Deutsche Bank on Polish Shale
- Written by Nick Grealy
- Published: 14 April 2012
This isn't in the public domain but is used with permission from Deutsche Bank from a March 27 report "European Gas: An Uneasy Balance".
Researchers at the Polish Geological Institute and the U.S. Geological Survey reported a revised estimate of Poland’s recoverable shale gas reserves in a range of 346-768bcm, and an estimate of maximum potential shale gas reserves of 1.92tcm, in comparison with an EIA estimate of 5.3tcm of technically recoverable shale-gas reserves last April.
The new results do not incorporate information gathered from wells drilled last year by ExxonMobil, which were found to be commercially unviable, or any of the other 20 wells drilled by other exploration companies as these results remain confidential. Rather, the study was based on 39 conventional wells drilled in the 1960s and 1970s. In our view, the new result does not reduce the appeal of shale-gas development in Poland, as even 346bcm (the lower end of the estimated range of recoverable reserves) represents 25 years of consumption at 14bcm p.a. The new study also leaves unanswered the important questions of productive potential and commercial viability.
We can infer that there is still significant promise in Poland’s shale-gas sector from the continuing exploration activities of major producers such as Chevron, ExxonMobil, ConocoPhillips, Eni, Marathon Oil, domestic players PGNiG and PKN Orlen, and independents 3Legs Resources, Talisman Energy and Hutton Energy. In addition, ExxonMobil plans six new exploratory wells to be drilled from 2012-2014, and PGNiG may reportedly increase its budget for shale-gas exploration this year.
According to Poland’s chief geologist Piotr Wozniak, it would be necessary to study the results from 100 wells in order arrive at a reliable estimate of shale-gas reserves. A further 127 wells are expected to be drilled by 2017, according to Wozniak. Therefore, we regard Poland’s shale gas potential as very much yet to be determined.
This view somewhat contradicts shale opponents hoping we can pack up Poland and happy days are here again for renewables/coal/nuclear and Russia. Notably, DB's Michael Hseuh is the same author of the DB report quoted approvingly by European shale gas doubt sowers, such as Caroline Lucas during Newsnight on March 20 and Damian Carrington of the Guardian last year.
However, for a really clear-eyed judgement on this, let's turn to an investment analyst. I think they are good guides, as their motivation is crystal-clear: will it make money? Deutsche Bank's special report, A first look as EU shale gas prospects, was published on 20 October and concludes:
"Those waiting for a shale gas 'revolution' outside the US will likely be disappointed, in terms of both price and the speed at which high-volume production can be achieved.
That's a bucket of cold water to cool the ardour of shale gas fans, but why did Deutsche Bank reach this conclusion? They won't put the report online, so I'll give you their reasons in their words.
Prime among the uncertainties are the size of the recoverable resource, the rate at which production can be achieved, and the extent to which the concerns of local residents and environmental groups can be accommodated.
The Guardian continues to pin a lot on the DB report,displaying it prominently in their Guide to Fracking Beta. On version three for example you can find it on the significance slider. Michael Hseuh of DB told me by email that he was unaware the report had been used by opponents.
DB's report is of course just one side. Bernstein Research have said broadly the same thing and we've countered the objections here frequently. DB are consistent, even if I think they are wrong. Population density won't be an issue in rural Europe where density is no different than rural Pennsylvania and far less than Fort Worth. A case in point is how actual production of a European shale play being planned today envisages starting at 50 wells from one pad. Schlumberger think that if the Barnett shale were to be done today, they would drill less than 10% of the wells used as little as three years ago. The reduction in well numbers in turn has a massive impact on both costs and public opposition, but that message hasn't gotten through to either DB or the Guardian yet. DB from this year:
On the other hand, we remain sceptical regarding the potential for major shale-gas developments in Europe outside Poland as environmental and social impact concerns are paramount, populations are more dense and drilling costs materially higher than in the US, and resources less plentiful.
The Guardian from last year, recycled this:
The only problem is the holes. Singleton's single drilling site – the subject of protest posters around the village – is only the first of many. If Cuadrilla is to be successful in extracting commercially viable quantities of gas from the shale, it will need to drill a lot more – about six to eight holes per square mile, in fact, potentially running to hundreds or thousands of holes eventually.
If European shale production were to involve six to eight holes per square mile, not only would it be financially impossible, but I'd join Frack Off myself.
A major problem with shale is that it is developing so quick that objections based on old technology are out of date in months. Objections based on footprint are as out of date as those based on chemical use, water disposal and transparency, all issues that have now been done and dusted, but which threaten to misinform the debate going forward. An out of date debate is mis-informed debate.