P. 2 ~ Continued - UNCONVENTIONAL OIL & GAS FOCUS: Poland shale gas could change European supply mix

Nov. 7, 2011

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Changes to supply mix

The Baker Institute issued an October report entitled "Shale Gas and US National Security," saying shale could revamp the global gas market structure. Baker Institute researchers believe Russia's contribution to the European gas market will fall to about 13% by 2040 compared with 27% in 2009.

Although Europe has substantial unconventional gas, the question remains as to how fast and to what extent Europe might develop shale, said Amy Jaffe, Baker Institute energy forum director. The future of shale gas in Europe hinges upon policy decisions by national governments, she added.

Jaffe believes unconventional resources are likely to change the world energy supply mix in a few years, lowering global requirements for gas from the Middle East and North Africa.

"Shale will alter the energy security picture for major end-use markets, limiting individual producer petro-power and creating a more competitive marketplace that could even weaken cohesion inside OPEC," Jaffe said of the Organization of Petroleum Exporting Countries.

Poland is likely to emerge as a major European gas contributor, accounting for about 55% of roughly 220 tcf of estimated recoverable shale gas resources in Sweden, Poland, Austria, and Germany, the Baker Institute report said.

Separately, the European Centre for Energy and Resource Security (Eucers) said European unconventional gas potentially could stabilize gas supplies "in the face of declining conventional production, and in doing so, could reduce dependencies and help diversify the energy mix."

In a strategy paper entitled "Strategic Perspective of Unconventional Gas: A Game Changer with Implication for the EU's Energy Security," Eucers said European shale gas could reduce Europe's dependence upon imports from Russia and the Middle East.

Eucers said, "Even if only a fraction of the potential of unconventional gas resource will become available for European and other energy markets before 2020, it will:

• Undercut the very high prices of the new Siberian gas fields of the Yamal Peninsula and in particular Russia's Arctic offshore gas resources (like Shtokman).

• Offer the EU another domestic source, enabling greater diversification of gas demand and imports.

• Extend the global overcapacity of gas at least until 2020.

• Improve the EU's energy supply security in the next decades."

The Eucers strategy paper incorporated comments from an expert roundtable on Mar. 15 at Kings College in London. The roundtable was jointly sponsored by the British Foreign and Commonwealth Office and Eucers.

Poland promotes shale

The government of Poland's promotion of shale development stands in stark contrast to France. Poland currently holds the rotating European Union presidency.

Stelmach said shale gas eventually could enable Poland to export gas and help reduce Poland's reliance upon coal, which currently is used to generate 85% of Polish power. Poland seeks to reduce its dependence upon coal because the EU is looking to restrict future greenhouse gas emissions.

Poland's largest oil refiner, PKN-Orlen, expects that exploiting shale gas deposits will help transform the company from a refiner into a gas and electric company, Andrzej J. Kozlowski, Orlen executive director for strategy and project portfolio management, told the Baker Institute.

"Orlen wants to be a leader in gas extraction," Kozlowski said.

Orlen drilled for shale at Syczyn in eastern Poland earlier this year as part of its estimated $159 million plan for six shale gas test wells to be drilled through 2013.

PGNiG, which produces 4.22 billion cu m/year of conventional gas in Poland, is analyzing Lower Silurian and Ordovician shales based upon magnetotelluric and gravimetric surveys now under way.

Pawel Jagosiak, PGNiG's deputy chairman for the shale gas task team, said seismic surveys are scheduled for the Lublin basin during 2011-12.

Plans call for PGNiG to drill the first horizontal lateral from the 3,050-m Lubocino-1 vertical well yet this year.

Gaz-System, the state-owned Polish pipeline company, is considering how to upgrade its system in the likelihood of a shale gas production boom, Gaz-System Chief Executive Officer Jan Chadam has said.

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