Piotr Naimski

The bright future of Poland

Tekst wystąpienia Piotra Naimskiego podczas Third Annual Kosciuszko Chair Spring Symposium 6 kwietnia 2013 w Waszyngtonie.

THE BRIGHT FUTURE OF POLAND:

SHALE GAS, COAL GASIFICATION AND ENEGRY INDEPENDENCE

Piotr Naimski, MP to the Polish Parliament, the Law and Justice party

 

By the end of the 20th century energy security became a challenge for governments of independent states – their headache, their problem, a tool in their political strategies and their target. You can delete as appropriate from the list above but it is a fact now that energy security has become a hot issue, and for sure it is not a transient one. For about twenty years now politicians, even those from the so-called old Europe, have been more and more aware of the fact that supplies of energy resources, their processing and distribution are not only a matter of free market economy. Even in Berlin they had to admit that the Ministry of Foreign Affairs has something to say about energy issues. When EU ministers responsible for energy meet together they wish, more often than not, that the meetings involved their colleagues from departments dealing with foreign affairs and state security (security with capital “S”). More and more often prime ministers and presidents are required to make decisions concerning these matters, more and more often European summits discuss energy issues.

 

Russian National Security Strategy for the years 2003 – 2020 states openly that Russia can use its natural energy resources in order to reinforce its influence in the international arena, it also stresses that any threat toward its energy security relates both to its national and foreign policy security. It is during Putin and Merkel meetings that the basis for real cooperation hatch – Russia provides gas and oil, Germany gives the latest technology and the European market for energy resources from the east, if necessary they will also build in Russia a training center for the Russian army. Neither Berlin nor Moscow cared enough to ask Warsaw about our opinion on the new strategic gas pipeline connecting Russia and Germany under the the Baltic Sea.

The Russians did not ask Warsaw or Vilnius for opinion either when they started building a new nuclear plant in Kaliningrad. The plant will be situated 60 km from the Polish border and electricity produced there is to be sold … in Poland. The only problem is that officially Poland doesn’t know anything about it yet. Let’s hope that decisions in this case will be taken in Warsaw in the end.

 Among the EU upper class states Poland is treated more or less like China by the international upper class – we are the sluts with loads of coal, bad luck, and we cling to it polluting the mankind and warming the global climate. The difference between China and us is that they do not care much and just keep doing what is good for them and we are facing the threat of penalties which the European Commission will impose on Poland if we try to break out through the dictate of the global warming opponents and renewable energy resources supporters. Sovereignty nowadays can be measured, among else, by the state’s ability to practice independently its national energy policy and to unable influence from other states, organizations or international corporations which act for their own business, not necessarily the same as ours.

 

The historical inconvenience of Poland’s being situated between Russia and Germany can also be felt when it comes to energy issues. The Germans would love our country to be a market for their gas turbines, biogas plants, wind power stations, and photovoltaic panels. They have produced more of them than they can sell and the thought that billions invested in renewable energy industry will never pay for themselves gives them a terrible headache. Russia heads at completing its politically motivated gas and oil export with electricity export to Poland. Both these countries would welcome the situation if Poland was forced to resign from coal as its main source of primary energy. To make things worse the Polish shale gas resources are a potential threat to Gazprom monopolist position in the region. Will the pessimistic scenario be implemented? It depends, if not totally then mainly, on us, on the Polish government and the Polish voters.

 

90% of Polish energy production is based on coal and lignite. About 3% comes from gas, 2% from hydro-electric power plants. Poland can exchange electricity through cross-border trading and that allows for about 5 TWh net export. We produce about 148 TWh per year and almost everything is consumed in Poland. By the year 2016, or only a bit later than that, Poland should exchange about six and a half thousand MW of the installed capacity with new power plants. There is an ongoing discussion in Poland these days whether these should be modern, highly efficient coal-power plants or whether some of them should be gas-powered. Time is short and unfortunately decisions are made based on short-term considerations such as temporarily falling energy prices, leading sometimes to abandonment of plans for building coal-power plants.

