Technorati Profile
A new report published bythe United States Energy Information Administration (EIA) estimatesthat Poland's shale-gas reserves are more substantial than previousassessments suggested. Energy and natural resources consultancyAdvanced Resources International (ARI) had previously estimatedPoland's shale gas reserves at some three million cubic meters (tcm)but the EIA's latest analysis released April 5th suggests 5.3 tcm ofshale gas could be sitting beneath the surface.
If correct, this couldbecome a real geopolitical game-changer for Poland. Specifically, itwould enable Poland to diversify its energy portfolio (away fromdomestic coal and Russian natural gas), develop as an energy exporter(while increasing domestic natural gas reserves) attract much-neededFDI and strengthen commercial interests in the sector, especiallyfrom the United States.
Poland's annual gasconsumption amounts to 14 billion cubic meters, meaning existingreserves could supply the country's needs for the next 200-300 years.Despite the Polish government's support of large-scale drilling andexploration, many risks persist.
First, even though theEIA's findings are encouraging, estimates are still preliminary.Moreover, there are growing concerns among both local authorities aswell as citizens and environmental groups as to the safety of shalegas exploration, particularly when it comes to tainted water suppliesand land degradation. Finally, inadequate infrastructure andregulatory issues remain barriers to efficient shale gas development.
In September 2011, the USGeological Survey and the Polish Geological Institute plan to issue areport determining the size and scope of Polish shale gasdevelopment. However, an accurate picture will not be available for afew more years, once exploration is significant enough to producereliable data. Nevertheless, the EIA report places Poland as a clearshale-gas leader in Europe.
There are three key Polishregions for shale gas exploration: The Baltic region in the north,Lublin in the southeast and Podlasie in the east.
So far, Poland'sEnvironment Ministry has granted 85 concessions for exploration. Lastmonth, Dutch-British giant Shell announced that it too was looking tojoin the long list of international energy companies exploring shalegas reserves in Poland, which already includes the US's ExxonMobil,ConocoPhilips and Chevron.
In addition, smaller firmssuch as Canada's Realm Energy International and the UK's SanLeon Energy and Aurealion Oil and Gas have acquired leases andexploration rights. The major long-term challenge for these foreigninvestors, however, will be making shale gas commercially andfinancially viable due to its high cost of extraction.
Increased Polish andEU-wide concerns over energy security and generally favorable Polishpublic opinion over developing the shale gas industry, is positivenews for investors and gas exploration operators and suppliers.However, Russia (Gazprom) which provides over 25 percent of EuropeanUnion gas imports and nearly 70 percent of Polish gas imports hasbeen left mostly on the sidelines.
The large Americanpresence in Poland's shale-gas industry development will no doubtresult in strains in the improving, yet still fragile Polish-Russianrelationship.
On the other hand, Polandwill need to accelerate regulatory and legal reforms in order to makeits energy sector more competitive and accessible to investors.Additional steps needed to encourage investment include improvingaccess to exploration equipment (drilling rigs), buildinginterconnectors to other EU and non-EU national gas pipeline systemsand, most importantly, deregulating the energy market sothat new market players can have direct access to endconsumers.
During his recent visit to Washington DC, Polish Foreign Minister Radosław Sikorski made a point of reassuring audiences, ranging from the State Department to several relevant think tanks, that the thaw in Polish-Russian relations was legitimate and well on track.
Speaking of developments since the Smolensk tragedy, Minister Sikorski cited the fact that Andrzej Wajda’s Katyn was shown on Russian state television and that there has been a shift towards the de-Stalinization of Russian historical memory as signs that the Kremlin in seeking to repair decades of strained relations. Moreover, he stressed that Russia is Poland’s number two trade partner and, as such, improved relations can only help both countries’ economies to develop.
A lasting rapprochement in Polish-Russian relations rests on three key issues:
1. Advanced reductions in conventional weapons via the CFE Treaty (The Treaty on Conventional Armed Forces in Europe)
2. A reduction in tactical nuclear weapons (Russia has about 8,000 stationed near Poland and other former Communist bloc countries)
3.Energy security
Uncertainties
But given recent US commitments to greater US-Polish cooperation on energy, military and security matters, will the thaw last or is a bitter chill in store?
One of the highlights of Minister Sikorski’s visit was a signed memorandum of understanding with Deputy Secretary of Energy Daniel B. Poneman to enhance cooperation in developing clean and efficient energy technologies. This initiative will seek to expand research and policy planning, as well as economic cooperation in areas related to clean coal technologies, energy efficiency, renewable energy, unconventional natural gas, civilian nuclear energy, and environmental and waste management. The goal is to reduce both Poland and Europe’s dependence on any one energy source (including Russian natural gas).
