How to effectively transfer technology? Lessons learned for the Ballistic Missile Defense programme from shale gas revolution in Poland

How to effectively transfer technology? Lessons learned for the Ballistic Missile Defense programme from shale gas revolution in Poland

Conclusion of the tender for medium-range Ballistic Missile Defense (‘BMD’, codename “Wisła”) creates both opportunities and challenges for Poland’s defense industry. One of most promising aspect is the transfer of technology and know-how from American providers to local entities. In this respect, important lessons can be learned from the Polish Oil and Gas Sector’s (‘OGS’) shale exploration efforts which share several characteristics with the BMD project.

First, both shale OGS and BMD rely on sophisticated, proprietary technology, which make their implementation a capital intensive process. Hence, localization of production is necessary to cut costs, and ensure profitability of investments. Moreover, prior adaptation of regulation and operational procedures is needed to avoid wasting valuable time and resources during operational phase. Second, both petroleum and defense industries are already functioning in Poland and local entities expect to be a part of future investments. Incorporating local companies in the projects will then build trust and improve the environment in which OGS and BMD operate in Poland.

Analysis of the mistakes committed over the past four years in the shale OGS could enhance the implementation of the BMD programme. The challenges adversely affecting shale technology transfer can be represented by three pillars:

1. Law and regulations – adaptation for new technology needs;

2. Operational procedures – standardization across industry;

3. Human factor – establishing mutual trust and understanding.

Oil and Gas Sector

 1. Law and Regulations

Appropriate regulations are vital in implementing new technologies associated with shale gas, and are an issue which Poland has been struggling with. The Polish Mining Law (Prawo Geologiczne i Górnicze – ‘PGG’) serves as a good example of a regulation hindering implementation of new technologies. The law was designed for regulating drilling in conventional hydrocarbon fields. As such, it focuses on procedures used in Poland and does not reflect global industry trends.

For example, PGG specifies the workforce structure along with necessary permits and educational background of the personnel employed on an oil rig. All the above are specific to Poland, so few foreign companies can comply with them without significant organizational changes. Therefore, these companies are effectively forced to implement artificial organizational schemes, creating unnecessary costs, and impeding communication and knowledge transfer. Problems are exacerbated in case of innovative technologies, which generate situations unforeseen by the law. For instance, the PGG proves incapable of naming appropriate trainings or institutions that would certify a person for performing work related to hydraulic fracturing. One interpretation of the law states that fracturing pump operators must obtain a local qualification for ‘cement pumping units’, which is neither representative of their tasks nor relevant to the safety of their work.

2. Operational Procedures

Over the past years, a consensus on norms for shale gas extraction has not been achieved, leading to creation of duplicate sets of procedures. Currently one set is used by foreign companies, based on their experience with innovative technology. The second set is artificially created for submission to state’s Mining Authority, and often has little practical use during operations.

One example of this procedural duplication is the Drilling and Completion Program, created vis a vis the Polish ‘Plan Ruchu’. For instance, the pumping schedules for hydraulic fracturing are adopted from American OGS and effectively guide the field operations conducted by foreign companies. However, for the sake of time saving, only parts of the schedules are translated and copied to ‘Plan Ruchu’ for the Mining Authority and for Polish companies reference. Know-how transfer is then impeded, since local and foreign companies work using different sets of documents.

3. Human Factor

A significant investment in any industry, such as shale OGS, disturbs the status quo, affecting industry’s attitude towards a project. For example, political pressure on Poland’s national oil company – PGNIG – to drill shale wells adversely affected financing for other, conventional projects. This created industry establishment’s hostility towards shale OGS in general and foreign companies with their technology in particular, slowing down the technology adoption. The stakes are high, since PGNIG forecasted 300 mln PLN, or 30 percent of total exploration expenditures for shale wells.

Moreover, foreign companies with their innovative technologies are pushing Polish counterparts out of business. For example, the American-owned United Oilfield Services, won a PGNIG contract for 3 advanced shale wells in North of Poland, promoting discontent in the local competitor Exalo Drilling. Prior to that, Exalo (part of the PGNIG capital group) has had a virtual monopoly on conventional drilling for their mother company. Therefore, a theoretical success of the shale project in Poland is contrary to interests of the part of Polish OGS, which feels it cannot compete in shale industry.

Conclusions for the BMD programme and Defense Industry

During the implementation of BMD programme, following steps should be taken to ensure effective technology transfer:

1) Verification of applicable regulations and their implications for the defense industry. For example, the certification problem for fracturing specialists could be avoided in case of foreign electro-technicians that will be co-creating the 360 degree tracking radar technologies in Poland. According to Polish regulations, these technicians should first have to prove their qualifications in front of a Qualifying Commission and obtain certain permits. Cooperation with all tiers of government agencies and business partners could expedite and rationalize this process. A mutual recognition of electro-technical certificates and permits between the US and Poland could be negotiated, minimizing the red tape hassle for field personnel. Alternatively, appropriate trainings could be organized in Poland in advance, and the process of recognizing foreign employees’ skills could be streamlined.

2) Standardization of procedures for cooperation with local counterparts. The defense industry can build on OGS experiences by adequately planning the cooperation. With a thorough understanding of the Polish law documentation requirements will facilitate cooperation with Polish counterparts and allow for synergies in standardization. For example, technical procedures should be translated into a format and language acceptable by Polish businesses and/or Polish authorities. The resulting documentation should be used by all involved companies.

3) Incorporating Polish companies in implementation of BMD programme. Sufficient resources should be committed to engaging Polish stakeholders on all accessible levels. A list of Polish arms contractors and associated institutions should be maintained and serve as a reference guide during all implementation phases of the BMD programme. Incorporating Polish providers or universities will build trust and facilitate operations in Poland. Moreover, due to price level difference between the US and Poland, even a relatively small project for an American company could be a significant one for the Polish counterpart. Therefore, offshoring parts of production could not only satisfy government’s requirements and build the trusts of Polish defense industry, but also be financially beneficial for the investor.

Conclusion

The challenges facing OGS in Poland can serve as an important lesson for the arms industry as it prepares for transatlantic cooperation. Despite setbacks outlined above, ‘shale revolution’ in Poland still served as a platform for technology transfer between Poland and the United States. Cutting edge drilling and well completion techniques were adopted by Polish OGS, resulting in highest fracturing pump rates ever achieved outside of North America or longest horizontal wells drilled in the region.

Even greater successes await the defense industry if it builds on OGS’ experiences. Success in adapting American BMD technology will depend on engagement of all stakeholders: the investors, local companies, governmental agencies and regulators as well as adequate planning. Unifying standards, certifications and procedures will facilitate the operations in Poland and help the industry to reach its full potential.

Author: Maciej Kowalski, Research Fellow at Casimir Pulaski Foundation