Fracking Boom Delayed by Kites as Poland Seeks Gas Independence

Photographer: Czarek Sokolowski/AP Photo

Talisman Energy Inc. exploring for shale gas near the village of Szymkowo, in Poland. Close

Talisman Energy Inc. exploring for shale gas near the village of Szymkowo, in Poland.

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Photographer: Czarek Sokolowski/AP Photo

Talisman Energy Inc. exploring for shale gas near the village of Szymkowo, in Poland.

Poland’s path to energy independence through shale gas is being delayed by skylarks, red kites and local farmers hesitant to grant access to their land.

The nation is sitting on the European Union’s biggest reserves of the fuel, enough to last at least 50 years and free it from dependence on Russia, according to the Polish Geological Institute. Exploiting the deposits will require the government to allay the concerns of the Kashubian ethnic minority, farmers, environmentalists and the tourism industry that hydraulic fracturing, the drilling method that made the U.S. the world’s biggest producer, will pollute their water.

Explorers from ConocoPhillips to Chevron Corp. and Polskie Gornictwo Naftowe i Gazownictwo SA may spend $4.5 billion this decade sinking wells to tap into natural gas more than 3 miles (4.8 kilometers) below the nature reserves and winding roads that link rural villages in the north of the country. Last year, about 25 percent fewer wells were completed than forecast by the Environment Ministry as some projects were delayed.

“People in the region have emotional ties to their land, which they’ve owned for generations,” Malgorzata Klawiter, plenipotentiary for shale gas of the marshal of Pomerania, the official charged with promoting the development of the fuel and linking the communities and the industry, said in an interview. “For them, the value of an old home with a shack and surrounding land is much higher than any market estimate.”

Exxon Withdrawal

The ministry expects companies to drill 39 wells this year, more than double the annual average over the previous 30 months, as the government moves to simplify environmental rules.

In June, Exxon Mobil, the world’s biggest energy company by market value, pulled out of Poland, citing “disappointing” results from its first wells. Talisman Energy Inc. may exit to focus on shale in North America, it said in October.

Isle of Man, U.K.-based 3Legs Resources Plc said a month later it plans more work after improved gas flows from a well on one of its three Baltic Basin licenses, owned jointly with ConocoPhillips.

Poland was Europe’s largest holder of unconventional gas, with total technically recoverable reserves of 187 trillion cubic feet, 33 percent more than those of America’s Marcellus shale, the U.S. Energy Information Administration said in 2011.

Rising U.S. oil and gas production helped the U.S. meet 84 percent of its energy needs in the first 10 months of 2012, on pace to be the highest annual rate since 1991, government data show.

Poland, which imports about two-thirds of its gas from Russia’s OAO Gazprom, plans to double domestic production by 2019 to improve its negotiating position before talks start on renewing a long-term contract that ends in 2022.

Fracking Protests

France, the Netherlands, the Czech Republic, Bulgaria and part of Germany have some form of restriction on hydraulic fracturing in place in response to public concerns and protests mirroring those led by U.S. activists including Yoko Ono. In fracking, companies blast thousands of gallons of water, sand and chemicals deep underground to break up rock formations and free oil and gas. Homeowners in Pennsylvania, Texas and Wyoming have complained that their well water was contaminated with chemicals or methane gas from nearby wells.

While Poland is probably the most accommodative country for shale-gas exploration in Europe, according to Deutsche Bank, the U.K. lifted a ban on the technology in December and Lithuania and Ukraine have opened their deposits to explorers. Romania’s government said in January it’s interested in shale gas exploration even though it hasn’t lifted a moratorium on fracking.

Simpler Rules

The Polish Geological Institute said last March the nation’s deposits are probably as much as 27 trillion cubic feet, based on an analysis of 39 wells drilled from the 1950s to the 1980s. The country consumed 544 billion cubic feet in 2011, according to BP Plc’s Statistical Review.

After exploration slowed last year, the government decided to simplify rules aimed at protecting rare species, which require investors to seek new permits any time they want to drill deeper or in a different direction than originally planned.

