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    Poland Offers Europe a Bridge to a More Secure Energy and Economic Future

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Summary

Shale gas may be the key to solving some of our most imperative short-term crises. It may serve to bridge the gap to a more secure energy and economic future.

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Natural Gas & LNG News, News By Country, Poland, Shale Gas

Poland Offers Europe a Bridge to a More Secure Energy and Economic Future

Redrawing Europe's Energy Map: Poland’s Offer

The Russian state-owned energy giant Gazprom enjoys unwavering control of gas exports to Europe with little current viable competition. The European Union, overall, receives 25 percent of its natural gas supply via pipelines from Russia, with some (mostly Eastern European) consumers almost completely dependent on the large supplier. These consumers have been actively in pursuit of diversification.

Poland’s shale gas discovery has recently given Europe reason to be optimistic in attaining its energy diversification goals and may serve as a means of tackling Europe’s most imminent energy crises. Just the potential for Poland’s offer is enough to make a change.

3 Legs Resources, Exxon Mobil, Chevron, and Talisman Energy are among companies leading the effort to unlock gas trapped in shale rocks from Poland to Bulgaria. This supply may be enough to meet regional demand for almost 80 years, according to the US Energy Information Administration (EIA). Poland has completed seven wells out of a planned 124.

EIA estimates that Eastern Europe may hold as much as 7.1 trillion cubic meters of shale gas. Poland alone may sit atop about 5.2 trillion cubic meters, amounting to more than 300 years of domestic consumption and approximately 55 percent of the estimated shale gas reserves in Europe. This exceeds projected domestic consumer need, indicating Poland may evolve from an energy importer to an energy exporter, a promising sign for Europe’s energy diversification agenda.

To date, Poland has issued 86 exploration licenses. In April, U.S. explorer Marathon Oil Corp. agreed to sell a 40 percent interest in 10 Polish licenses to Nexen. A month later, Total SA signed an agreement with Exxon to take a 49 percent stake in two licenses in eastern Poland. The licensing process is more or less complete.

Poland is a large net importer of natural gas. Of the natural gas consumed in Poland in 2009, 61 percent was imported, almost all of which was supplied by Russia. Realizing the potential for unconventional natural gas to support its declining conventional gas production, the Polish government has shown strong support for shale gas drilling and has put into place very attractive fiscal terms for shale gas development. "Exploration of our own resources is our chance and our obligation,” Polish foreign minister RadosÅ‚aw Sikorski said. “Shale gas is a chance to limit Poland's and Europe's dependence on imports."

The US shale gas industry serves as a positive influence on the Polish drive for shale gas exploration. Shale gas already covers 20 percent of US gas consumption and Gazprom has admitted that it isn't able to sell as much to the United States as it used to because of the shale gas reserves there. With the United States as a model, production of shale gas may serve to loosen Poland dependence on Russian gas imports and ease Europe’s energy concerns.

However, Gazprom will not loosen its grip on Eastern European markets easily. Russia has already cut crude oil exports to the major refinery base in Gdansk, sending a clear signal to Warsaw that they should expect other retaliatory actions if they renege on long term contracts with Gazprom.

These responses from Russia are not unique to Poland. Eastern Europe as a whole has been preyed upon by Russian energy and economic interests. Russia-Ukraine gas disputes have been endemic since 2005 and are widely believed to have been Moscow’s response to Ukraine Orange Revolution in 2005, when pro-Western presidential candidate, Viktor Yushchenko was elected after a highly contested election against pro-Russia candidate Viktor Yanukovych. In 2008 and 2009, disputes with Ukraine led Russia to cut off supplies, leaving customers in Kiev and Western Europe briefly without fuel in the dead of winter.

In 2007 a Russia-Belarus energy dispute began when Gazprom demanded an increase in gas prices paid by Belarus. Belarus responded by siphoning off oil from the Druzhba pipeline which runs through Belarus and the dispute escalated further when the Russian state-owned pipeline company, Transneft, stopped pumping the oil entirely. Belarus had yet another dispute with Russian energy suppliers in 2010 concerning outstanding debts.

During its ongoing energy price dispute with Georgia, Gazprom threatened to cut off supplies before finally reaching a settlement in December 2006, a doubling of the price of gas to $235 per 1,000 cubic meters.

“The gas issue in Europe and especially in central and Eastern Europe has much more significance than dollars per cubic meters,” Bulgarian Energy and Economy Minister Traicho Traikov said. “It has to do with national independence.”

The September 2011 launch of the Nord Stream pipeline carrying gas from the Russian Federation to Germany via the Baltic Sea was a successful feat for Gazprom and Russian Prime Minister Vladimir Putin. Now Russian energy exports can bypass Eastern Europe and Russia can rely significantly less on Ukrainian and other Eastern European pipelines and ensure steady gas flow to Germany and the rest of Western Europe. Shale gas production in Eastern Europe can reverse this isolation.

If initial estimates are confirmed, shale gas production in Poland will, in a decade, transform the European energy market by boosting energy security and lowering gas prices. The Russian Federation will no longer have a secure monopoly of gas exports to Europe and increased competition will ultimately force Russian producers to lower prices. Most importantly, once European shale gas starts running it will be difficult for the Kremlin to use its energy exports as a solid political lever.

Shale gas may be the key to solving some of our most imperative short-term crises. It may serve to bridge the gap to a more secure energy and economic future.

Mackensie Knorr is with the Atlantic Council's Dinu Patriciu Eurasia Center.

Source: New Atlanticist