THE WARSAW INSTITUTE REVIEW

Date: 4 November 2019    Author: Wojciech Jakóbik

Poland First – Poland’s prescription for hard times

Poland is continuously benefiting from the guarantee of Article 5 of the North Atlantic Treaty, renowned for assuring the help of allies in case of an attack on its territory. However, increasingly uncertain times seem impending, therein compelling Poland to reach for additional protective measures. Given Poland’s staunch support and avid role in NATO, such pursuits would be beyond military-orientated issues, mainly in the form of robust economic relations, notably, including in the energy sector. Operating within the EU but likewise also beyond it, furthering such endeavors would provide access to natural resources and technologies, and are likely to continue to draw the attention of the US, perhaps more than at any time in the history of the countries’ long-standing relations.

NATO limits

NATO reasonably interprets Russia’s growing ambitions and actions, characteristic of violations of international law such as the illegal annexation of Crimea, as malicious intent. Hence, accompanying several other measures, the North Atlantic Alliance reinforces the Eastern Flank by deploying regularly rotating security forces near the borders of states neighboring Russia. The Eastern Flank is aware it should accelerate existing efforts, enable the rapid response times to plausible threats, namely such as incidents risking provocation in the Suwalki corridor. Strategists, analysts, commentators, and pundits alike of NATO member states also make no secret that, at the same time, new additional measures are necessary deterrents on this particular geopolitical chessboard.

At present, the strategic concept of NATO provides for analyses of energy security of its member states, recognizing it as an imperative factor in the calculus of their foreign and security policies. Supplies of natural resources via the Baltic Sea, relevant namely to Poland and the Baltic states, and via the Arctic Sea, pertinent to Scandinavian states[1], appeared in the formal communication coming from the Warsaw NATO Summit in 2016. Generally speaking, it is natural that governments and other international organizations, specifically the EU (as noted by the author), which are better specialized economically are more active in, and take on greater degrees of responsibility in the area of energy security. Nonetheless, NATO is closely monitoring the influence of the situation in the energy sectors on security dynamics. NATO attaches great importance to supply diversification within the entire Euro-Atlantic region, more than is commonly appreciated. Therefore, we will be incessantly enhancing the strategic alertness in this matter, with aims such as exchanging intelligence and information, as well as further developing relations with international organizations, such as the International Energy Agency and the EU – as NATO member states leaders elaborated in the communiqué mentioned above[2].

Another carrier of the USA

As it is difficult to find compelling arguments to encourage NATO to take care of the energy security of Poland, perhaps it would be more sensible to convince the main shareholder of the Alliance to play an increasingly larger role in it? That is what Poland has begun to do. Poles are planning to develop even closer relations with the US. Besides purchases of subsequent armament parts within the context of military cooperation, the energy industry may become a core of significantly enhanced economic cooperation with the Americans. As such, the US would be aptly incentivized to maintain or even further strategic contributions in Poland, regardless of their foreign policy shifts. In essence, better economic ties in Poland additionally stabilize mechanisms for US geostrategic interests where US foreign policies can fluctuate.

In this context, it is worth recalling that the economic program of the Presidents of the US, Donald Trump’s administration called “America First” assumes that the export of natural resources and technology will be the engine of economic development of the US, which shifted from the position of an importer to an exporter of hydrocarbon thanks to the Shale Revolution. Moreover, the idea of the international relations visible in the actions of American Congressmen contains a concept of a policy providing for bilateral aid for allies with the use of all possible tools, including technologies, natural resources, and raw materials. As a result, American foreign policy’s “carriers” – Japan, South Korea, and Norway, appeared. Poland has already become a carrier to some extent and the development of cooperation in the energy industry may increase both its strategic weight and the strategic scope for Americans. There are at least three fields for cooperation in the regard mentioned above: gas, nuclear, and cyberspace.

Gas

Poland is increasing the purchases of liquefied natural gas, referred to as LNG, from the US. The volume of the US gas, deriving from numerous contracts with PGNiG, that will be at Poland’s disposal, after 2022, will reach 9.45 billion cubic meters a year. This is almost the same amount as the maximal volume of purchases from Russia under the Yamal Contract (8-10.2 billion cubic meters a year), which expires in the second year of the following decade. This means that American natural gas entering the Polish market together with supplies from Norway through the Baltic Pipe will allow Poland to reduce or even abandon supplies from Russia. The remaining volume will re-enter the world markets, and PGNiG will benefit from the middle-man redistribution, standing shoulder to shoulder with other LNG trading giants, such as BP or Shell[3].