 

Both Polish energy sector and the whole economy are based on coal. Coal is our mixed blessing. The documented geological resources in Poland amount to about 48 500 millions of tones of coal and about 22 600 millions of lignite. Currently estimated industrial resources are about 4 170 millions of tones of coal and about 1 290 millions of tones of lignite. At the current volume of mining we have enough coal for the next 60 years and enough lignite for the next 20 years, not to mention the fact that with the geological resources included Poland has enough supplies for a couple of centuries ahead.  The abundance of coal combined with long tradition and often aggressive attacks of our competitors to eliminate Polish coal often lead us to the position of defending our status quo in coal mining and processing, whereas we should concentrate on research and development of clean and more efficient, modern technologies of using coal as energy resource. Most of all, however, we should not neglect efforts to increase resources of industrial coal – we have to make practical use of our theoretical wealth. Coal will continue to be one of the basic energy resources in Poland for decades ahead, maybe even longer than that. Advanced coal processing technologies developed in Poland can be also successfully exported to countries which have no intention at all to resign from it.

 

Resources of conventional gas deposits in Poland are estimated at about 1,000 billion cubic meters, 140 billion of which are industrial resources. Prepared for production is about 30 billion cubic meters. This does not mean of course that a sudden surge in gas production in Poland is possible. Being realistic we can count on an increase in domestic production to about 6 billion cubic meters per year and on  maintaining it at that level for many years.

 

Natural gas is the basic raw material for Polish chemical industry, mainly for fertilizers production, it is also energy source for other industries and for refineries. A large number of Polish households use gas for cooking and about 800 thousands use it for heating. The annual Polish consumption of natural gas is a bit more than 14 billion cubic meters. About 10 billion of it is imported from Russia on the basis of long term contract (lasting until 2022). Domestic production from conventional field covers about 4.5 billion cubic meters, we also buy minor amounts of gas from Germany and the CzechRepublic.

 

Although natural gas makes for only 12% of primary energy usage in Poland it is at the same time very difficult to be replaced in many industries. This why, in spite of the relatively low gas consumption in Poland, we are so vulnerable to the danger of disruption of deliveries from Russia’s Gazprom, which in reality monopolizes natural gas import to Poland.

 

A good example of Polish problems in relations with Moscow can be the story of building and exploiting the Yamal pipeline connecting Russia and Germany via Poland as well the situation with contract for gas supplies from Gazprom. It is hard to believe, yet true, that the Polish side practically does not benefit at all from the transfer of 28 billion cubic meters of Russian gas on the 600 km long distance across Poland. To make matters worse, in spite of the recently received price reduction, Poland pays for Russian gas much more than customers in Germany, France and Great Britain, we are also under a constant threat of crisis in continuity of gas supplies (like in the years 2006 and 2009). Taking all these into consideration it is not difficult to understand our efforts to diversify import sources and supply routes to Poland. As long as Gazprom is practically a monopoly in Poland and the wider region of Central Europe the conditions of contracts put forward by the Russians will remain extremely detrimental for us.

Russian gas prices for the biggest consumer-countries in Europe in 2011 [$/1000m³].

 

The late president Lech Kaczyński and the Law and Justice government with his brother Jarosław Kaczyński as prime minister prepared program for diversification of energy resources imports to Poland, both gas and oil.  We planned building of gas interconnector between Poland and Denmark, began the development of gas storage system, started works preparing for LNG terminal building in Świnoujście (don’t even try to say the name of this Polish city if you don’t have Polish roots) on the Baltic Sea, we also created a consortium to build an oil pipeline from Odessa on the Black Sea to Poland. The next government, with the Prime Minister Donald Tusk, resigned from most of these plans, the only investment which they decided to uphold – building LNG terminal – is going to be delayed by at least a year, which means it will start to operate in the second half of 2015. Once we can finally begin to exploit the terminal, its capacity of 5 billion cubic meters will considerably improve the situation of gas imports to Poland, it will not, however, solve all our problems.

 

Statistics show that Poland needs to buy abroad about 30 percent of all necessary primary energy resources. In theory that should make us feel safer than other European countries which rely on foreign supplies to a much greater extent. However, almost 100% of our import comes from Russia and that does not let us feel safe. One-way gas import is not, unfortunately, our only problem.

