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The Warsaw Voice » Business » March 27, 2013
Central Europe Energy Partners
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Pinning Hopes on Shale Gas
March 27, 2013   
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Grażyna Piotrowska-Oliwa, CEO of the Polish Oil and Gas Company (PGNiG), talks to the Voice’s Andrzej Jonas and Andrzej Ratajczyk.

The Polish Oil and Gas Company has recently been drilling for shale gas in Poland. But the success of this project depends on a number of external factors. It is no secret that there is a strong lobby in the European Union aiming to limit the extraction of shale gas from European deposits. Is it possible that some regulatory obstacles will emerge at the EU level that will make it impossible or at least difficult for Poland to access its own gas deposits?
I do hope that the European Commission will not adopt any regulations that would prevent Poland from extracting shale gas. Those who oppose shale gas argue that its extraction is harmful to the environment. But they do not come up with any evidence to prove this. We know from our own experience that Polish environmental regulations are even more restrictive than EU directives. If the regulations are observed, the environment and people are fully protected. On the other hand, it seems there is no justification for adopting common regulations on shale gas, or even all hydrocarbons, at the EU level. The reason is that there are countries—like Poland, Germany and Britain—which have large potential gas deposits and also a great number of countries that do not have such deposits and consequently have no interest in developing this industry.

What measures is PGNiG taking to make sure that solutions advantageous to Poland are adopted?
The most important thing is to meet with decision-makers to communicate to them the Polish position and show evidence that our arguments are well-founded. Forty-two exploratory wells for shell gas have been drilled in Poland. They have been drilled in a professional way, in compliance with regulations and with no harm done to the natural environment. This is the argument I put forward during my recent meeting with Günther Oettinger, the European commissioner for energy. We are trying to make this fact widely known in Brussels.

Oettinger is one of the most influential EU commissioners. What is his position on shale gas?
My impression from my conversation with Commissioner Oettinger is that he is in favor of defining a uniform legal framework for all EU countries, however one that would leave member countries a lot of freedom in deciding about imposing a moratorium on shale gas extraction. This means it would be necessary to adopt a catalogue of rules based on existing directives, but without making decisions for member states. Generally, Commissioner Oettinger understands that shale gas is a fuel of the future. It is a low-emission fuel, which is consistent with the EU policy on carbon dioxide reduction.

Communication is very important, as shown by an exhibition at the European Parliament debunking the myths about the harmful impact of shale gas extraction on the environment. The exhibition was organized by the Coalition of Citizens for Responsible Energy, which includes the Central Europe Energy Partners association. The latter brings together more than 10 member organizations from the Czech, Slovak, Hungarian, Romanian, Lithuanian and Polish energy sectors. In a sense, the exhibition influenced EU deputies because they did not adopt a previously planned resolution designed to restrict the exploration and extraction of shale gas in Europe.

In recent weeks, PGNiG has conducted broad public consultations on an EU survey concerning tightening regulations on shale gas extraction. It was our duty to do so because not all the questions in the survey were objective. We kept the public informed, but also asked people to respond to the survey and support the shale-gas project, which is important for Poland. The survey was intended for all citizens of EU countries.

Some European countries are not interested in developing the shale gas business for various reasons. Countries opposing shale gas extraction include economic powerhouses such as Germany and France. Can these countries block the extraction of gas from Polish deposits?
Those who oppose the extraction of shale gas have a strong position in the European Union. But it is also worth noting that opposition to shale gas has recently eased significantly. We have recently seen a heated debate on shale gas in Germany, showing that even the German government is not unanimous on this matter. Chancellor Angela Merkel has clearly suggested that new restrictions on gas extraction should not be introduced, as those already in force are sufficient. She only said that the so-called fracking method of shale gas extraction should not be conducted in areas with a shortage of water. I think some German politicians are beginning to change their approach under the influence of the business sector, which has started to see the benefits of shale gas.

In Europe, France is the biggest critic of shale gas. That is understandable to an extent because the country has a very well-developed nuclear energy sector and is almost self-sufficient in terms of energy. As a result, it is not interested in developing alternative energy sources. But the French government’s stand on shale gas has undergone some evolution as of late as well. The country initially had a moratorium on shale gas, but a few months ago President Francois Hollande said that generally he was not opposed to shale gas extraction but only to the hydraulic fracturing method, which, by the way, is part and parcel of shale gas extraction. Despite that, knowing the French mindset, I think this declaration is a good sign and makes further discussion possible. Interestingly, France has quite large potential shale gas deposits.

The example of the United States, where hundreds of thousands of jobs have been created thanks to shale gas extraction, should win European skeptics over to shale gas. This is something that Europe, which is suffering from stagnation and rising unemployment, has to notice.

How do ordinary people in Poland view shale gas?
Positive attitudes towards shale gas extraction are dominant among the public. Polls show that around 70 percent of respondents would have no reservations if shale gas exploration were to begin in the immediate vicinity of where they live. Interestingly, the percentage of shale gas advocates is especially large in areas where exploratory work is now being conducted. One of the reasons is the educational campaign being carried out by PGNiG. Over the past several months, we have held dozens of meetings with local communities in areas where we are conducting or are going to conduct exploratory activities. This is very important because insufficient information on shale gas extraction technology often leads to unfounded fears. What is equally important is to make people aware of the benefits that local communities may have from the exploitation of the deposits in their area.