It is worth stressing that the liberalization of the gas market conditions the development of the gas hub in Poland. Infrastructure will allow increasing diversifying suppliers until 2022. Therefore, the liberalization of the market and admitting new players which could re-export gas imported to Poland through cross-border connections, e.g. to Lithuania or Slovakia ought to be the next step. The author maintains the argument that the development of the LNG trade by making more use of the PGNiG office in London should be considered as preparations for softening the Polish market after 2022. This company, without the burden of the Yamal Contract but with unique competences in the LNG trade, may then become less dependent on the development of the situation in the domestic gas market.

Whilst the price of LNG supplies from the USA to Poland is not precisely defined just yet, it is not a decisive factor whether gas should be imported or not. Attaining additional supplies via Świnoujście, as well as from the US, improves the negotiation position of Poland in talks with any supplier. Lithuania publicly announced in 2014 that as a result of adding such an alternative to the supply portfolio, it obtained a lowered price from Gazprom by 20%. Poland could achieve a similar favorable offer in 2022. One can try to estimate the price of LNG from the USA in relation to the current market conditions but should also consider that most of the contracts will be realized after 2022, when these conditions may be different. The portfolio of the American contracts is as follows[4]:

In October, PGNiG signed two binding long-term contracts for LNG supply with Venture Global Calcasieu Pass and Venture Global Plaquemines LNG. Each contract provides for the purchase by PGNiG of about 1 million tons of LNG (which is about 1.35 billion cubic meters of re-gasified natural gas) every year for 20 years. Supplies will be realized in the free-on-board (FOB) formula, which means that PGNiG is responsible for the cargo from the moment of shipping. These supplies will enter the global market. It is not defined yet whether the PGNiG’s strategy will include the purchase of a fleet of LNG tankers for international trade. Unofficially, it is rumored that such a possibility is taken into consideration.

In November, PGNiG signed a long-term contract for 24 years of US LNG supplies with the company Cheniere Energy. The contract involves supplies of 0.52 million tons of LNG (0.7 billion cubic meters after regasification) in the years 2019-2022 and about 29 million tons (about 39 billion cubic meters) in the years 2023-2042. The contract with Cheniere includes the Delivery ex Ship (DES) provision, which makes the American supplier responsible for the cargo delivery. This means that all possible market fluctuations will increase the cost born by the supplier and will not increase the price paid by the recipient, PGNiG. Supplies from Cheniere are dedicated to the Polish market. The first was delivered to Świnoujście on July 26, 2019, by the Oak Spirit LNG tanker. According to the declarations of the Polish authorities, the price of this contract can compete with the offers in the European market and is probably indexed to the levels of the Belgian TTF stock exchange. Furthermore, this would indicate that the price of supplies may be comparable to the offers at this level and compete with, for example, proposals of Gazprom in Western Europe.

Larger supply volumes, at a price competitive in relation to the Russian offer, was enabled by the contract with Cheniere. Furthermore, the competitive price at these volumes is also enabled by the anticipated contract for Norwegian gas supplies through the Baltic Pipe, which may moreover give the Polish gas market a degree of price-setting abilities. In such an optimistic scenario, Poland would become a reference point for the pricings of gas contracts and be considered genuine competition for Germany, not mentioning the relatively expensive long-term agreements sorts of the Yamal contract[5].

Nuclear

Although the conditions in the nuclear sector have hinted indications, it may be optimal also for Poland-US mutually beneficial energy cooperation, in what way remains to be determined. Americans could participate in the tender proceedings for the supply of technology. US enterprises could opt for a share in the construction of the Polish nuclear power plant, as Poland is planning to construct 6-9 GW plants[6] by 2045.

Attesting to existing exploration, Poland and the US have signed a memorandum of nuclear energy cooperation, following up on a preceding document on energy industry cooperation[7].  The US nuclear umbrella based on the land-sea-air triad is linked to the civil nuclear energy sector. After their most intensive work period, military staff are guaranteed a soft landing onto leadership positions in civil solution-orientated companies. Companies in the civil sector, in turn, constitute a natural source of innovation for the military sector, and are the recipients of solutions given by this sector to the civilian one.

