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European shale gas reducing Russia’s key status

American technology to produce shale gas is unleashing a scramble for drilling rights in Poland, where experts believe vast reserves of unconventional gas exist that could help to weaken Russia’s grip on Europe’s energy supplies.

ConocoPhillips is poised to launch Poland’s first shale gas drilling programme next month near Gdansk on the Baltic coast.Two other American oil groups — Exxon-Mobil and Marathon — and Talisman Energy, of Canada, are set to follow.

The technology has transformed America’s energy industry and driven gas prices to their lowest level in years.Wood Mackenzie, the oil and gas research group, estimates that there could be as much as 48 trillion cubic feet (1,36 trillion cubic metres) of unconventional gas stretching across northern and central Poland.

The gas, which does not lie in conventional reservoirs but inside tight rock formations, has become accessible only recently through the use of new hydraulic fracturing technology developed in the United States.If confirmed, Wood Mackenzie’s estimate would boost the European Union’s proven reserves of natural gas, which stand at 101 trillion cubic feet, by 47 per cent and be enough to make Poland, which imports 72 per cent of its gas, self-sufficient for the foreseeable future.

“There is a landgrab under way,” said Oisin Fanning, the executive chairman of San Leon Energy, a British company that has secured three licence areas in the region with Talisman. “Poland is going to emerge as a significant gas producer and there is a lot of interest.

All of the majors are coming in and Gazprom is looking at this with some alarm.” He said that Talisman planned to spend $140 million (£90 million) on its Polish drilling programme, which will start next year.Poland consumes about 14 billion cubic metres of gas per year and has been heavily dependent on Russian imports. Mr Fanning said that the shale gas in Poland was of high quality and relatively shallow.

It is similar to gas found in the Montney shale deposits in British Columbia and Alberta, Canada.He said that the licence areas were also thinly populated — an advantage, because shale gas production involves the drilling of dozens of wells across a relatively small area.

Water and sand are pumped in at high pressure to fracture rocks and create reservoirs from which the gas can be extracted.Mr Fanning pointed out that the Polish Government, which is keen to diversify its energy supplies from a reliance on Russia, has been strongly supportive of the programme. It is seeking a 23 per cent tax take. Rowen Bainbridge, the chief executive of Aurelian Oil and Gas, another British company exploring in Poland, said: “These are some of the best fiscal terms in the world.

The Government is creating a very large commercial incentive to develop these deposits.”Some have been sceptical that unconventional gas production will take off as quickly in Europe as it has in America, where output has grown fourfold since 1990 to more than 50 per cent of total production.

One reason is a shortage of land-based drilling rigs in Europe. The number of rigs in the US stands at 949, according to figures from Baker Hughes, an oil services company based in Houston. In Europe it is thought there are about 100 rigs.European Union gas demand is expected to rise by 2 per cent this year to 554.1 billion cubic metres, with domestic output meeting about half of that total, according to Wood Mackenzie. Russia supplies about 25 per cent of the EU’s gas needs.

 
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