Despite signing an updated gas supply and transit agreement with Russia last October, giving Poland (via PGNiG) a 48 percent share in EuRoPolGaz, a Russian-Polish joint venture which operates the Polish sector of the Yamal-Europe pipeline, Poland is seeking to make energy security and European energy interdependence (by encouraging increases in EU interconnectors) the cornerstone of its upcoming EU presidency. This is supported by the European Commission’s approval of and financing for Poland’s first LNG terminal as well as the EIB, EBRD and World Bank’s $5 billion loan for the development of the Nabucco pipeline. This will bring gas to Europe via the Caspian Sea, avoiding Russian territory.
Neutralizing Russia
These initiatives have certainly raised Russian suspicions and put them on the offensive. However, as with the Nordstream gas pipeline project, the key to neutralizing Russia is to coop them up within larger EU and/or US-led energy cooperation frameworks (thereby holding Russia to international laws and regulations).
This has worked in the past. The Nunn-Lugar Cooperative Threat Reduction Program, which decommissioned nuclear, biological and chemical weapons stockpiles in the former Soviet Union, and the updated Lugar-Obama Act (which sought to include conventional weapons) are thought to be two of the most successful joint US-Russian efforts. Moreover, for over a decade the National Nuclear Security Administration, an agency within the US Department of Energy, in cooperation with Russia's State Nuclear Energy Corporation, have developed a successful program which, to date, has trained some 200 Russian nuclear security experts.
As Poland and the US continue to explore the feasibility of nuclear energy, Russian design and operations expertise could be a valuable asset. Perhaps, indeed, US-Polish-Russian energy cooperation is not an entirely preposterous notion. In fact, it could even be strategically and mutually beneficial for all.
Both the European Commission (EC) andthe IMF rated Poland as the fastest-growing country in the European Union for 2010, and forecast high growth in 2011 and 2012. In its updated GDP growth forecasts for 2011 and 2012 – 3.9 and 4.2 percent, respectively – the EC emphasized Poland’s stable banking system, relatively lower share of international trade in thecountry’s GDP structure, positive changes in the labor market and the country’s overall economic policies as factors contributing to Poland’s ability to withstand the worst of the global economic downturn.
Yet Poland’s economic challenge scontinue to proliferate. Since late 2008, Poland was hit by two economic shocks: the recession in high-income countries, which hurt external demand for exports; and the global financial crisis, which reduced capital inflows and lowered domestic demand. As a result, Polish authorities implemented a number of crisis measures, including liquidity support and measures to restore confidence in banks, as well as securing a $20.5 billion precautionary arrangement under the new IMF Flexible Credit Line (FCL) in order to reassure investors, stabilize market fears and enable the country to access credit.
Three areas in particular will have a major effect on Poland’s 2011-2012 economic growth prospects –increasing consumer expenditures fueled by higher job security and workforce participation, continued investment (assuming on-time completion and profitable ROI) from EU structural funds, and the improvement of existing (Germany) and developing (China, India) trade relationships, which should have a positive effect on Polish exports.
Poland’s short-term economic outlook will remain vulnerable, especially as it remains disproportionately tied to the overall economic performance of Europe (including the unfolding euro zone debt crisis).
In addition, ensuring continued convergence with the EU will require major structural reforms (pensions, health care, education, public finances) all of which will require a major financial overhaul. Reducing Poland’s zł.52 billion ($17.2 billion), budget deficit – estimated at 7.9% of GDP (some estimates put it as high as 8.5% of GDP), may take longer than expected, delaying euro adoption well past 2015.
Finally, Poland will take over the EU Presidency from Hungary in mid-2011, along with the agonizing task of overseeing the EU budgetary process for 2014-2020. As larger Western EU member states adopt austerity, the case for increased funding forthe EU’s Central European members will become even more difficult and contentious.
Compared to the rest of the EU, Poland’s economy may have finished ahead of the pack in 2010, but as we get into 2011, the course will get steeper and more demanding. Time will tell if Poland has conditioned itself to go the distance.
On Wednesday December 8, US President Barack Obama will be hosting Polish President Bronisław Komorowski for the first time since the latter's election earlier this summer. Fresh off the heels of NATO's Lisbon Summit and President Komorowski’s own tête-à-tête with Russian President Dmitry Medvedev, the two presidents’ list of discussion topics will range from Afghanistan through missile defense and Russia to the upcoming elections in Belarus.
The White House says that President Obama is looking forward to discussing issues of mutual concern. This is Washington-speak for Poland’s continuing mission in Afghanistan and the continuing Polish-Russian détente, specifically bringing Russia in under the NATO umbrella and helping to foster closer economic ties between Russia and the European Union.
