Poland: Legal aspects of shale gas exploration and production

Author: Ewa Rutkowska-Subocz

Dentons, Warsaw, Poland

Published: March 14, 2012

1. Shale gas exploration and production in Poland

Poland is believed to have major shale gas deposits. The shale gas deposits are believed to be located in a zone stretching from the north-west to the south-east of Poland. About 100 prospecting/exploration concessions have been already granted by the Polish Ministry of Environment. Consequently, most of the area of potential interest is already undergoing prospecting/exploration works. The prospecting/exploration projects are at different stages of advancement. While some may still be at the survey stage, many have already entered the drilling stage.

2. Applicable law

Since the idea of shale gas prospecting/exploration and production is relatively new on the Polish market, legislation in place does not fully respond to the special circumstances of shale gas. Shale gas prospecting/exploration and production are covered by laws applicable to other hydrocarbons. Until 1 January 2012 shale gas prospecting/exploration and production was regulated under the Geological and Mining Law of 4 February 1994.¹ 

On 1 January 2012 that law was replaced with the Geological and Mining Law of 9 June 2011 (‘GML2011’).²  What is new about GML2011 is that it includes particular regulations dealing specifically with hydrocarbons. GML2011, like the formerly binding law, is accompanied by a set of executive regulations. Most of the new executive regulations have been already adopted with exception of the one concerning the tender for hydrocarbons concession (see point 4 below). GML2011 concerns only the geological and mining aspects of the mineral prospecting/exploration and production activities. It touches only marginally on environmental protection issues. 

Under Polish law environmental protection is regulated in many dedicated Acts, a number of which give effect to European environmental law. The Environmental Protection Law of 27 April 2001 is the central piece of environmental legislation, containing basic provisions on environmental protection applicable inter alia to shale gas activities.³ In addition to the Environmental Protection Law there are also many other Acts of a greater or lesser importance in terms of safeguarding environmental protection during shale gas prospecting/exploration and production, including, the Water Law, Environmental Impact Assessment Law, Waste Law, Extraction Waste Law and Environmental Damage Law.⁴

Currently, the possibility of enacting one piece of legislation dealing with all aspects of shale gas prospecting/exploration and production is under general political consideration, but no specific statements were made in this respect by the government. In my opinion it is rather probable that any new legislation will concern only particular issues such as geological, mining, organizational or fiscal aspects of shale gas prospecting/exploration and production.

Especially the intention to enact new regulations on shale gas tax was expressed by the government. So far the current government did not show any intention to adopt any law concerning specifically the environmental issues associated with shale gas activities. The Ministry of Environment is of an opinion that the existing environmental protection legal framework secures a reasonably sufficient level of environmental protection during shale gas activities.

Bearing in mind the extensive environmental protection laws, it seems that if shale gas prospecting/exploration or production impacts on the environment in a manner not regulated under the currently binding law, any such loophole will be addressed through amendments to the environmental laws currently in effect.

3. Impact of EU legislative developments on Polish law applicable to shale gas

Existing EU law does not specifically address the issue of shale gas prospecting/exploration or production. However, EU law impacts and influences two areas of Polish legislation which are of particular importance for shale gas prospecting/exploration and production, namely: (i) hydrocarbons prospecting/exploration and production, and (ii) environmental protection.

As regards the former, the EU adopted the Hydrocarbons Directive.⁵ The Hydrocarbons Directive lays down general rules concerning granting authorization to prospect for or explore or produce hydrocarbons which should be followed in each Member State. These rules were transposed to Polish law in GML2011 and are applicable to shale gas activities.

EU law concerning environmental protection is extensive and, as mentioned under point 2 above, to a large extent has been implemented into Polish law and applies to shale gas prospecting/exploration and production.

4. Polish legal framework

The legal framework for shale gas prospecting/exploration and production is contained in GML2011 and the related executive regulations. Pursuant to GML2011, in order to perform mining activities investors  have to sign an agreement with the State Treasury to establish a mining usufruct (authorizing the use of mining deposits) and obtain a concession from the Minister of the Environment (authorizing mining activities). A separate agreement and concession is required for the prospecting/exploration stage and later for the production phase.

Under GML2011 a concession for prospecting/exploration or production of hydrocarbons (including shale gas) has to be obtained through a public procurement procedure. The concession is granted to the winner of the tender. Subsequently, a mining usufruct agreement is signed with the concession-holder.

