Poland Oil and Gas Report Q3 2012
Report Summary

BMI View: Strong government support and industry interest in developing a nascent shale gas industry in Poland leaves BMI cautiously optimistic with regard to the country’s gas production outlook. We have upwardly revised our forecast for Poland’s gas production, as we take into account the commercial production of modest volumes of shale gas by 2016. Poland’s obligations to reduce its carbon emissions by 2020 under EU policy will also lead to a marked rise in its gas consumption, as the country switches from coal to gas for power generation. The main trends and developments we highlight for Poland’s Oil & Gas sector are: 􀂃 Undeterred by the Polish Geological Institute (PGI)’s downward revision of its recoverable shale gas estimates – from the Energy Information Administration (EIA)’s previous estimates of 5.3trn cubic metres (tcm) to 0.346-0.768tcm – Poland is sticking to Prime Minister Donald Tusk’s late 2014/early 2015 schedule for the commercial production of shale gas. We remain cautiously optimistic on Poland’s shale gas prospects and expect to see gas production rise from 6.03bcm in 2011 to 6.44bcm in 2016, thanks to modest domestic shale gas production. 􀂃 Continued interest in shale gas exploration on the part of international oil companies (IOCs), notwithstanding ExxonMobil’s disappointing test flow results (announced in February 2012) and lower-than-anticipated recoverable shale gas estimates. ConocoPhilips’ decision in March 2012 to exercise its call option over shale gas assets with 3Legs Resources demonstrates its confidence in Poland’s shale gas potential, generating some optimism with regard to the mixed picture for Poland’s shale gas. Other IOCs currently holding concessions in Poland include majors Chevron, Eni and independents BKP Petroleum and Marathon Oil. The Ministry of Environment expects IOCs to drill 38 of 49 wells in 2012. 􀂃 The consolidation of domestic upstream activity will speed up momentum in Polish shale gas exploration and production (E&P). State-owned gas monopoly Polskie Górnictwo Naftowe i Gazownictwo (PGNiG) has signed letters of intent (LoI) with state-controlled copper miner KGHM Polska Miedz and power companies Polska Grupa Energetyczna and Polska Energia to jointly explore for domestic shale gas. PGNiG is also reportedly in talks with oil refiner PKN Orlen over a possible upstream exploration tie-up that will ‘concern also – maybe mainly – shale gas’, according to Orlen’s CEO Jacek Krawiec. Enea, another utility company, has also expressed interest to participate. 􀂃 A marked rise in Polish gas consumption by the end of our forecast period. BMI expects gas consumption to rise from 17bn cubic metres (bcm) in 2010 to 21.10bcm by 2016. EU policy, which requires a 20% reduction in carbon emissions by 2020, will force Poland to speed up the rate at which it constructs gas-fired power stations and converts from using coal. 􀂃 The completion of the Swinoujscie Liquefied Natural Gas (LNG) import terminal by June 2014 will help facilitate a rise in the volume of gas imported by Poland. This LNG import terminal and a planned interconnector joining Poland and Slovakia – to be operational by 2017 – will ease Poland’s reliance on gas supplied by Russia. Cold weather conditions, which will raise demand for gas, pose an upside risk to our forecast. 􀂃 Stagnant oil production growth and a modest rise in oil consumption, driven by domestic economic growth. We hold to our previous oil forecast for Poland. Relatively healthy economic activity should push oil demand to 624,020 barrels per day (b/d) by 2016, implying annual growth of up to 1.5%. With domestic supply forecast to fall from 27,950b/d in 2011 to 26,180b/d in 2016, import volumes are expected to reach 597,800b/d in 2016, up from 551,300 in 2011 – costing approximately US.60bn at the end of our forecast period. At the time of writing, we assume an OPEC basket oil price for 2012 of US1.47/bbl, an update from our previous forecast of US.38/bbl. We see this falling to US7.00/bbl in 2013. Global GDP growth in 2012 is forecast at 2.61%, down from 3.08% in 2011, reflecting a faltering recovery in the US, uncertainty with regard to the eurozone debt situation and a slowdown in growth in China. For 2013, growth is estimated at 3.31%.