Despite varying backgrounds and viewpoints, both men share one thing in common, neither really knows much about the other or their respective domestic political environments. Yet, this may play to both presidents’ advantage. For all the talk of a rupture in the transatlantic relationship and the Obama administration's disinterest in Europe, a successful meeting would boost both leaders’ diplomatic status and resonate well on both sides of the Atlantic. Up until the Smolensk tragedy, Poland was the biggest skeptic of Russia’s “democratic” credentials and a major critic of its foreign policy in Europe. Whether by choice or because of international pressure, Poland has done an about-face.
Poland is a leading contributor to NATO’s mission in Afghanistan, with over 2,500 Polish troops serving mostly in eastern Ghazni province. For a relatively young democracy and new NATO member, Poland has gone above and beyond expectations. President Obama would be well advised to acknowledge this.
While a less costly and streamlined missile defense system, along with improved relations with Russia, are to every NATO members’ collective interest, any strategic partnership with Russia (as well as with other European powers) must include US guarantees that it will not forgo ongoing military cooperation nor sacrifice the security of its Central European allies at the behest of the Kremlin. This stance will benefit President Obama and score him some much-needed political points. This is especially the case as he depends on votes from Republicans (many of whom dismiss the administration’s “reset” policy with Russia), in order to ratify the new START Treaty.
Poland and President Komorowski, have much to gain from the meeting as well. Poland is in a good position to act as an intermediary for stronger US-EU relations. Specifically, Poland, via its increased visibility in the European Commission and Parliament, can persuade the EU to do a better job in assisting the United States in dealing with rising powers like China and India, supporting policies to combat global climate change, strengthening financial market regulations, improving energy sources and their security, and fighting global terrorism.
Diplomatic success in Washington and Brussels will serve both President Komorowski and Civic Platform well, particularly as they head towards parliamentary elections in 2011. In return, Poland should expect to garner US (and EU) support and continue promoting democracy and human rights in its eastern neighborhood, all the while improving relations with Moscow. It’s a tall order, but one worth serving up.
As EU regulators confirm the legal validity of last month’s Russia-Poland natural gas agreement , which calls for Poland to increase Russian gas imports from 7.5 billion to more than 9 billion cubic meters (bcm) per year, Poland must continue diversifying its energy portfolio as well as lead the charge towards a more unified European energy policy.
Unlike many of its Central European neighbors (including Slovakia, Bulgaria, and the Baltic States), Poland still avoids being entirely dependent on Russian gas imports. This puts it in a unique position to both influence the EU’s long-term energy strategy as well as develop a more immediate response to greater regional energy cooperation. From an EU-wide perspective, greater legislative power by the European Parliament post-Lisbon as well as Poland’s (and Hungary’s) impending EU presidency makes for an opportune moment to push for an EU energy security agenda.
From a regional perspective, this also entails speeding up the directives agreed to during this year’s Visegrad energy summit, which included supporting a southern energy corridor, developing north-south interconnections via an energy supply triangle and streamlining regulatory frameworks and market competitiveness (including for electricity intermediaries).
In addition to advocating for upgraded EU-wide energy infrastructure and greater market unity, Poland should continue to diversify its own energy portfolio, namely by investing in alternative and renewable energy resources. However, if Poland is to satisfy the EU’s calls for increased renewable energy (20 percent bloc-wide by 2020), it needs both financial and institutional support from the EU and individual members states like Germany (instead of obstruction) to develop its proposed LNG terminal, invest in nuclear and wind power, and asses the merits of shale gas.
The success of Warsaw’s international shale gas conference, including high investor interest from American and Canadian firms, strengthened Poland’s standing as an emerging energy producer and potential supplier. This spring, findings from initial exploration as well as the ability to set an appropriate regulatory regime will set the tone for further shale gas extraction and development. As far as nuclear energy is concerned, Poland is in a strong position to build human capital in this area. Given Poland’s strong technical and engineering schools, along with commitments from international partners (such as GE Hitachi), the country is well-positioned to meet its target of completing at least two nuclear power plants by 2020. Moreover, Poland’s cooperation goes beyond just the EU, Poland’s Central Mining Institute is partnering with the US National Energy Technology Laboratory to research and develop carbon capture and storage (CCS) technology.
In addition to exploring non-coal based energy sources, a significant portion of Poland’s energy strategy lies in the reduction of overall demand. For instance, Poland is looking to introduce tradable “white certificates” which aim to achieve energy savings targets, increase efficiency in power and heat production and reduce losses in energy transport and distribution. This scheme would be implemented among retail energy suppliers, distributors, and end-users, with the Polish Ministry of the Economy being responsible for monitoring compliance and verifying targeted savings.
Poland’s energy outlook is complex and presents several challenges, however, there is no doubt that major reforms and transformation are imminent. They say variety is the spice of life. As it concerns Poland’s future energy makeup, it may very well be the key to its economic and geopolitical relevance.
