VZCZCXRO4397
PP RUEHIK
DE RUEHWR #1037/01 2801404
ZNR UUUUU ZZH
P 071404Z OCT 09
FM AMEMBASSY WARSAW
TO RUEHC/SECSTATE WASHDC PRIORITY 9014
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 WARSAW 001037 
 
SENSITIVE 
SIPDIS 
 
STATE EEB/ESC FOR DOUG HENGEL AND S/CEE FOR REBECCA NEFF, 
COMMERCE FOR HILLEARY SMITH 
 
E.O. 12958: N/A 
TAGS: ECON ENRG EINV PL
SUBJECT: POLAND'S POTENTIAL SHALE GAS INVESTMENTS 
 
WARSAW 00001037  001.2 OF 002 
 
 
¶1.  (SBU)  Summary: The success of companies in the U.S. at 
extracting gas from shale and other unconventional sources 
has generated some excitement in Poland.  Several majors and 
mid-majors have applied for exploration licenses over the 
past year and performed broader market and investment climate 
studies.  While these companies are cautiously optimistic, 
the government and local energy concerns remain unconvinced, 
arguing that "tighter rocks" make Polish shale gas 
uneconomical.  Based on the conflicting views, it appears 
that either Polish officials underestimate recent advances in 
technology (exacerbated by the companies' attempts to 
downplay potential), or global energy companies are overly 
optimistic.  Major finds would change how Poland views 
climate/energy security and their related priorities in 
Brussels.  Facilitating exploitation investments might also 
inspire the GoP to address long-standing impediments to 
infrastructure development.  End Summary. 
 
Changing the Gas Mix 
-------------------- 
¶2.  (SBU) Poland currently generates about five billion cubic 
meters (bcm) or one third of their total annual gas 
consumption from conventional domestic sources, importing the 
remainder from Russia.  Government officials have not yet 
factored nonconventional gas into Poland's energy security 
strategy.  State-owned monopoly importer PGNiG is still 
focused exclusively on conventional domestic and 
international exploration, and will not substantially invest 
in nonconventional sources.  However, if global energy 
companies are right, this shale gas will clearly change the 
game. 
 
¶3.  (SBU) Global industry representatives are tight-lipped 
about specifics, but they tells us they see huge potential 
for expansion into unconventional sources - with some 
suggesting they could easily surpass total domestic 
consumption (about 15 bcm/yr) making Poland a net exporter in 
years to come.  Marathon representatives thought they could 
be producing gas within the next two years.  Ministry of 
Environment geologists and experts at the Oil and Gas 
institute (a commercial research institute under the 
supervision of the Ministry of Economy) claim that Poland has 
a large formation similar to US geological formations which 
have proven so productive.  But they add that the "rocks are 
tighter," suggesting higher extraction costs and lower 
potential.  Energy companies are betting on a large swath of 
land cutting diagonally across the country from just off the 
northwest coast to the country's southeastern borders. 
 
Global Players Quietly Get in the Game 
-------------------------------------- 
¶4.  (SBU) Chevron, Conoco Phillips, Exxon, FX energy, and 
Marathon are all actively developing or seeking new 
exploration rights in Poland.  While they are quiet in their 
preliminary operations and subdued in their public 
expectations, it is clear that all are in a hurry to move 
into this potential market.  Marathon and Exxon have already 
appointed country directors and are working to establish 
local offices.  FX has a history in Poland and has already 
partnered with PGNiG on smaller extraction projects.  While 
the companies do not advertise their presence, the Ministry 
of Environment is transparent in its licensing of 
exploration, providing a CD and map of current and potential 
investors to anyone interested.  Their flat fee structure for 
exploration of quadrants suggests they aren't yet looking to 
manage expectations as a negotiating tool. 
 
Potential Hurdles to Investment 
------------------------------ 
¶5.  (SBU) Companies considering investments have noted 
concerns which reveal not only their high expectations, but 
also potential pitfalls to development: 
 
 - Domestic Market Access: Poland's state-owned monopoly 
importer (PGNiG) and distribution system (Gaz System) will 
need to support any eventual exploitation and delivery of 
product to market.  These state-owned monopolies are a 
concern, as they can influence gas prices and construction of 
supporting infrastructure (particularly pipelines).  On the 
plus side, domestic demand is expected to increase rapidly as 
Poland searches for alternatives to coal. 
 - Exports: Poland is working hard to lock-in long term 
global gas supply commitments (most notably from Qatar and 
Russia).  Any significant finds will require accessing 
broader regional markets.  There is a great deal of 
uncertainty surrounding Poland's verbal commitments to gas 
interconnectors. 
 
WARSAW 00001037  002.2 OF 002 
 
 
 - Land Use: Poland has a history of difficult negotiations 
over land use spoiling large investments, notoriously highway 
development.  Imminent domain legislation is still new and 
untested.  Access to exploration sites and rights of way for 
eventual pipelines can be impeded by any number of local 
authorities or small private landowners. 
 - Exploration/Exploitation Rights: To date, the process has 
been very straightforward.  However, state-owned mining 
companies and PGNiG control much of the country's mineral 
rights.  Should initial exploration raise expectations, 
dealing with cash-strapped state-owned companies may prove 
difficult. 
 
Comment: Changing Climate/Energy Security Calculations 
--------------------------------------------- --------- 
¶6.  (SBU) Shale gas development would dramatically impact 
Poland's energy security calculations as well as their 
willingness to participate in global climate change 
initiatives.  At the highest levels, the government would 
welcome and encourage local exploitation as an alternative to 
buying more Russian gas or increasing reliance on coal.  The 
investment climate concerns while real, are surmountable. 
Today, the best information on unconventional gas potential 
probably lies with experts in the major global energy firms. 
If and when they are ready to substantially invest in 
exploitation, we expect the GoP will work to facilitate that 
investment, including ordering the state-owned energy 
companies to support development.  The process of 
facilitating this investment may in fact open the door to the 
USG working more closely with Poland on addressing the last 
of its long-standing structural impediments to development. 
TULLEY