Markets unable to reliably value Poland's shale gas reserves - bank

22 March 2012 11:40  [Source: ICIS news]

LONDON (ICIS)--Investment bank Wood & Company said on Thursday that the financial markets are not yet able to reliably assess the value of Poland's shale gas reserves.

The bank’s comment followed the Polish Geological Institute's (PGI's) assessment that Poland’s most likely recoverable shale gas reserves were between 0.35 trillion cubic metres (Tm³) and 0.77 Tm³, only approximately one-tenth the 5.3 Tm³ estimated in April last year by the US Energy Information Administration.

Maximum recoverable shale gas reserves stood at 1.92 Tm³, the PGI report added.

“We believe the published numbers may be somewhat disappointing for some shale gas bulls as they are considerably lower than those mentioned in earlier reports,” said Robert Rethy, an analyst at Wood & Company, which focuses on European emerging markets.

“On the other hand, we believe this is the first real thorough and comprehensive assessment to have been done, and is most likely based on conservative/realistic assumptions and hence a better proxy for the area’s resources potential,” he added.

“The numbers are still significant and still give Poland attractive exploration potential, particularly for shale gas [but] clearly, we are at an extremely early stage of exploration, and there is no guarantee of commerciality and clearly no guarantee that individual licences will be equally prolific, or prolific at all,” Rethy said.

In its response to the PGI report, Fitch rating agency said that “shale gas in Poland could still be a game changer for the country’s energy sector despite the disappointing shale gas reserve estimate”.

Such a level of shale gas reserves would be sufficient to cover Poland's gas consumption for 25-55 years, lowering Poland's dependence on gas imports, largely from Russia, that currently cover about 70% of gas demand, it added.

However, Fitch added: “We do not expect that the success in the US, which led to about a 50% decrease in US gas prices between 2008 and 2011, will be easily replicated in Poland”.

“Commercial production in the first five to 10 years is unlikely to substantially lower gas prices given high breakeven costs. Also, Poland and the US differ both in terms of shale formations and the gas market structure,” the rating agency said.

By: Will Conroy
+44 20 8652 3214

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