Energy, EU – Baltic States, Gas, Investments, Lithuania, Logistics, USA

According to Dr Jurga Lazauskienẻ, Head of the Department of Bedrock Geology of the Lithuanian Geological Survey: “(…) after the retreat of Chevron the government (made) the decision about the necessity of the improvement (to) the legislative basis for the (…) Licensing Tender(s). The major focus has been shed on amendments in Rules of the Hydrocarbon Licensing Tender and Tax Law of the Hydrocarbon Resources of the Republic of Lithuania.” This necessity was a basis for new, legislative proposals that were recently passed by the Lithuanian government. 

The legislative struggle

The Prime Minister had promised to put in place the necessary legislation and was pressuring the government to approve the new tax rules this year. They included reducing taxation and giving 10% of the collected tax to the local governments of the areas where the oil and/or gas would be extracted.

In October, at the time of Prime Minister’s visit to the USA, the Lithuania Tribune quoted him saying: "I hope that the parliament of Lithuania supports our proposal to reduce the tax tariff on shale gas extraction to 1% for the first year of operations, knowing that investors take on huge risks over the first year." The proposed changes were approved by the Parliament of Lithuania on 4th of December 2014 and will come into force on 1st of January 2015. As a result, the unconventional hydrocarbons’ production in Lithuania will be taxed at 1% for the first three years from the issuing of the Exploration and Production license (but no longer than January 2020) and after that the tax rate will rise to 15% tax rate after that.

The Prime Minister appears to have achieved what he promised and one% taxation for the first three years of operations might attract some interest.

Continuous geological research

While the government was sorting out the legislative aspects of shale exploration, the geological research was also in full swing. Dr Lazauskienẻ said that in 2014 the Lithuanian Geological Survey completed a 3-year-project researching the structure and composition of the Lower Palaeozoic shaley succession in Lithuanian part of the Baltic Sedimentary Basin (Lazauskienẻ et al., 2014) and prepared a report including the preliminary assessment of the shale gas and oil potential. She reported that they analysed ~500 shale samples from more than 20 boreholes in SW Lithuania and said: “No doubt, the results of the state geological investigations (have) to be used for the implementation of the different State tasks, the preparation for the new Hydrocarbon Licensing Tender being one of them.” Dr Lazauskienẻ will discuss the Lithuanian shale in-depth during the CENTRAL AND EASTERN EUROPE SHALE GAS AND OIL SUMMIT in Warsaw (9-10 March 2015).

Lithuania also tested its shale for toxic heavy metals. The analysis was performed by a certified Canadian laboratory, which shows that together with the Lithuanian determination goes a need for impartial, realistic opinion. They found that the heavy metal levels in the samples of rock with shale presented no hazard to the environment.

Lithuanian shales play most similar to the Bakken shale play in Williston, North America

Many foreign investors to Europe note the “differences” between the North American and European shale. The depth, maturity of organic matter and ease with which the gas can be extracted are different. A when it comes to shale itself Dr Lazauskienẻ said:

“(…) all shales are different – even the same shale play is rather heterogeneous and the properties differ both laterally and vertically. The(…) shale plays in Lithuanian part of the Baltic Sedimentary Basin (Late Ordovician, Early Silurian Lanndoverian and Wenlock shales) can differ (in) their mineralogical and geochemical composition, amount and maturity of the organic matter and the other properties. As both territories of Poland and Lithuania host the same Baltic Silurian Sedimentary Basin, the general composition and behavior of the shales (is) rather similar in comparison to an American analogue, despite (the fact that) depth of occurrence, maturity of the organic matter and the other parameters are rather different. If (we were) to compare Late Ordovician-Landovery shale play in Lithuania with the American examples, the data implied the most similarities to the Bakken shale oil play in the Williston Sedimentary basin in North America.”

According to the Prime Minister some American companies have already expressed interest in exploring for shale in Lithuania. Surely, all the above-mentioned, in-depth research will speed up the processes.

Starting over

Lithuania got down to work and is making sure that the country’s second chance at shale exploration is fully utilized.

Since 2011 local oil companies have been active in the region and, according to Dr Lazauskienẻ, 3 different companies obtained geological data from 5 wells, drilled in order to identify shale gas and oil potential.

And when it comes to the estimates of the shale gas potential and shale gas and oil resources in Lithuania, a report on the structure and composition of the Lower Palaeozoic succession in the Lithuanian part of the Baltic Sedimentary Basin was presented by the Lithuanian Geological Survey (Lazauskienẻ at al., 2014) and the scientists’ estimates regarding the amount of the resources are encouraging:

Striving to succeed with the environment in mind

With the strong drive to achieve the results desired by so many European countries, Lithuania seems to have thought of everything: the legislative changes, the ongoing publicity outreach campaign and the environmental aspects of shale gas exploration. According to Dr Lazauskienẻ: “In total ~ 15 legal acts related to the hydrocarbon sector and, in particular, to the shale gas and oil exploration and production activities, have been prepared and upgraded since year 2013 in Lithuania (…).” Two of those are: the Inventory of regulations of integrated monitoring for the shale oil and (or) gas exploration and (or) production site and Regulations of environmental monitoring of economic entities in which “Lithuania adopted special requirements aiming to ensure that proper environmental safeguards are in place for the high-volume hydraulic fracturing technique used notably in shale gas and shale oil operations.” Those include checking the quality of the ground water, air and soil before operations start and the operators are also required “to report the results of soil, air and hydrogeological monitoring, and the monitoring of hydraulic fracturing induced seismic events to authorized governmental institutions.”

That’s another tick on the ‘to do’ list before the exploration begins.

Continuous research

In European countries all the natural resources found underground belong to the State and Lithuania wants to use its resources sustainably and wisely. The country’s government put emphasis on knowledge and proper, in-depth research investigating all aspects of their unconventional hydrocarbons because, as Dr Lazauskienẻ said: “The position of government is clear: investigation of the shale gas and oil potential must be continued.”

It would seem such an obvious thing do: research, learn as much as you can, prepare the groundwork and then act but it appears that, in their hurry to extract shale gas, many European countries forgot about it and need to start over. Lithuania grabbed its second chance and really worked with it.

With research and legislature as the building blocks, the plans to re-open the Hydrocarbon Licensing Tender for Silute-Taurage block are planned for Spring of 2015.

And it would seem that the Prime Minister’s trip to the USA was also a success: recently, while on a national radio he said that some companies from the US have been in touch with him and plan on coming to Lithuania for talks. Lithuania Tribune quoted him saying: “Obviously, as the prime minister, I cannot promise to these companies to create conditions for their exploration and extraction operations. But I can promise to make sure that all laws related to shale gas exploration and extraction are passed this year and invitations to a public international tender are sent out.”

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