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The Brewing Shale Gas Energy Boom That Nobody is Talking About

Commodities / Natural Gas Nov 27, 2012 - 10:07 AM GMT

By: Money_Morning


Dr. Kent Moors writes: While folks back in the U.S. were sitting down to Thanksgiving dinner, I was making my way back to Frankfurt, Germany from Warsaw, Poland.

My discussions in the Polish capital were with the PGNiG, the national state-run gas company and the government's designated partner in all domestic drilling operations.

Unlike my German conversations, there is considerable optimism these days that the energy picture in Poland is about to change in a major way-thanks to shale gas.

Poland must overcome a serious of challenges, which, of course, were the reasons for our meetings. And despite the upbeat tenor of everybody involved, significant concerns have emerged.

On the positive side, Polish officials have committed to a rapid development of unconventional gas. In addition, no domestic opposition to drilling exists, at least not yet.

Unlike back in Germany, nascent environmental movements have neither the political clout nor the apparent interest in making this an issue.

Polish operations are currently in a very early stage, which may be the reason for the lack of opposition. Only a few test wells have been drilled (less than 15 in all), and none are near residential populations.

For that matter, PGNiG is preparing to start its first horizontal drilling operation. The test wells thus far have all been spud by foreign companies.

However, it is now clear that the "rapid" ramp up foreseen by the authorities in the central government is not working out as anticipated back at the well sites.

For one thing, the initial wells have either come in dry or produced disappointing gas flows. For another, the national gas company is under considerable pressure to produce positive results in what is becoming a very challenging technical environment.

The former result is hardly surprising. There remains insufficient geology and preliminary field prospecting. The locations of shale deposits are well known. The country has no less than five very promising basins. But Mother Nature has an irritating habit of indifferently placing hydrocarbons in those basins.

That requires initial evaluations before the expensive proposition of sinking exploratory wells commences. Thus far, the few wells attempted have been positioned with little more than rudimentary data and guesswork. The poor initial results, therefore, reflect such considerations more than anything else.

There seems little doubt that there are considerable reserves, but finding where they are remains a major undertaking.

Here challenges exist that are not a problem back in the United States.

But solving them could lead to huge breakthroughs for companies in the U.S. and energy investors alike.

The Challenges Add Up for PGNiG
For example, successful placement of wells requires early seismic studies. Yet much of the Poland's road infrastructure cannot withstand the weight of the seismic vehicles (better known in the trade as "thumpers"). In addition, much of the support equipment - everything from pressure trucks to water control, fracking, and fluid control systems - is not available.

This means that when the second situation confronting PGNiG is considered, additional pressure is brought to bear. The government has challenged the company to move quickly. And Warsaw is providing some rather significant working capital. But PGNiG needs far more support... and the company needs it immediately.

Normally, that would seem to be a bonanza for outside specialists and providers already seasoned in developing shale gas elsewhere. Unfortunately, matters are frustrated in securing an easy import of technology and expertise. All provisions must be a result of tenders, a laborious bidding process that runs the risk of sacrificing expertise for price.

In addition, both Polish and European Union (EU) regulations make it difficult for outside technology to make its way easily to development inside the county. Even setting up a local subsidiary of a foreign company is not enough, given the need to authenticate the domestic origin of the equipment and support provided. Simply setting up a local affiliate to serve as an importer is not enough.

Yet even before the tender process can be initiated, PGNiG and the authorities must be on the same page about what must be done and what is required to do it.

That remains elusive, virtually assuring further process delays. There are a range of disagreements remaining. These include:

•the type of drilling equipment that will be allowed;
•the chemical composition of the fracking fluid;
•methods for dealing with flow back water (as much as 35% of the water put down hole in the process to blow open the rock comes right back up with the gas flow - with the water now containing a mixture of tailings, chemicals, and hydrocarbons);
•the number of wells allowed per pad;
•maximum frack stages;
•the types of equipment needed on the surface, and
•how to move this equipment to and from the drilling site.

In every basic sense, Poland is at square one in a process that it wants expedited. And at the same time, the nation wants to add another item to the agenda.

Both the government and PGNiG want to tackle the environmental concerns before they become the source of popular opposition to the gas operations.

A Win-Win For Investors
Popular opinion remains decidedly in favor of shale gas development. This mainly stems from the desire to wean the country off its reliance on Russian natural gas imports. There is also the possibility that, should significant extractable volume be discovered, a new Polish exporting capability would emerge to end users elsewhere in Europe (via existing pipeline networks), even serving wider markets as liquefied natural gas (LNG) from a terminal on the Baltic coast.

But this is Europe. As other countries have already witnessed, environmental opposition forms both domestically and regionally. PGNiG, therefore, needs to address problems surfacing at the local level in Poland and from the much larger EU perspective in Brussels.

And to its credit, that is precisely what PGNiG has decided to do.

This is not a public relations ploy.

The company intends to identify and confront the problems plaguing shale gas elsewhere. This is beginning to form, however, indirectly, in questions residents are starting to pose with local governments. Inquiries will become more visible and numerous as the drilling accelerates.

I spent most of my time in Warsaw laying out the environmental difficulties experienced in North America, and proposed a few ways to confront these problems with transparency and innovation.

My belief has always been straightforward enough. I believe that approaching the environmental problems honestly and openly provides the best way for technological advances to confront the downside drilling.

Despite the shortcomings facing Poland as it races into the shale gas age, there may also be a major opportunity here.

Here at the beginning of drilling projects, an environmental commitment may usher in a new generation of advances that enable the emergence of an energy source and introduce an accepted responsibility for the stewardship of nature.

Seems like a win-win to me.

Source :

Money Morning/The Money Map Report

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