Shale Gas in Europe: Poland and Ukraine as Pioneers

Poland is setting the stage to become a rising player in the European natural gas market. Europe has long been reliant on Russia for its supply of natural gas, but domestic discoveries of shale gas—along with strong governmental support for drilling—might soon catapult Poland to the forefront of the energy landscape.

Craig Pirrong submits: Some weeks ago I opined that it was foolish for Poland to lock itself into a very long term contract with Gazprom (OGZPY.PK) (going out to 2037) given the prospects for shale gas. I did a little digging (or should it be drilling?) for information on shale gas prospects in Poland, Ukraine, and elsewhere in Europe, but other things (e.g., life) intervened and I didn’t follow up.

MOSCOW — Russia’s top crude oil producer Rosneft wants to break the monopoly of another state-owned energy champion, Gazprom, to export gas via pipelines, sources said on Friday, signalling a flare-up between powerful clans. Igor Sechin, a long-standing ally of Russian President Vladimir Putin, transformed Rosneft into the world’s top publicly traded oil producer through the US$50-billion purchase of Anglo-Russian firm TNK-BP last year.

It is no secret that in scrambling to find an alternative to Russia's energy-export dominance, Europe is actively seeking to recreate the US shale miracle (at least superficially, recall that a month ago Germany shelved shale-gas drilling plans until at least 2021, when it would again reassess the shale ban).

China’s plans to unlock what could be the world’s biggest shale gas reserves risk running further off track after 16 firms awarded exploration rights in the latest auction lacked one core skill – not one has drilled a gas well before. Beijing is hoping shale gas can transform the country in the same way as the U.S. boom, though to date there has been little commercial production and a target of producing 6.5 billion cubic metres of gas by 2015 in the world’s biggest energy consumer looks out of reach, according to industry experts.

China’s plans to unlock what could be the world’s biggest shale gas reserves risk running further off track after 16 firms awarded exploration rights in the latest auction lacked one core skill – not one has drilled a gas well before. Beijing is hoping shale gas can transform the country in the same way as the U.S. boom, though to date there has been little commercial production and a target of producing 6.5 billion cubic metres of gas by 2015 in the world’s biggest energy consumer looks out of reach, according to industry experts.

Ukraine will take a first major step away from dependency on Russian gas supplies on Thursday when it seals a $10 billion shale gas deal with Royal Dutch Shell. Due to be signed at the World Economic Forum in Davos, the production sharing agreement will mark the biggest contract yet to tap shale gas in Europe and the largest single foreign investment in the former Soviet republic.

<p>Poland is currently reliant upon natural gas imported from Russia. They shed the iron rule of the Soviet Union only to hand power back to Moscow due to their need for Gazprom’s products.