I am in Frankfurt, Germany right now attending three days of meetings, and I must say they're shaping up to be quite interesting.
The focus is on structuring a new financial and organizational approach to developing Polish shale gas.
A successful outcome would have an impact on both continental energy sources and the ongoing European debt crisis. And the stakes have become even higher in the past several weeks.
In focus this week are the rising energy needs across Europe and what securing considerably greater sources of domestic natural gas will mean to the debt crisis. Meanwhile, we have to consider the potential for some North American companies to generate significant profits by meeting these growing energy demands.
As I noted during my last advisory trip to Poland, Warsaw has decided to fast- track its shale gas development. With reserves now estimated to be much higher than initially thought, the country has the opportunity to become self-sufficient and to start exporting gas to other European countries and elsewhere as early as a decade from now.
That would have a serious impact on the energy balance in Europe as a whole. With the prospects of additional domestically produced energy, the balance of payments will be improved, and with it the debt picture.
Now reinvigorating the Polish picture is not going to do this on its own. Here is where it gets very interesting.
What takes place in Poland will expand elsewhere into Western Europe. There are shale gas reserves in Germany, Hungary, Austria, France, the Baltic countries, Sweden, and even the U.K.
Political opposition has suspended activities in France, and the Greens in Germany have given notice that they intend to target shale gas operations after their successes in phasing out the country's nuclear power stations.
Poland, however, has no significant opposition to drilling. At least, not at the moment. But as I advised the government in September, that situation is likely to change as the number of wells increases. In order to combat any opposition, the country is going to need to access to drilling technologies developed in the Western Hemisphere, technologies that address the primary concerns about hyrdofracking and horizontal drilling.
The North American Advantage
The eight- to 10-year head start North America has had on the rest of the world means there have been significant technological and operational developments in the U.S. and Canada to meet a number of the environmental and logistical problems related to hy drofracking and horizontal drilling.
It's these two advances that have ushered in this whole new world of energy in the United States.
Now eight to 10 years may not sound like a huge advantage...
But it most certainly is.
Eight years ago, we were still talking about how much liquefied natural gas (LNG) would need to be imported into the U.S. and Canada to meet energy demands. But today, we don't require any imports, and both countries now plan to begin exporting LNG based on excess shale gas.
There have been big changes. Massive new volumes have come on line and reserve figures are skyrocketing. These have forced North America to confront problems well before other parts of the world. In terms of technology, a decade is a generation.
And this sets the stage for some rare opportunities during my meetings in Frankfurt.
Three Measures of Success
Three primary issues are on the table this week.
- First, companies need to be established in both Poland and more broadly in Europe to coordinate the required field exploration, preparation, drilling, water usage, drilling, processing, environmental protection, supply and support dynamics, gas storage, pipeline networks, terminals, compressor stations, and a range of other matters from training personnel to protecting the transparency necessary in a democratic environment.
- Second, companies need to have access to funding in ways that will prevent Poland (and other European countries as well) from being dependent upon outside finance. This must be a European Union (EU)-based financing scheme to parallel European-controlled field development and drilling programs.
- Third, the Polish-then-broader-Europe requirements include immediate access to North America's "generationally leading" technology.
It is at this point that an attitude I have held with companies for years will become operational. The development of shale gas reserves elsewhere in the world will comprise one of the most profitable applications of technology, know-how and experience ever seen.
Structural Requirements Ahead
Let me be very clear on this score. U.S. and Canadian companies are set to make significant returns from the Polish experiment - both in Poland itself, and as the applications there move across borders into neighboring states.
But this will have to remain a Polish (or German or Austrian or Hungarian) initiative translated into in an EU-wide opportunity. The trick is to structure this as a win-win creation of joint ventures, limited liability companies, holding strategies, and other approaches.
Outside companies coming into pan-European major plays like this cannot succeed merely by setting up European-based subsidiaries.
This must be a European company in which an American or Canadian company has a vested, but not controlling, interest.
The advantage to the European market is access to technology and expertise. The advantage to the outside company is a very lucrative potential revenue flow and an expansion of such work moving forward.
Setting up a way of accomplishing this on all three levels - establishing new European companies, finance, and access to North American experience - is going to require some ingenuity. The devil most certainly will be in the details.
I'll let you know how the meetings turn out.
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About the Author
Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.