This is a follow up to a post from June 29, and an update to what we think is going to be the big story in European shale gas, Poland. We've talked at length about Polish shale, via activity of ConocoPhillips, BNK and Marathon.  Now confirmation that Polish politicians are waking up to the implications.  Can they please tell other European politicians the news?

Dec. 9 (Bloomberg) -- ConocoPhillips and Marathon Oil Corp. are betting that Poland, which gets half of its natural gas from Russia, can yield a development boom in shale formations like those that drove a jump in U.S. output of the heating fuel.

The third- and fourth-biggest U.S. oil companies obtained exploration licenses this year covering hundreds of thousands of acres in Poland. The country, which imports 72 percent of its gas, could become an exporter of the fuel, said Maciej Wozniak, chief adviser on energy security to Prime Minister Donald Tusk.

“Everything leads to a conclusion that in four or five years, and this is how much time we have to prepare for this, Poland will become a place with quite a lot of gas,” Wozniak said in a telephone interview.

If shale changes the game anywhere in Europe, Poland is the place.

“Increasing natural-gas production in Poland, especially in such a sustainable way, is very important for us,” Wozniak said. “Given our situation and the problems we had over the last years with securing stable supply on the gas market in the country, this initiative is particularly valuable.”

We are of course still in the if stage in Poland.  But perhaps we should investigate Polish shale a bit more before being forced into paying for CCS in UK energy bills?

If the 430 million-year-old Silurian shale that stretches through Poland proves to be “an economic resource,” 48 trillion cubic feet (1.4 trillion cubic meters) of gas could be recovered over decades, according to Rhodri Thomas, a project adviser at Wood Mackenzie Ltd. in Edinburgh. That much gas would sell for more than $240 billion at current futures prices.

Just to give an idea, the UK uses 2.5 trillion cubic feet per year.

But this raise a an interesting question.  If the energy adviser to the Polish Prime Minister isn't worried about Russian gas, why are the UK Energy Minister and the Chief Scientific Officer to the Department for Environment and Climate Change?

So says the Atlantic Council a US think tank.  Despite looking like the kind of place where Dick Cheney may be hanging out in exile, they make good points that UK policy makers outside of energy should start considering. It's getting obvious that energy politicians in the UK are so (still!) utterly convinced (or have a vested interest?) of a gas shortage, that perhaps it's time to change tack and have word in the ear of those who realise that policies have to fit facts, not cater to outdated concepts. This would be a good place for any present or future UK policy makers in Treasury or Foreign Office for example. After all, these are type of guys who sold the fiasco of Iraq. They should find something that makes sense like shale easy.

Lost amidst the doom and gloom over global warming and energy dependence on the Middle East and Russia is the fact that new technologies and drilling techniques are allowing recovery of gas trapped in shale and gradually but inexorably transforming the global energy security equation.

The good news is that the price of liquefied natural gas (LNG) has dropped by roughly half, and US gas imports have dropped precipitously as these technologies have been deployed over the past two years or so. Now Europe is beginning to focus on its own shale deposits to reduce Russia’s hold on Europe’s gas market. And not least, as gas is the cleanest of fossil fuels, producing about 40% of the GHG of coal, it could provide some benefit in the effort to mitigate climate change.

I'm quoting at length from this for two reasons. Firstly, it's been frustrating at No Hot Air, that although plagiarism is the sincerest form of flattery that there has been quite a bit on shale's implications in even some of the world's most respected publications, mentioning no names but one in English and one in French, that seem to depend on what we've posted here without having the courtesy to link to us.  That means apart from anything else, that we haven't seen anything new.

What is original here, apart from some interesting figures from the US EIA that we were unaware of,  is the speculation includes the political implications of shale:

The prospective geopolitical implications are also intriguing. Widespread shale gas production holds the possibility of reducing Russian control over Europe’s supply.  Europe itself has modest shale gas potential, and regulatory and legal questions further cloud its potential for shale gas production. But if shale gas becomes a larger factor in world gas markets, Europe could find access to relatively cheaper LNG supplies outside of Russia from Qatar, offshore Africa, and elsewhere. What impact such an eventuality might have on EU-Russia relations makes for interesting speculation.

Moreover Russia and Iran, which combined possess more than 40% of current proven gas reserves, may find that shale gas make it less attractive for foreign investors, whose technology can be critical, to develop those reserves. Iran, in particular has proven a vexing and problematic place to invest (quite apart from the political risk factor), especially so in its energy sector. If both petro-states have less gas revenue to bankroll their respective foreign policies, their efforts to expand in influence in the former Soviet space in the case of Russia, and the Middle East/Central Asia in the case of Iran, that would likely impact geopolitics on both areas.