 

Being an EU member state Poland is obliged to take part in CO2 emission reduction program. There is no time here for critical evaluation of the whole ideology behind combat with global warming, but to say that the scientific evidence for these efforts are weak will be the least. Let me just call your attention to the suicidal tactics adopted by the European Union, which tries to impose upon itself the level and method of reducing CO2 emissions which nobody outside EU is willing to accept and implement. European industry is becoming less and less competitive against Asia, South America but also against the USA. Officially everybody in EU is concerned by the drain of industrial investments outside the European borders, but the overwhelming attachment to the climate dogma is cleverly used by these companies and governments in the EU which have invested billions of euros in new technologies and production of facilities for renewable energy. They want to get their return on the invested capital. The problem is that energy produced from wind, solar and other renewable energy sources is generally much more expensive than energy produced in traditional coal, gas or nuclear power plants. Thus, it has to receive financial support, which of course comes from taxpayers’ and customers’ pockets. Companies in the renewable energy industry sector demand that this support is maintained, and it is to be financed, among else, by trading allowances for CO2 emissions. This particular tax on CO2 emission will first hit in heavy industry and in energy production based on fossil energy carriers. Once this mechanism is implemented countries like Poland will find it very difficult to develop faster than the “old Europe”. Doesn’t it work against the main European objective of convergence? Just like the EU competitiveness will decrease compared to the rest of the world, Polish  competitiveness against other European countries will be in danger. The so-called de-carbonization of EU economy is nothing less than outward attack on the coal-based Polish economy and as such it poses a threat to our energy security.

 

The European Union emissions trading system does not work quite as its authors expected. The price of CO2 emission has fallen to about 5 euro for one tone which in practice is a threat to the renewable energy sector. The process, although surprisingly fortunate for Poland, is being violently fought with. The European Commission suggested that … allowances for emission of 900 millions of tones of CO2 be withdrawn from the market.  Just a little bureaucratic interference in the free market mechanisms. It is clear of course what is really at stake – the business of companies producing wind-powered stations, solar batteries, etc.

 

The uncertainty about allowances for CO2 emission combined with unexpected drop in wholesale energy prices in Poland result in difficulties with planning new power plants. Cost-effectiveness of coal-based power plants is inadequate when compared to the subsidized energy from renewable sources. It is important for Poland’s own business to maintain a significant share of the traditional energy production,  it is not clear, however, how we will cope with the EU order to obtain 15% of energy from renewable energy sources by 2020 without considerable subsidies to this sector, what in turn will ruin all business-planning of the traditional energy producers.

 

Not only do we have problems with CO2 emissions, but also we will soon have to face EU ruling on decreasing emissions of industrial dust. We realize of course that while fighting CO2 emission can raise doubts, reducing emission of industrial dust is beneficial for all people. It is also another big challenge for Polish energy production, however. Many electric and cogeneration plants in Poland will have to be replaced by new installations. Some Polish analysts expect that this will further increase gas consumption by about 5 billion cubic meters, not to mention the cost. Gas balance will become very tight again.

 

In apparently critical situation again, Poland is blessed by Providence which granted us large deposits of shale rock. Polish geologists have been aware for a long time that these rocks contain methane,  but until quite recently there wasn’t any method of releasing and extracting it. The American shale gas revolution has shown that what used to be impossible is possible now. Rapid increase in gas production from unconventional sources in the USA has caused a revolution in the gas market, not only in America but also on the global scale. Suffice it to say that the suspension of LNG imports to the United States resulted in a dramatic decrease in prices, what will directly improve profitability of LNG imports to Poland through the terminal under construction in Świnoujście.

