President signs Hydrocarbon Act, but has Polish shale dream soured?

Sejm of the Republic of Poland
Source: DollarPhotoClub

After nearly two years of legislative work, the Polish Hydrocarbon Act was signed yesterday by the President.

In total, seventeen amendments to the Act have been introduced. The purpose of most of them was to simplify and clarify the tendering process and limit the paperwork required for exploration work.

It has not been all plain sailing, though. Some of the regulations regarding shale exploration in Poland – for example the permission to drill at depths of up to 5,000 metres without assessing the potential environmental impacts – fell foul of EU laws, causing The European Commission today to begin legal proceedings against Poland.

The passing of the new Hydrocarbon Act is certainly good news for Poland, which has often been criticised for muddy legal frameworks and cumbersome bureaucracy. But, as it often happens, the good news came accompanied by bad. In an interview with Reuters, Polish Environment Minister Maciej Grabowski said that fewer wells would be drilled in 2014, significantly reducing an estimate he made just several months ago. Grabowski put the number of exploratory wells at around 80 to 85, while in June his projection was 100.

This comes as a blow to Poland’s buoyant expectations of becoming ‘another Norway.’ In 2011 the U.S. Energy Information Administration estimated Polish shale gas reserves at 187 trillion cubic feet, which would have been enough to cover domestic demand for a few hundred years. But these estimates were soon revised to 148 trillion cubic feet in July 2013, and an initial assessments of shale gas resources in Poland made by the Polish Geological Survey (PIG) in cooperation with the U.S. Geological Survey, showed that recoverable resources of shale gas in Poland are most probably close to 40 trillion cubic feet.

The truth is that nobody will know anything for sure until a sufficient number of wells have been horizontally drilled and fracked. In the absence of any information on a possible level of production from a single well, the PIG assessments had to be based on comparisons with resources of shale gas plays in the U.S.assuming that production will be at a level only slightly higher than 7% of geological resources (GIP).

This seems to be the crux of the matter. It is generally accepted that for a single shale to be properly assessed in terms of productivity at least 100 wells need to be drilled. The number of wells currently drilled in Poland is nowhere near enough, but rather than accelerating, the exploration of Polish shales seems to have slowed down, with major players leaving Poland quoting difficult geology and disappointing results.

The new rules of the Hydrocarbon Act will come into force on the 1st of January 2015. Whether the new laws give Polish shale exploration a much-needed boost remains to be seen.

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