“Drillers have to submit environmental studies even though there’s no real impact on the environment, resulting in delays and costs as crews have to remain mobilized,” Environment Minister Marcin Korolec said Jan. 17 at a news briefing.

It took Polskie Gornictwo, or PGNiG, almost a year to be able to start drilling horizontally from the Lubocino well on its license northeast of Bytow, a town of 17,000 founded in the 12th Century. The process became more complicated after red kites, members of the same bird family as eagles and hawks with a wingspan of about 1.65 meters (5.4 feet), were seen in the area during the required environmental inventory.

Protected Species

“A hired naturalist spotted a red kite,” Miroslaw Szkaluba, deputy president of PGNiG, said in an interview. “The bird was circling, probably seizing currents of warmer air generated by the drilling site’s cement slabs to glide.”

The study also found a skylark, a sparrow-sized brown songbird that breeds across most of Europe, nesting next to the site. Because both are protected species, PGNiG had to get permission to scare the birds away or wait until the end of the nesting season. The company started hydraulic fracking of a horizontal well in Lubocino last month.

“We must realize that inflexible environmental rules are slowing the drilling and increasing costs,” Szkaluba said in Parliament in September.

10-year low

The U.S., where a boom in shale extraction helped drive down gas prices to a 10-year low last year, doesn’t require explorers to carry out additional environmental studies as long as they drill in the same geological formation. Canada favors a so-called single-window approach to streamline permitting, regulation and compliance.

BNK Petroleum Inc., a producer of oil and gas in the U.S. that operates concessions in Poland, faced similar delays as it sought to deepen a well and drill horizontally from its promising Gapowo-1 site.

Even though another few months may pass before it gets the approval, the explorer has said it is determined to wait and doesn’t plan to leave Poland.

“We have spent a lot of money exploring in Poland already and believe we have found an area that’s highly prospective to make commercial shale gas wells,” Wolf E. Regener, chief executive officer of Camarillo, California-based BNK, said in an e-mailed response to questions on Jan. 31. “We are hopeful that over time all these permitting processes will be streamlined so that permits can be issued faster while still having all the protections that both the government and the industry want.”

Overturning Truck

Last summer, BNK sought to minimize the effects of delays on its schedules due to lengthy permitting procedures. In August, as the explorer was waiting for permits to deepen the wells, a tanker truck it contracted to move drilling liquids between two sites overturned on a traffic circle near Bytow.

While there were no injuries or environmental damage, 12 cubic meters (424 cubic feet) of drilling mud, the fluid used to help boreholes go deeper into the ground, and containing 0.1 percent of biocide, was released into a river, according to the company. The chemical is potentially dangerous for the environment and human health.

The accident highlighted the risk to the environment and the lives of those dependent on the land, according to Malgorzata Nowotnik, owner of a farm and agro-tourism business in Pomysk, 30 kilometers outside Gapowo, and a secretary of the agro-tourism association of Bytow district.

Bigger Scale

“Exploration has just begun and the mud has already spilled,” she said in a September interview. “What will happen when the scale is much bigger? You can control single wells but not hundreds or thousands of them.”

While no drilling is allowed on her farm, which is protected by the European Union’s Natura 2000 biodiversity program that covers 19 percent of Poland, Nowotnik says she’s concerned about potential water contamination from drilling.

Poland’s Environment Ministry expects 309 wells to be completed by 2021. Each may cost as much as $15 million, according to Jacek Krawiec, chief executive officer of PKN Orlen SA, Poland’s largest oil company that is also exploring for shale gas.

In Gdansk, the capital of the Pomerania region that is 85 percent covered by exploration licenses, Klawiter is preparing an information campaign on shale gas that seeks to involve locals, investors and municipalities, so that production can start in 2015. Most of Poland’s 228,000 Kashubians, an ethnic minority with their own language, live in the province.

“Drilling will directly impact vast numbers of people and communities,” Klawiter said by phone on Feb. 1. “It would be irresponsible not to try to supply information and conduct a dialogue, which may or may not boost support in the end.”

To contact the reporter on this story: Marek Strzelecki in Warsaw at mstrzelecki1@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net

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