 

Even more important for Poland are the new possibilities of extracting gas from shale rock deposits. There are different estimates of the amount of shale gas resources but it must be stressed that no predictions so far have been based on results from currently performed horizontal drilling and hydraulic fracturing. According to the 2011 report by U.S. Energy Information Administration Polish prognostic resources are 5.3 trillion cubic meters. That amount would meet our needs for a few centuries. According to the Polish Geological Institute our resources can be estimated between 346 and 768 billion cubic meters – this report is based on data from 39 wells drilled between 1950 and 1990. New drillings provide more data and the estimates will be verified accordingly. According to U.S. Geological Survey Poland has only 38,1 billion cubic meters of shale gas. Practical verification of such divergent early estimates will come with data obtained from companies which were awarded licenses for the exploration of shale gas deposits in the last couple of years. 112 licenses have been awarded to less than twenty companies, both international  (Marathon, Chevron, Talisman) and state-owned (Orlen, PGNiG and Lotos). More than forty exploratory wells have been drilled so far but only a few involved horizontal drilling and hydraulic fracturing. The first realistic results are expected next year.

 

A big problem for potential investors in Poland is a prolonging lack of modern legislative regulations concerning this type of hydrocarbon production. The appropriate draft Act was submitted by Law and Justice party,  in opposition now, in November 2011. The ruling coalition hampers proceeding of the draft in the Parliament by means of subterfuge while governmental project is being prepared at the same time. We can only hope that the new law will be passed quickly enough and moreover that it will create necessary conditions for developing this new branch in Polish economy. Both versions of the new Act, this from Kaczyński’s opposition party and the preliminary version of the governmental one (currently subjected to public scrutiny) are based largely on Norwegian and Danish solutions. Tax regulations are a different issue – the governmental project suggest about 40% of gross profit as  government take on the income. Companies raise doubts of course, but everybody is aware of the fact that previous legislative void must be filled in and the sooner it happens the better for investors.

 

Another important factor is of course technology, and most of all the question whether methods used in the USA can be easily employed in Poland. The answer can be crucial for early viability of drilling and if it becomes necessary to work out modifications it can cause a delay in large-scale production. We remember of course that the development of this sector in the USA was far from linear – success was achieved after many years of arduous research.

 

The prospect of possible gas production from unconventional resources in Europe (it showed quickly that France, Great Britain, Ukraine, Bulgaria and also Germany have large deposits of shale rock) resulted in preemptive attacks from all kinds of opponents.  The first to voice their protests were ecological organizations repeating the rubbish from the movie “Gasland”.  Much more dangerous, however, are the opponents fearing competition from cheap gas production in Europe.

 

First of all Russian companies selling raw energy resources, especially Gazprom, which fight to maintain their monopoly, or at worst their dominant position in Central Europe, including Poland. Secondly, this part of German industry which invested huge money in the renewables sector and fears cheap source of gas in neighborhood, as it would eventually topple the business plans in this sector. Thirdly, the French nuclear lobby, who want to exploit their nuclear plants without any problems for another couple of dozens of years necessary for their depreciation. As you can see there are many centers interested in obstructing, if not preventing totally production of shale gas in Europe. They will make all possible use of EU institutions and legislation to achieve that goal, if not directly then by means of indirect steps. We are being very careful with any new legislative projects concerning environment protection, water supplies management, energy security (the domain of nation-states is still valid!) etc.

 

We cannot overestimate benefits of the potential success of shale gas production in Poland. 10 billions of cubic meters annually would solve our problem of dependence from Russia. Anything above that will add substantially to our allies’ energy security and it will be an important source of income for Poland. We want to remain level-headed about our chances, but I believe that we should also treat developing of shale gas sector in Poland as a strategic issue, reaching beyond one or the other term of parliament and beyond the responsibility of a single government. I would compare the importance and possible results of this matter to entering NATO in the 1990s, which also required a national consensus necessary for Poland’s success. We, Law and Justice, are worried by the languor which the ruling coalition shows when it comes to working out legislative basis which will allow for safe and successful development of this new industry in Poland.

 

Success on the shale gas field will give us a tool necessary to retain energy sovereignty, it will let Poland play its own role in the European politics, despite the tendency to solve problems of Central European countries at the Russian-and-German table.

 

W kategorii: Aktualności, Bezpieczeństwo Energetyczne, Publikacje wpisany przez Magdalena

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