The obligation to put the concession out to tender is not compulsory. There is no need to hold a tender for a production concession if, among others, a business entity holds a priority right to sign a mining usufruct agreement for a given area. A priority right of this type is ascribed to an entity which explored a given area, prepared the local deposit management project and obtained a decision approving the geological documentation. The priority lasts for 5 years from the date of delivery of the approval decision.

In practice it means that entities which have already explored a given shale gas deposit under a prospecting/exploration concession (granted under the former law) and fulfilled other prescribed obligations, have a 5-year priority right to sign a mining usufruct agreement with respect to shale gas production. During this period no tender for granting production concession for the same deposit may be held by the authorities. This way the entity which prospected/explored a given shale gas deposit can feel relatively secure as to future production of any shale gas reserves discovered there.

An entity exploring a prospective shale gas deposit or producing shale gas has to pay: (i) a fee for establishment of a mining usufruct, and (ii) a royalty for shale gas prospecting/exploration or production.

Under GML2011 the enterprise running the mine usually bears liability for any mining-related damage. If mining damage occurs, the enterprise has to reinstate the former condition by providing substitute real estate, buildings, facilities, water and other similar goods. The enterprise may be required to pay damages to the aggravated party.

5. Environmental Impact Assessment Procedure

Under Polish law it is obligatory for some undertakings enumerated in the Environmental Impact Assessment Regulation (EIA Regulation) to obtain a decision on environmental conditions.^{6 7} The decision on environmental conditions has to be obtained prior to obtaining, among others, a building permit, concession for prospecting/exploration and production of minerals or a water permit for constructing water facilities.

The undertakings enumerated in the EIA Regulation, for which a decision on environmental conditions has to be obtained, are divided into two groups: (i) undertakings for which an EIA procedure has to be performed each time during the procedure for granting the decision on environmental conditions, and (ii) undertakings for which an EIA procedure has to be performed only if the authority so requires.

The EIA procedure comprises the following stages: preparation and review of an environmental impact report, obtaining the opinions of other authorities and assuring public participation. Shale gas related activities are not explicitly enumerated in the EIA Regulation. However, some mineral prospecting/exploration and production activities are covered by the EIA Regulation (please see table below).

As can be seen, prospecting/exploration of shale gas deposits in most cases is covered with an obligation to obtain a decision on environmental conditions, however it will be dependent on the decision of the authority issuing the decision on environmental conditions as to whether an EIA has to be carried out.⁸  For the production stage, too, a decision on environmental conditions has to be obtained. The EIA is obligatory only for the most intensive production activities, whereas for others it is only obligatory if the authority so requires.

6. Public Participation

Polish law provides for different levels of participation by parties other than the applicant for a given decision. During a procedure for issuing decision on environmental conditions, the following levels of participation are envisaged: (i) as a party to the procedure; (ii) as an entity holding such rights as the party; (iii) (interested) public participation.

A party to the procedure is a person whose legal interest or obligation the procedure concerns or who demands an action on the side of the authority on the basis of its (his/her) legal interest or obligation. Entities holding real estate which might be impacted by the planned undertaking are considered to be parties to the procedure for issuing a decision on environmental conditions. The same holds true for decisions on environmental conditions for shale gas activities.

Ecological organizations (i.e. social organizations having environmental protection as a statutory aim) may participate in the procedure for issuing a decision on environmental conditions on a similar basis as a party. An ecological organization may file an appeal against a decision, even if it did not participate in the first instance procedure. Moreover, the ecological organization may file a claim with the administrative court.

The rules on public participation provide wide public access to the procedure for issuing a decision on environmental conditions. Under Polish law everyone has a right to participate  in the procedures requiring public participation. The right to participate includes an entitlement to access the files of the case as well as to file comments and proposals. In the procedure for issuing decision on environmental conditions, public participation is assured only when an EIA is performed (see point 5 above).

In the case of shale gas prospecting/exploration this means that public participation is obligatory only if the authority issuing a decision on environmental conditions decides to conduct an EIA. As regards shale gas production, public participation is obligatory with respect to large scale projects. For shale gas production on a smaller scale and other shale gas activities, public participation is obligatory only if the authority issuing the decision on environmental conditions decides to conduct an EIA.

