010

Shale dreams

Dreams are important. For many they grant one the only chance to meet Claudia Schiffer and, say, walk along the beach and, perhaps, frolic in the sand before retiring to . . . .er, nevermind.

Poland also has a dream. It wants to be the new Norway, that Nordic oil and gas giant that makes all other European countries not named Russia green with energy envy. Poland wants to go from being an energy bum to a natural gas mogul able to ship gas left, right and centre and finally pull itself out from under the Big Bad Russian Bear's paw.

This gaseous dream (no fart jokes from us) could come true all thanks to unconventional gas resources, a.k.a., shale gas, a.k.a., dream factory.

Indeed, Poland has potential unconventional gas resources. Depending on who is doing the estimating, the volume could range from 1,400 billion cubic meters to 3,400 billion. For a little context, Poland has some 92 billion cubic metres of conventional gas resources and annual gas consumption is somewhere around 14 billion cubic metres. It doesn't take a gas market expert to see why Poland's energy planners and politicians are salivating. The dream of being Norway without the salmon is not so crazy.

Poland's politicians are not the only dreamers here. What could be most convincing of the potential for many is the list of companies interested in gas exploration: ConocoPhillips, Exxon, Chevron, Marathon, to name some. We have a feeling these companies know a little bit more than we do about gas. If they are in Poland, we are not in the realm of total fantasy.

But though that may be, here is the reality check (as in this is your brain on drugs):

Not a single well has been drilled to verify the reports and potential volumes. Environmental concerns related to the technology have not even been considered, let alone addressed. No regulatory framework adjustments have been made. No pipelines were built. No servicing companies have been lined up. And so on and so on and so on. In the end, the politicians and the media also forget to say how much it will cost to get all that gas. No one has even bothered to look at what shale gas fields actually look like. A tutorial of sorts can be seen here:

Moreover, the production phase of the projects started now, if gas is found, should not be expected for 10-15 years. A Noble prize should go to anyone who can now accurately predict gas prices in 2020-2025.

Poland also has long-term gas import commitments running until 2037 (yes, 2037) that cover two-thirds of the country's gas usage needs. It likewise wants to boost imports from other sources via a planned Liquefied Natural Gas terminal. Domestic consumption levels are expected to rise significantly as Poland diversifies electricity generation away from coal toward less carbon-intensive fuels like gas. But this all implies Poland's shale gas extraction total would have to be some 11-20 billion cubic metres a year for Poland to be a net exporter. Our bet: unlikely.

Some politicians say that shale gas is the gold rush of the 21st century. But we prefer to recall Dodge City and Tombstone and the mad prospectors and the ghost towns left behind. Let shale gas not be fool's gold.