Why Poland’s Shale Boom May Soon Go Bust

Rising taxes, a lack of rigs, and rocks that are harder to drill than expected are all dampening hopes of a shale-gas boom in Poland, which could have lessened the country’s dependence on Russian supplies and cut its gas bill.

A government proposal for a levy on productions could discourage investment, while Exxon’s (NYSE:XOM) failed wells and a government report last week that shale-gas reserves may be lower than estimated have curbed optimism.

Drilling a well in Poland costs almost three times as much as in the U.S., partly because Poland doesn’t yet have the infrastructure.

Exxon, Chevron (NYSE:CVX), and ConocoPhillips (NYSE:COP) acquired rights in Poland after the U.S. Energy Information Administration said last year that Poland may hold 5.2 trillion cubic meters of gas, or enough fuel trapped in shale to meet domestic needs for 300 years. Last week, the Polish Geological Institute cut estimates of domestic gas reserves by 85 percent.

Europe’s greater population density and stronger environmental lobby have also made drilling more difficult than in the U.S. Both France and Bulgaria have already banned hydraulic fracturing, the process used to break open shale rock. And recent drilling into shale layers has been disappointing. Exxon said in January that two exploratory wells failed to flow enough gas to make development profitable.

Now Poland is planning to announce taxes on natural-gas production next month in an attempt draw revenue to bolster state finances. However, Treasury Minister Mikolaj Budzanowski told a conference in Warsaw last week that the government did not want to propose measures that would slow exploration, but should rather be trying to facilitate shale gas development, indicating that, in light of recent hiccups, Poland might at least put its new taxes on hold.

To contact the reporter on this story: Emily Knapp at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com