If public participation is required in the procedure for issuing a decision on environmental conditions, the authority issuing the decision on environmental conditions makes available to the public information on, among others: the initiation of the EIA procedure, the course of the EIA procedure, the possibility to review the documents and file comments and proposals.⁹ The minimum period for filing comments or proposals is 21 days. The justification for the decision on environmental conditions has to contain reference to the comments or proposals filed in a public participation procedure.

7. Possible impact on Natura 2000 sites

Two issues are of relevance regarding the impact of shale gas prospecting/exploration and production on Natura 2000 sites: (i) procedure for assessing possible impact on Natura 2000 sites, and (ii) procedure for obtaining approval for a project that might negatively impact a Natura 2000 site.

As a rule, assessment of the possible impact of a project on a Natura 2000 site is performed during the EIA procedure prior to the issuing of a decision on environmental conditions. However, with respect to undertakings which are not enumerated in the EIA Regulation and for which no decision on environmental condition is required, a separate Natura 2000 site impact assessment may be performed. 

If the relevant permitting authority (issuing for example building permit, zoning permit, all water permits or permit to remove trees) determines that the given project needs a Natura 2000 assessment, it orders the applicant to initiate a separate procedure before the Regional Director of Environmental Protection, who decides whether to initiate a fully-fledged Natura 2000 site impact assessment.

This impact assessment involves a public consultation process. The Regional Director of Environmental Protection then issues a resolution approving the project or may impose conditions on implementation of the project. Undertakings which may have a material negative impact on the Natura 2000 protection sites may nevertheless be implemented under an approval of Regional Director of Environmental Protection if there is a public interest requirement, including social or economic interest requirements, and where there are no reasonable alternative solutions.

However, in such case the investor has to implement a nature compensation scheme to assure the integrity and proper functioning of the Natura 2000 site. If the negative impact concerns priority habitats and species, approval may be granted only in order to: protect human health and life, assure public safety, obtain other benefits for the natural environment or satisfy an aim of overriding public interest. This approval may be issued during the procedure of the Natura 2000 impact assessment as described above. 

If a project which may materially negatively impact a Natura 2000 site is implemented without the required approval, the environmental authorities may bring the activity to a halt and demand the restitution of the previous environmental condition.

Importantly, even if no decision on environmental conditions is required for a given shale gas activity, a project may still need a Natura 2000 impact assessment if there is a risk of material impact on a Natura 2000 site in the vicinity. Implementation of shale gas activity may be prohibited if it is stated that it may materially negatively impact the said protection site and no special justification for its implementation occurs.

8. Water management

Shale gas prospecting/exploration and production consume large quantities of water for hydraulic fracturing and generate commensurate amounts of waste water. These issues are addressed in Polish law on a general basis without particular reference to shale gas activities. 

Water for hydraulic fracturing can be sourced either (i) from the local water system under an agreement with a water provider, or (ii) through direct intake of surface or underground water. The former solution is simpler where technically feasible, but at times rarely available as the shale gas activities often take place outside the areas equipped with water system or, if the water system is available in the vicinity, the water taken has to be transported from the water systems to the shale gas site which also can be problematic.

Depending on the local conditions the latter solution may turn out to be more attractive even if a water permit and possibly engineering works are required in order to establish water intake. The water permit takes the form of an administrative decision. A special hydrological survey has to be attached to the water permit application. A water permit may only be issued if the planned activity will not contravene the local water plans or the requirements of human health, the environment and cultural goods.

A water permit is required, among others, for building water facilities (such as water intakes and reservoirs) and using surface or underground water intakes. A water permit for surface or underground water intake is not required if the water intake does not exceed 5 m³ per day or if the intake is for the purpose of drilling or performing explosive boreholes with the use of water drilling mud for seismic tests. 

The injection of hydraulic fracturing fluid (water mixed with proppants and chemicals) into the shale rock formation is not explicitly regulated under Polish law. No water permit is required for this action. 

The water which eventually returns to the surface has to be either (i) cleaned and re-used for further hydraulic fracturing, or (ii) treated and disposed of. The former solution is not generally covered by law unless the process involves ponds, in which case a water permit is required. The chemical substances extracted from the return water during the cleaning process are classified as waste. In order to produce such waste the investor has to fulfill certain waste-related administrative obligations, depending on the type and volume of waste produced (among others, to obtain a permit to produce waste, see point 10 below). The waste has to be managed appropriately (i.e. by an entity collecting such waste and holding the necessary waste management permit).

