RUSSIA MONITOR

Date: 19 November 2019

One Customer Fewer for Gazprom: Poland Successfully Diversifies Its Energy Sources

As earlier announced, Poland’s biggest gas firm, state-run PGNiG, said that it did not intend to extend its long-term deal on gas supplies with Gazprom. The gas firm seeks to wean itself off Russian-sourced energy after 2023. This marks Russia’s and Gazprom’s failure while exposing the immense success of Poland’s incumbent authorities who, since coming to power in 2015, have made consistent efforts to vary the country’s energy supplies to cut off reliance on Russia and build up Warsaw’s energy security. Poland says it will be able to do without Russian gas after the current gas deal terminates.

SOURCE: PGNiG

The Polish-Russian Yamal contract, signed back in 1996, will remain in force until December 31, 2022. Under the deal, Poland gets 10 billion cubic meters (bcm) of gas per annum. According to a Gazprom-imposed take-or-pay clause, Poland is obliged to buy at least 8.7 billion cubic meters of gas annually. President of the PGNiG Management Board, Piotr Woźniak, said that the financial terms of the Gazprom contract were unfavorable, with Poland being bound to pay up to 1 billion zlotys per year ($260 million). PGNiG’s gas deal with Gazprom has long not been in line with market conditions, deteriorating Polish gas consumers’ position in relation to other European customers. Bearing in mind exorbitant energy prices, unfavorable deal conditions and Poland’s fear of Gazprom’s use of gas flows as a tool of political pressure, PGNiG notified Gazprom Export of its intent to terminate the contract for purchase and sale of natural gas. The Yamal agreement requires that the parties formally submit declarations regarding future cooperation three years before the deal expires; if not notified by any of the parties, the contract will be prolonged automatically. Poland has long made attempts to reduce the price of Russian-sourced gas supplies, managing to diminish the rates by 10 percent back in 2012. In 2015, PGNiG filed a suit against Gazprom to the Stockholm Arbitration Court, arguing that the price of gas in the current agreement was overestimated and did not correspond to the situation on the European energy market. Both gas firms are still awaiting the final ruling, scheduled for late 2019 and early 2020, with Poland hoping to win the case.

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In 2018, Poland’s demand for gas was 20 bcm, with domestic production of 4 bcm. About 60 percent of Poland’s demand came from Gazprom. PGNiG has reduced Russian gas flows by 21 percent since the beginning of this year. In the first three quarters of 2019, Poland’s LNG purchases raised significantly, at the expense of gas shipments from Russia. The share of Russian energy in Poland’s total gas imports dwindled by 17 percent, attaining the level of 58 percent, while 75 percent in a year-to-year comparison, with a simultaneous increase in LNG’s shares in total gas imports, from 18 to 23 percent. From January to September 2019, Poland’s Świnoujście gas terminal received 22 offshore liquefied natural gas supplies, compared to as many as 16 in a year-to-year comparison.

Poland’s decision to diversify its gas supplies will allow for terminating the Yamal gas contract. PGNiG has taken in the last four years some actions aimed at diversifying Poland’s energy supplies. The efforts to reduce dependency include importing liquefied natural gas from the United States, Qatar, and Norway. Poland’s gas firm has struck long-term LNG supply deals, including with U.S.-based companies. Under the accords PGNiG has already inked, the company is bound to receive 1.45 million tons of LNG annually from U.S.-based Cheniere after 2022 (within the 24 years) and 2 million tons from Venture Global throughout twenty years. Importantly, PGNiG says that U.S. firms supply LNG flows at an entirely competitive price to that offered by Gazprom for its supplies running through Russia-based pipelines. PGNiG holds shares in 26 exploration and production licenses on the Norwegian Continental Shelf. Once completed, Baltic Pipe will allow the transfer to Poland of 2.5 billion cubic meters of gas.

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