The Polish Energy Revolution Begins

As you read this, I am flying back from Poland, shortly to grab another flight on to Vancouver for our first Energy Summit cruise starting Wednesday.

I am genuinely excited about spending four days with many of you, as I lay out our strategy to profit—big time—from small—and micro-cap energy companies in the months ahead. (To that end, I'm taking a few days off, so there will be no Oil & Energy Investor mailing until next Monday.)

For now, though, major news has emerged during my stay in Poland.

At about 9:30 yesterday morning, the nation formally embarked on a new energy course—one whose impact will be felt throughout Europe and beyond.

Visiting the first advanced drilling site in eastern Poland, Prime Minister Donald Tusk committed the country to extracting shale gas beginning in 2014. This will fundamentally transform the nation's energy prospects.

Now, Tusk and his government are in the run up to a parliamentary general election (the voting takes place on October 9), and the country's energy situation has been a visible campaign issue.

Back in Krakow, the prime minister's press conference was broadcast live at our shale gas conference. (Funny—it actually interrupted a panel I was on devoted to how the shale gas revolution will affect localities and regions.)

Turns out, the Polish shale picture is more significant than even I was anticipating. . .

The Impact Will Be Felt Around the World

For one thing, the projections keep increasing of how much unconventional gas Poland possesses.

The government is now convinced the country will become self-sufficient in energy and begin exporting gas to the rest of Europe.

Yet the implications hardly stop there.

Several of the ministers at our meetings are talking openly about using a new liquefied natural gas (LNG) terminal under construction on the Baltic to move product into the broader global market.

Moreover, the rapid development of shale gas will require the creation of an entirely new technical sector to service the fields, process the gas, and apply the newfound largess. This means a significant upgrading of the national gas network, and the laying of major new stretches of pipelines and pumping stations, along with a concerted move to employ the gas as feeder stock for the petrochemical industry.

It is, therefore, hardly surprising that among the audience in Krakow were representatives from such field service powerhouses as Halliburton Co. (NYSE:HAL) and Schlumberger Ltd. (NYSE:SLB), European offices of international drilling companies, consulting agencies, research centers, and law firms.

And there will be plenty of work for all of them.

Rising Opportunities (and a Message for Moscow)

Despite the refrain I heard repeatedly over the past several days—that Polish companies should provide the bulk of the services—this energy revolution will require outside assistance for years to come.

In due course, there will be a technical base created for domestic services, especially given the excellent locally educated work force and the industrial base already present in Poland. But for at least the first decade and beyond, the Polish sector will rely upon those who have the experience. . .

In other words, American—and Canadian-based shale gas producers and support providers that are already in the business.

Once again, I am witnessing the rise of opportunity elsewhere in the world that will need to draw upon North American technology and expertise to develop energy locally.

Yet far from being competition, energy developments such as the one rapidly coming into view in Poland are major exporting opportunities.

Remember, significant shale gas production is less than 10 years old. Yet virtually all of it has taken place in the U.S. and Canada. That means the rest of the world will be looking to that experience when bringing their own unconventional production online.

This will be a welcome addition to the revenue streams generated for those providing services in the North American market.

The primary losers in all of this, of course, are the Russians.

As I've said, they are committed to long-term pipeline contracts with "take or pay" provisions (which require a certain amount of gas be paid for whether it is actually imported or not) and pricing tied to a basket of crude oil and oil products.

The rising domestic production from places like Poland will result in less reliance in Europe on imported volume from Russia.

Of course, Warsaw needs to be careful. As it phases in its shale gas extractions, it will still need Russian imports for some time to come. Better during this period that the Polish government not do anything to upset the huge bear to the east.

And then there is the European Union in Brussels.

The E.U. is scheduled to release its proposed shale gas regulations shortly. That may mean other considerations for Poland as it straddles itself yet again between Moscow, on the one side, and the traditional capitals of Europe on the other.

Even in energy, it seems, Poland ends up occupying a pivotal middle position in major east-west geopolitical considerations.

Still, there can be no doubt that Moscow has gotten the message. . .

Despite being attended by public and private sector representatives from all over Europe, there was a noticeable absence from the meetings in Krakow.

Not a single Russian.

Sincerely,

Kent