However, the most important argument in favor of shale gas exploration is the need to improve Poland’s energy security. Poland’s proven deposits of conventional gas are estimated at 96 billion cubic meters, which is enough to meet the country’s demand for gas for no longer than several years. Poland consumes almost 15 billion cubic meters of gas annually, with nearly 11 billion cubic meters being imported, mainly from Russia, and over 4 billion cubic meters coming from indigenous sources. Poland’s energy security requires that extraction from indigenous deposits should be increased. This is why we must not miss the opportunity to extract gas from unconventional sources. Gas extracted domestically is always much cheaper than imported gas.

Do you think shale gas extraction in Poland could have a similar effect on the economy as has been the case in the United States?
Americans had to wait 20 years to see the results. Also, it is difficult to compare the American conditions with those in Poland. First, drilling and extraction are not easy because of EU regulations as well as the Polish law, which is even more restrictive. In the United States, only one document is needed to drill a well. In Poland, around 30 documents are needed. This takes time. And time is money. Although the extraction of unconventional gas is more expensive than extraction of conventional gas, indigenous shale gas will still be cheaper than imported gas. Whether the difference is in the region of 30 percent or more is open to debate. But it will certainly have an influence on Polish gas prices and consequently the Polish economy as a whole.

How many wells does PGNiG plan to drill this year?
This year, we plan to drill 13 exploratory wells. And if the presence of gas is confirmed we will continue our work. Then, more than 10 new wells may be drilled in the same areas. This will enable us to estimate the amount of shale gas that can be extracted. The next step will be applying for extraction licenses because for the time being we only have exploratory licenses. Then, we will have to import additional drilling equipment to drill the planned wells. Our calculations show that as many as 80 or 100 wells are needed to benefit from economies of scale.

Shale gas exploration and extraction requires huge amounts of money…
It is true that one needs to invest first in order to profit from this business. And the costs are enormous—they may exceed $10 million for a single well. A single license may be for up to 80 pads, or places where gas mines composed of 12 wells may be located. It is easy to calculate that spending may reach zl.400-500 million per pad. And when this amount is multiplied by the number of pads, of which there may be 80, it will turn out that one license may require investing around zl.40 billion. Of course, these costs will be gradually decreasing, but it’s necessary to keep in mind that PGNiG has 15 licenses and will have to invest heavily.

There has been speculation for some time on how large Poland’s shale gas deposits really are. Last year, the Americans reported that the deposits may contain as much as 5.3 trillion cubic meters of shale gas. But then much less optimistic estimates were released, with the deposits expected to be several times smaller. Why the difference?
The difference is largely due to the method used to estimate the deposits. When it comes to the 5.3 trillion cubic meters, the figure has generally resulted from multiplying the area where shale gas can be found. Meanwhile, the Polish Geological Institute (PIG), which estimated the gas resources at anywhere from 350 billion to 700 billion cubic meters, took into account only those deposits whose exploitation will be economically justified. The issue of key importance for us is getting an answer to the question of how much gas can be extracted from a specific well. And we’re working on obtaining an answer.

When will the exact estimates of the deposits become available and when can shale gas extraction begin in Poland?
If the exploratory work is successful, the extraction of shale gas on an industrial scale should begin in 2015. The key date is 2022 when the contract for gas supplies with Russia’s Gazprom expires. I think it would be best to know three years ahead of that date, that is in 2019, how much gas we would be able to extract from indigenous sources and how much should be imported from other countries.

For the time being, PGNiG relies on U.S. know-how in drilling its wells. Do you expect to develop your own shale gas extraction technology in the future?
We use know-how developed by American companies only in the fracking process. I am convinced that in the future we could become experts in this area as well. Last year, PGNiG—together with the Orlen Upstream company, the Lotos Group, the AGH University of Science and Technology, the Oil and Gas Institute, the Gdańsk University of Technology, and the Warsaw University of Technology—established a consortium that aims to support the development of innovative technology for the extraction of natural gas from unconventional deposits in Poland. Under the agreement, the partners will be jointly applying for funding and carry out projects approved by the National Center for Research and Development. I think if we develop new extraction technology and put it into practice we will be able to sell the know-how abroad.


Grażyna Piotrowska-Oliwa graduated from the Academy of Music in Katowice (1993) and the National School of Public Administration in Warsaw (1997); she also holds an Executive MBA degree from INSEAD (2005). Further, Piotrowska-Oliwa completed a strategic planning course at Queens University, Canada (1996), a course for candidates for supervisory board members at companies in which the State Treasury holds equity interests (exam passed in 1997), a course for investment advisors at the Privatisation Centre (1998), as well as courses in macroeconomics and finance at the London School of Economics (1999). In 1997-2001, Piotrowska-Oliwa worked at the Ministry of the State Treasury as Head of Capital Funds Department and Head of Strategic Companies and Financial Institutions Department. Subsequently, she held positions of Director of Regulator Relations Department (2001-2006) and Executive Director for Strategy, Development and Wholesale (2006-2007) at Telekomunikacja Polska S.A. In 2007-2009, Piotrowska-Oliwa was the CEO and President of the Management Board of PTK Centertel Sp. z o.o. (Orange mobile network operator). From November 2010 to March 2011 she worked as an advisor on telecommunications transactions on the private equity market. Since April 2007, she has served as Vice-President of Employers of Poland on a voluntary basis. Piotrowska-Oliwa also held positions on numerous supervisory boards i.e. Fundusz Górno¶l±ski S.A. in Katowice, the Polish National Depository for Securities, ABC DATA S.A., Orlen Deutschland GmbH and PZU S.A. From June 2011 to March 2012, she was a Chief Sales Officer & Management Board Member in PKN Orlen S.A.

On March 19, 2012 Grażyna Piotrowska-Oliwa took the positon of the CEO & President of the Management Board in PGNiG SA.
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