As for the second solution, i.e. treatment and disposal of the waste water, two scenarios are possible: the waste water can be discharged to the local sewer system or directly into water or ground (soil). Discharge to the local sewers takes place under an agreement with the local sewer provider for a fee. However, if the waste water contains listed environmental pollutants, the waste water producer and the entity discharging the waste water into the sewer system have to obtain a special water permit for the discharges.

Alternatively, the waste water may be discharged into water or the ground (soil), which also requires a water permit.¹⁰ Waste water discharged in this manner has to comply with the quality standards set forth in law. This may mean that pre-treatment is needed. If the waste water is stored prior to any actions being taken, a water permit may be required if the storage takes place at the areas of particularly high flood risk.

9. Chemical substances: Application of the REACH Regulation

Hydraulic fracturing fluids contain a mixture of sand and chemical substances. Obligations associated with the use of chemical substances derive mostly from the REACH Regulation, which is directly applicable in Poland.¹¹ Entities using mixtures of chemical substances for hydraulic fracturing of shales may be classified as downstream users.

Downstream user means any natural or legal person established within the European Union, other than the manufacturer or importer, which uses a substance, either on its own or in a mixture, in the course of industrial or professional activities. REACH Regulation requires the downstream user to identify and apply appropriate measures to adequately control the risks identified in safety data sheets received from their suppliers and follow the instructions contained therein or in the exposure scenarios.

Moreover, the downstream user is obliged to prepare a chemical safety report for any use outside the conditions described in an exposure scenario or if appropriate use and exposure category communicated to him in a safety data sheet or for any use his supplier advises against (subject to enumerated exceptions).

Additionally, the downstream user has to communicate up the supply chain, report to the relevant authorities, keep and update information. The downstream user has also the right to make the use known to the supplier. Polish law lays down penalties for breaches of downstream user obligations under REACH Regulation.¹²

10. Waste management

Shale gas activities may result in the creation of mining and other types of waste. Mining waste includes waste from prospecting/exploration, production, reworking and storing of minerals.¹³ Before commencing mining activity, the future holder of mining waste is obliged to prepare a mining waste management program for filing with the respective authority.¹⁴

Approval for the said plan is given by way of an administrative decision. The holder of mining waste is obliged to hand over the waste to the nearest mining waste disposal plant.¹⁵ If the holder runs the mining waste disposal plant itself, it needs a permit for running such plant as well as fulfill other environmental obligations.

With respect to other types of waste (unless more specific provisions apply), the producer of waste is obliged to obtain a waste production permit for annual waste quantities generated during the operation of the installation of (i) over 1 ton of hazardous waste or (ii) over 5,000 tons of non-hazardous waste.¹⁶

If waste is not generated in connection with operation of the installation, the waste producer must obtain a decision approving its hazardous waste management program, if it generates more than 0.1 tons of hazardous waste per year. If less than 0.1 tons of hazardous waste or over 5 tons of non-hazardous waste is produced per year, the waste producer is obliged to obtain to file information with the respective authority on the waste produced and the manner of waste management. 

The waste produced has to be handed over to entities managing waste and holding respective permits; alternatively, the waste producer may recover or dispose of such waste itself.

11. Noise pollution

Maximum permissible noise levels are set forth in the executive regulation to the Environmental Protection Law.¹⁷ Noise levels are determined for listed types of areas. Entities operating in the environment may not exceed the noise level in areas for which maximum permissible noise levels are laid down in the Regulation. This impacts on shale gas activities. If the environmental authority determines that there are excessive noise levels, it issues an administrative decision detailing the noise reduction measures to be taken. 

12. Liability for environmental damage

Shale gas activities may result in environmental damage. Under Polish law an entity using the environment (i.e. the polluter) is obliged to immediately take preventive actions if the risk of environmental damage arises or to mitigating and remedial actions if real environmental damage occurs.¹⁸ These rules apply to environmental damage to protected species, water or soil. The environmental authority has to be immediately notified about any environmental damage and any remedial actions have to be agreed.¹⁹ If the polluter does not take preventive or remedial actions, it may be ordered to do so by the environmental authority in an administrative decision.

13. Summary

Polish law does not address in particular the issue of the environmental impact of shale gas prospecting/exploration or production. However, it does set out a comprehensive legal framework for environmental protection, derived in part from the transposition of European environmental law, and it is within this framework that shale gas activities have to operate. Shale gas companies have to comply with numerous administrative requirements before they can commence prospecting/exploration or production and can be subject to regulatory controls at any time thereafter.