All this is, of course, is for now, in the realm of speculation. But there is a loud buzz about shale gas being a game-changer among energy analysts that is difficult to ignore. In any case, shale gas has already injected great uncertainty into the future of gas markets and changed the US gas picture. Whether it rises to the level of being a game-changer is a judgment that will remain premature, probably until well into the coming decade.

We hope, and we will point out to the UK policy makers in particular  Energy Minister Malcolm Wicks and National Grid's Nick Winser that outdated assumptions need to be updated.

Two stories today showing two opinions from one country.  This shows the still prevalent UK view of Russia as threat to energy security needs to be a little more nuanced.

First off, the usual story, from Gazprom in the Moscow Times.  They would say this wouldn't they?

A Gazprom spokesman on Monday dismissed concerns that a growth in the production of shale gas would pose a threat to the company’s foreign sales, voicing the gas giant’s first comment on the prospect.

After gas prices surged last year and early this year, many European gas companies have begun studying the U.S. technology for producing shale gas, which may be a cheaper source of fuel.

“The speculations that shale gas is cheaper than the Russian gas are not true,” Gazprom spokesman Sergei Kupriyanov said in an interview with Russia Today television.

Recenty we have been hearing that Gazprom is seen by some Russian sources as not maximising their potential with European end-users.  Which make the statement by Russian oil major Lukoil interesting:

OAO Lukoil ut its 10-year output targets as Russia’s biggest non-state crude producer postponed some natural-gas projects on a decrease in European fuel demand and unconventional gas developments in the U.S.

“It looks like our country will face serious problems with gas exports as early as the next decade,” Deputy Chief Executive Officer Leonid Fedun said in Moscow today.

And does this sound like the looming Russian Gas Crisis Alistair Buchanan and Malcolm Wicks fear, where a lack of investment in Russian gas threatens the UK's gas needs?

Lukoil postponed some of its gas projects as demand slipped and the U.S. made “dynamic” developments in shale gas, Fedun said. Some existing projects boast cheaper costs than liquefied natural gas and unconventional gas projects and would provide free cash flow of over $6 billion through 2019, Fedun said. Lukoil’s largest natural gas projects are in Siberia, the Caspian Sea region and Uzbekistan in Central Asia.

Thursday's gas storage data from the EIA were pretty astounding for the end of November: Historically the period sees gas coming out of storage as winter starts.  But storage levels are still growing!  This is convention breaking, paradigm shifting and disruptive events rolled into one. The entire point of producing natural gas is that someone will find it useful and burn it. That sometimes gets lost when commodities take on the role of financial assets instead of physical ones.

Why isn't the winter season soaking up natural gas and what are the short term implications? What we don't have figures for is actual demand.  A mild November is one definite cause of the glut, but is it the only one? Perhaps not.

We don't know how much demand has increased, or not, from generation demand for example. We can only guess what will happen in the future of the big IF.  If the recession ends how much will demand recover?  Consider three fundamentals of the US economy:

1.  One of out seven mortgages are in arrears

2. One out of eight adults and one out of four children in the US are dependent on federal assistance via food stamps to eat.

3. Whether or not there will be a recovery, it is increasingly looking like a jobless recovery.  Jobless recoveries don't increase demand for gas, we need factories to actually build things and use the gas.

The US is still the world's largest economy, as important as EU and BRIC demand is.  People who can't afford to eat or put a roof over their head won't be buying any UK or EU products anytime soon either.

The fundamentals of US gas supply are tottering.  What would it take to get them back into sync?

The bottom line is that you are at the end of November, and you are still putting gas in the ground," said Stephen Schork, editor of the energy advisory newsletter the Schork Report, adding it would take an "ice age" to send prices significantly higher.

The entire cycle is that winter comes, gas gets used in what Americans call furnaces and the UK calls boilers, and the prices depend on the gap between what comes out of the ground and then goes up in smoke, or to be more exact a vapor cloud. Gas comes out of storage and gets burned, which should be it's destiny.  A molecule of gas stuck under ground is not necessarily wrong, but it is pointless and even more so considering that storage itself comes at both a physical and financial cost. Come springtime, gas production gets soaked up again by  storage.

But what if springtime comes and much of last year's gas meets next year's gas production and supply and demand fundamentals continue as they were?  The collision could be explosive.