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No Europe Shale Boom as First Wells Struggle, Bernstein Says

The first results from wells in Poland show Europe is unlikely to match the U.S. boom in shale gas, analysts at Bernstein Research said.

Two wells in Poland’s Baltic basin, where hydraulic fracturing was used to release gas, flowed at rates below the those seen at fields in the U.S., in part because of pressure in the shale rock, Bernstein said. Hydraulic fracturing, or fracking, is a technique that uses water, chemicals and sand to open fissures in rocks.

The development of shale fields in Poland, considered Europe’s best prospect for so-called unconventional gas, will be further held back by a lack of land, water and drilling rigs, Bernstein said. Exxon Mobil Corp. and Chevron Corp. are among producers drilling in Poland.

“Recent data from Poland’s shale gas wells validate our concerns about European shale gas: poor flow rates in over-pressured, hard-to-develop shales,” Bernstein analyst Oswald Clint in London said in the report. “Conventional gas markets should tighten rather weakening on a shale gas boom.”

Poland has one-tenth the spare water resources available to U.S. shale producers, a more densely-populated country, eleven times the reliance on agriculture and one-hundredth the drilling-rig count, the report said. Other European countries with shale reserves include the U.K., Ukraine and France.

Baltic Basin

The Lebien and Lebork wells in the Baltic Basin flowed gas at rates well below the flows from similar wells in the U.S.’s Barnett, Fayetteville and Marcellus shales, where average 30-day flows range from 2 million to 4 million cubic feet a day.

Lebien is operated by a unit of London-traded 3Legs Resources Plc.

Lebork, which Bernstein says has cost $6.5 million, was drilled by a subsidiary of Camarillo, California-based BNK Petroleum Inc. BNK said today it will use a new fracture design next year 2012 to re-stimulate the well.

"Drilling costs are under control, they are higher than in the U.S. but this is due to the market conditions, we're hoping they will fall once the competition grows," Jacek Wroblewski, the country manager for BNK Petroleum Inc. in Poland, said by phone today.

Concern that fracking pollutes drinking water may also hold back development of fields in Europe. France has banned shale drilling while more research on its environmental impact is carried out.

Gas markets in Europe will continue to tighten, Bernstein said, citing declining indigenous production, increasing flows of liquefied gas to higher-priced Asian markets, peaking Norwegian output and gas-fired power demand climbing at a rate of about 1.3 percent a year.

Conventional gas producers will benefit, the report said, including OAO Gazprom, Eni SpA, Royal Dutch Shell Plc, Total SA and BG Group Plc.

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