News
Warsaw, 9 July 2012
Press release
Poland a leading shale gas market in Central and Eastern
Europe region.
KPMG report: Central and Eastern Europe Shale Gas Outlook
According to the recent KPMG report, titled “Central and Eastern Europe Shale Gas
Outlook”, the countries of Central and Eastern Europe (CEE), especially Poland, Romania
and Ukraine may become major markets of shale gas production during the upcoming
decade.
Poland a leading market in CEE region
Due to the largest deposits of shale gas in CEE region, Poland is considered to be a leader among CEE
countries. By June 2012, 111 concessions for the exploration of unconventional natural gas resources
have been granted for 30 companies.
Poland’s attractiveness is not only driven by its potentially largest shale gas resources but also by
advanced legislative works related with introducing specific solutions. Equally vital for the industry is the
general support of most citizens and the government –Marcin Rudnicki, Partner at KPMG in Poland.
Production conditions
Local conditions in CEE countries, in particular geology and legal environment, are substantially different
than those encountered by North American companies (first companies to have engaged in development
and production of shale gas) at home. Underground reserves in CEE countries are considered to be the
sole property of the state, not the land owners. Thus, the companies have to deal with different conditions
and different circle of engaged entities from the very beginning of the execution of the project.
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The results of the KPMG report indicate that the depth of shale deposits in CEE is 1.5 times greater than
that in North America. According to experts’ estimations, the above condition as well as the wider
temperature range in Europe, meeting strict natural environment protection standards and adjustment to
various geological conditions may increase the extraction costs by even three times in comparison to the
US. Project managers, both at local and strategic levels, have to take into account the arising
consequences related to project realization periods and costs. In order to succeed, investors and
production managers have to consider specific conditions of conducting operations in this region.
Due to an insufficient technical knowledge in scope of shale gas production as well as other
inconveniences, including, among other things, imprecise legal and tax regulations and extremely
difficult geological conditions, the development of the shale gas sector in CEE region is at its initial
stage. Consequently, it is not possible to simply transfer the technology and knowledge from North
America to local markets – claims Marcin Rudnicki, Partner at KPMG in Poland.
Consumption and production
According to the KPMG report, the gas consumption in the EU countries between 2011 and 2030 is
expected to increase by 1.6% per year, with the fastest growth among these countries being in 2011-15 by
3.2% per year and that will influence significantly the energy prices. Only a few out of 18 CEE countries
have considerable natural gas reserves, which, however, is equivalent to 3 percent of the Russian reserves.
CEE countries are heavily dependent on natural gas imports, making them vulnerable to supply and
geopolitical risks. On average, 69% of regional gas consumption was covered by imports in 2010, and
more than 90% of these imports were supplied by Russia – says Steve Butler, Director in Energy &
Utilities Advisory Practice at KPMG in Hungary, co-author of the report.
Based on 2010 annual consumption rates, and taking into account the estimated amount of shale gas
available in the CEE (an estimated 4.13 Tcm), shale gas is expected to have the potential to cover CEE’s
natural gas demand for decades.
A continuous strive to elevate standards of life to the level of Western Europe means that the demand for
energy will grow, having an impact upon energy prices. Hence, the development possibilities of shale gas
production in Poland as well as in the whole CEE region are very promising. Overcoming difficulties and
commencement of production is only a matter of time –Marcin Rudnicki, Partner at KPMG in Poland.
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Obstacles
As revealed by the KPMG report, despite a great potential of estimated resources, the production may be
difficult due to unclear legal issues and the size of financial costs.
The high initial exploration and subsequent development costs of shale reserves are daunting. Stateowned E&P companies in the CEE region – particularly those with high levels of debt –are unable to
fulfill their drilling commitments. The need for capital as well as for the specialized knowledge is often
the most important driver of joint ventures in scope of shale gas production – Steve Butler, Director in
Energy & Utilities Advisory Practice at KPMG in Hungary, co-author of the report.