Therefore, the “America First” approach in this field will extend beyond only the promotion of US companies in tender proceedings due to economic prospects, it will be vital for security issues because of aforementioned factors, as well as namely for US foreign policy – the US will (and should) compete with the offers made mainly by China and Russia. This is particularly visible in Europe. New nuclear blocs in the Visegrad Group member states are becoming the object of rivalry between the mentioned powers and they are a chessboard of general economic competition in the region between them.

The Polish nuclear program may become an object of a similar scenario. Despite recurrent signals regarding the interest of Rosatom, Poland is currently negotiating with the US, South Korea and France. Washington does have an advantage here. The US government could provide financial support by using many means of foreign investments in countries crucial to the US foreign and security policy. Such initiatives are appearing in the US Senate. They could result in a long-lasting policy of creating the aforementioned “carriers” not only in developing countries but also in developed ones, such as Poland, and the nuclear sector would become an additional, new crucial element for US-Polish cooperation in foreign policy and security[8].

If we are to be convinced by the declarations of the government, negotiations are ongoing on the involvement of the US or another foreign partner in covering about half of the cost. US companies and those related to the US, such as Bechtel or General Electric, could take responsibility for particular components of the project. It is worth stressing the significance of this sector for the national security of the US[9]. It will turn out whether such a scenario is possible. Autumn is a time of decisions on this matter, as Poles are unable to wait much longer. The Polish Energy Policy until 2040 includes the construction of the first nuclear power plant in 2033. Therefore, considering the time of construction estimated at a decade, there is less and less time for a decision.

Cyberspace

The US has been supporting Poland in another dimension of the energy industry, namely by means of protection of its cyberspace through Polskie Sieci Elektroenergetyczne (PSE). Poland – as one of few allies – was invited to participate in exercise during which it could improve its capabilities to react to hacking and cyber threats against the energy sector[10].

Poles were among the first in the world to participate in the GridEx exercise, ongoing since 2011. The GridEx 2019 edition was attended by 6500 people from 450 organizations. Exercises will be taking place regularly every two years. One part of the exercise, entitled “CyberStrike,” focuses on protection from threats specifically to the energy sector. During this exercise, attacks similar to the ones which paralyzed the industry and energy distribution systems in Ukraine in 2015 and 2016 are simulated. Poland will be organizing a similar exercise called PolEx every year[11]. The inaugural exercise from November 2018 resulted in a series of recommendations of the US Department of Energy, Ministry of Energy of Poland, and the Ministry of Entrepreneurship and Technology (MPiT) of Poland and the Government Plenipotentiary for Strategic Energy Infrastructure. Americans declared their readiness to support the organization of subsequent PolEx exercises prepared by Polskie Sieci Elektroenergetyczne. The next edition[12] is scheduled for 2020.

The cooperation between Poland and the United States in cyberspace is vital, especially in the face of growing tension in the relations with Iran and the long history of cyber-attacks on the US and its allies conducted by entities localized in China, Russia, North Korea and mentioned Iran. According to the author, long-lasting cooperation between Polish and American services in cybersecurity could develop into further cooperation within the SIGINT information intelligence fields, with the possibility to include Poland into the works of the Five Eyes alliance. This is an informal association of Anglo-Saxon services engaged in this matter.

Poland First?

Joint efforts of Poles in the security and energy sectors merits attracting further attention onto Poland from the US. The NATO alliance is the ultimate guarantee, but subsequent contracts and the enhancement of relations between companies are additional incentives for American efforts to assure security in our part of the world. If the analyses of a part of security specialists who predict an increasing return of isolationism to US foreign policy appear to be correct, these forms of enhanced relations will be especially crucial. This is already hinted in the “America First” approach, which subordinates US foreign policy to the interest of the domestic economic policy in a cruder manner. If energy cooperation with Poland supports the economic development of America, it will be even more determined to protect this allied state and steadfast friend on the international arena. It is, therefore, both possible and mutually beneficial that successful energy cooperation will encourage American strategists to create the “Poland First” approach in the future of US policy striving to simultaneously secure interests on both foreign and domestic fronts.

 

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