² Act of 9 June 2011 Geological and Mining Law (J. o L. 2011 no. 163, item 981).

³ Act of 27 April 2001 Environmental Protection Law (J. o L. 2008 no. 25, item 150, consolidated text, as amended).

⁴ Act of 18 July 2001 Water Law (J. o L. 2005, consolidated text, as amended); Act of 3 October 2008 on making available information on environment and its protection, public participation in the environmental protection and on the environmental impact assessments (J. o L. 2008 no. 199, item 1227, as amended); Act of 27 April 2001 on waste (J. o L. 2010 no. 185, item 1243, consolidated text, as amended); Act of 10 July 2008 on extraction waste (J. o L. 2008 no. 138, item 865); Act of 13 April 2007 on environmental damage prevention and remediation (J. o L. 2007 no. 75, item 493, as amended).

⁵ Directive 94/22/EEC of the European Parliament and of the Council of 30 May 1994 on the conditions for granting and using authorizations for the prospection, exploration and production of hydrocarbons (OJ L 164, 30.6.1994, p.3-8).

⁶ Act of 3 October 2008 on disclosing information on the environment and protection thereof, public participation in environmental protection and environmental impact assessments (J. o L. 2008 no. 199, item 1227), which transposes Council Directive 85/337/EEC of 27 June 1985 on the assessment of the effects of certain public and private projects on the environment (OJ L 175, 05/07/1985 p. 0004-0048).

⁷ Regulation of Council of Ministers of 9 November 2010 on undertakings materially affecting the environment (J. o L. 2010 no. 213, item 1397).

⁸ Under Polish law, decisions on environmental conditions are issued by different authorities, depending on the particular nature of a given undertaking. With respect to shale gas activities following authorities may be responsible for issuing decision on environmental conditions: Regional Director of Environmental Protection, starosta (i.e. head of the county) and wójt, burmistrz, prezydent miasta (i.e. head of the commune). 

⁹ See footnote 8.

¹⁰ However, under Polish law, it is forbidden, among others, to (i) discharge sewage directly into underground water, (ii) discharge sewage into standing water (such as lakes and other reservoirs not connected directly with surface running waters), (iii) discharge sewage into lakes connected with surface running waters, if the time of such discharge is shorter than 24 hours, (iv) discharge sewage into ground (soil) if the extent of its purification or the thickness of the rock formation above the mirror of underground water do not secure the underground water from pollution.

¹¹ Regulation (EC) No 1907/2006 of the European Parliament and of the Council of 18 December 2006 concerning the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH), establishing a European Chemicals Agency, amending Directive 1999/45/EC and repealing Council Regulation (EEC) No 793/93 and Commission Regulation (EC) No 1488/94 as well as Council Directive 76/769/EEC and Commission Directives 91/155/EEC, 93/67/EEC, 93/105/EC and 2000/12/EC (OJ L 396, 30.12.2006, p.1) as amended.

¹² Act of 25 February 2011 on chemical substances and their mixtures (J. o L. 2011 No. 63, item 322).

¹³ Act of 10 July 2008 on mining waste (J. o L. 2008 No. 138, item 865).

¹⁴ Under Polish law, different authorities supervise mining waste administrative obligations, depending on the particular nature of a given undertaking. With respect to shale gas activities following authorities may be mentioned: Regional Director of Environmental Protection, Voivodship Marshall (i.e. head of the executive body in a Voivodship) and starosta (i.e. head of the county).  

¹⁵ Under Polish law, ‘mining waste disposal plant’ is defined as plant designated for disposal of mining waste, whether in a solid or liquid state or in solution or suspension, including dams, heaps and ponds.

¹⁶ Under Polish law, ‘installation’ means (i) stationary technical equipment, (ii) set of technologically interrelated stationary technical equipments located within the same unit and held by the same operator, (iii) other buildings, which may cause emission. 

¹⁷ Executive regulation of the Minister of Environment of 14 June 2007 on permissible noise levels in the environment (J. o L. 2007 No. 120, item 826).

¹⁸ Act of 13 April 2007 on the prevention and remediation of environmental damage (J. o L. 2007 No. 75, item 493, as amended). 

¹⁹ Under Polish law, the Regional Director of Environmental Protection deals with the environmental damage.