Shale Gas Could Alter Balance between Russia, Europe

Former U.S. Assistant Secretary of Energy James Slutz said European shale gas may alter the geostrategic balance between Russia and Europe. Speaking in Florence, Italy, at a Technical Forum on Environmentally Friendly Drilling Systems, Slutz noted that shale gas presents Europe with new opportunities to develop significant gas reserves. Shale gas has been exploited successfully in the United States for several years, Slutz noted, and Europe may soon follow suit.

Slutz is the director of International Oil and Gas Ventures for CAPPA Fund III, a Washington, D.C.-based group that purchased the rights to 34% of the shares of Transpetrol, the Slovak operating company for the Druzhba pipeline. Slutz is the principal of Global Energy Strategies, an international energy consulting group.

Shale gas deposits exist throughout western and central Europe, with large potentially recoverable reserves in Poland, Germany, Hungary, Romania, and neighboring countries. Initial exploration is already under way in Poland, Sweden and Germany, but additional exploration is needed to determine the extent of the reserves. Conservative estimates place the potential at around 500 Tcf, or roughly 5% of existing global supply.

Poland is the most promising country because of its large reserves, with several oil majors and super-majors already initiating exploratory drilling, but government regulation and licensing is a key factor in any decision to make a direct investment in a foreign country. "The fact is, almost every country in that region has shale gas deposits, and those who develop it will be those that provide a transparent and predictable environment for investors in a long term, high risk, capital-intensive industry," said Slutz.

Slutz highlighted the geopolitical implications of developing a new source of natural gas in Europe. "Recent years have witnessed Russian dominance of natural gas pipelines, and the associated energy security concerns in Europe. What is the European commitment to energy security? How quickly will shale gas resources be developed? Shale gas has dramatically changed North America from an expected large gas importer to potentially a gas exporter – in under a decade. Many Russian experts see shale gas as a threat to their market share and their resulting political influence in Europe."

Poland Shale Exploration

Several companies are pursuing or will pursue shale exploration projects in Poland in the near-term. UK-based Lane Energy Poland and Schlumberger reported on Sept. 20 that the Lebien LE1, the first of two wells that Lane is drilling in the onshore Baltic Basin region, reached total depth in record time, including coring operations of the target shales. Drilling on the second well, Legowo LE1, began on Aug. 27 and operations are proceeding on schedule.

"This is the first time exploration wells have been drilled in the Baltic Basin of Northern Poland specifically to evaluate the potential of shale gas production. Lane is delighted that the mix of locally provided and Schlumberger-managed services helped to deliver the first well under budget and under time," said Kamlesh Parmar, Lane Energy Poland Country Manager.

Schlumberger will be providing Completion, Stimulation and Well Testing Services during the production evaluation phase of the operations. The completion program has been submitted to the Polish Mining Authority and Completion operations are scheduled for October.

In February of this year, Talisman Energy entered into a farm-in arrangement with San Leon Energy and its subsidiary to be assigned up to a 60% interest in the subsidiary's two current and one pending Baltic Gas Shale play concessions in Poland. This agreement allows Talisman to leverage its North American shale gas expertise in a prospective area which is proximate to European gas markets. In 2010, Talisman expects to participate in seismic acquisition to prepare for up to a six well drilling program in 2011 and 2012.

Marathon Oil holds a 100 percent working interest in 10 concessions in Poland, totaling approximately 2.1 million acres and spanning the full geographic extent of the country's Lower Paleozoic shale play. The company acquired these concessions between December 2009 and July of this year. Marathon opened an office in Warsaw in July 2010 and plans to commence proprietary 2D seismic acquisitions in winter 2010-2011, with initial drilling anticipated to start in 2011.

According to Marathon, Poland's Lower Paleozoic shale play may be the largest and most significant opportunity for unconventional gas in central Europe and is evolving rapidly in the wake of successful shale plays in North America. Natural gas demand in the large and growing European market is approximately 50 to 55 Bcf/d, with imports from outside the European Union accounting for approximately 50 percent of total gas requirements.

In December 2009, Chevron was awarded three five-year exploration licenses in the Zwierzyniec, Kransnik and Frampol concessions, and in February 2010, Chevron acquired the exploration rights to the Grabowiec concession. Chevron has a 100 percent-owned and operated interest in these four concessions to explore for shale gas.

Poland's Deputy Prime Minister Waldemar Pawlak said on Sept. 9 that Poland should be able to give an estimate of the nation's shale gas resources within the next year. The use of these shale reserves will be possible in the next seven to 10 years. According to preliminary findings, Polish shale gas reserves could be between 52.9 Tcf to 105.9 Tcf. Poland's Ministry of Environment so far has issued almost 60 exploration concessions to companies interested in tapping Poland's shale gas.