Talisman exits Poland’s flagging shale gas hunt

WARSAW, Poland—News that Talisman Energy Inc. is pulling out of exploration for shale gas in Poland is a blow to the country’s hopes that its deposits of the hydrocarbon will soon cut its dependence on Russian supplies and support the weakening economy.

Canada’s Talisman said it had not found enough gas to warrant further expensive exploration or extraction procedures. It will sell its Polish interests to a European company, San Leon Energy, and focus on easier-to-get deposits in North and South America, Southeast Asia and the North Sea.

The company’s retreat, the second by a major company in less than a year, suggests Poland was too optimistic about the value of its deposits and the ease with which it can retrieve them.

A key problem is that big energy companies are currently focusing on shale gas deposits that are easiest to extract. Poland’s shale rock, running some 4,000 metres (13,000 feet) underground from the Baltic Sea coast, through central and eastern Poland to Belarus and Ukraine, has proven more difficult to mine than shale rock in the U.S. That is due both to the geological make-up of the land and to the fact that the region is much more densely populated than the U.S.

As a result, experts say, it will take many more tests, more time and much more money to produce shale gas here.

So far, only 43 wells have been drilled, while hundreds of them will be needed to accurately assess the country’s reserves potential. Only 12 have produced some gas flow, according to Jolanta Talarczyk, spokeswoman for the State Mining Authority.

The Polish government had been hoping that a boom in investment would help the economy, which grew just 1.9 per cent last year, down from 4.5 per cent in 2011. The shale gas industry was also to help reduce the unemployment rate, which has risen to 14.3 per cent.

Shale gas was also meant to boost Poland’s geopolitical independence from Russia. Poland has since the fall of the Soviet bloc been trying to move out of Russia’s sphere of influence by joining the European Union but it still has big economic ties—it imports 70 per cent of its gas and some 90 per cent of its oil from Russia.

That has become an increasing concern in Poland as Moscow has shown it is willing to use its gas supplies as a weapon in political matters. It shut off supplies on two occasions in price disputes with Ukraine, affecting homes in central Europe in the middle of winter. Russia also dictates prices, making Poland pay one of Europe’s highest, almost $500 for 1,000 cubic meters of gas.

Early estimates by the U.S. Energy Information Administration that put Poland’s shale gas reserves at 5.3 trillion cubic meters were revised last year by Poland’s geology experts to below 800 billion cubic meters. But even that amount would help the country reduce its dependence on Russia and boost the economy.

The government is sticking with its plans to have commercial production start in 2015.

Hopes for quick returns from shale gas were initially fuelled by the enormous success of the industry in the United State over the past two decades. Large-scale production from thousands of wells in the U.S. cut gas prices to less than $100 per 1,000 cubic meters, making the nation self-sufficient in the gas sector.