Foto: PGNiG

With the memory of last January’s Russia-Ukraine gas dispute still fresh in everyone’s minds and the first chills of winter already being felt, Poland’s state-owned gas firm Polskie Górnictwo Naftowe i Gazownictwo (PGNiG, Polish Petroleum and Gas Mining) concluded a new gas-supply deal with Russia’s Gazprom at the end of October. The exact details of the new deal have not been revealed, but it is known that the agreement will last until 2037 and that gas supply will grow from around 7 billion cubic meters (BCM) annually to around 10 billion.

Poland was forced to renegotiate its deal with Gazprom after RosUkrEnergo, a Ukrainian-Russian company transporting natural gas from Turkmenistan, withdrew from the Polish market after the January gas dispute, leaving a supply gap of some 2.3 billion cubic meters. Poland currently uses 14 billion cubic meters of gas, 30 percent of which is covered by domestic production.

PGNiG has said that the price conditions under the agreement remain unchanged from the previous deal, which would have run out in 2022.

Russia’s requirements

But coming to an agreement with Gazprom required more than just a financial commitment. Poland agreed to Russia’s demands for a change in the ownership structure of EuRoPol Gaz, the operator of the Polish section of the Yamal-Europe pipeline that transports natural gas from western Siberia to Germany.

Gazprom and PGNiG currently each hold 48 percent in the firm, with the remaining 4 percent in the hands of Gas-Trading, a firm whose main shareholders are PGNiG and Bartimpex. The latter firm is owned by Polish mogul Aleksander Gudzowaty, who was allegedly disliked by Gazprom. The Russian firm had been insisting on a 50/50 ownership split with PGNiG, and Poland seems to have had no choice but to agree.

Russia also wanted EuRoPol Gaz to lower its gas transit fees, which would probably threaten its ability to turn a profit. Whether or not Poland agreed to this is unknown, but in theory the matter cannot be settled by the companies alone, as the Energy Regulatory Office also has a say in setting energy tariffs and prices.

 “The problem is, we need Russian gas because we have no alternative sources,” the squeezed-out Gudzowaty told newspaper Polska The Times. Unsurprisingly, he was particularly critical of the agreement, claiming that Russia had demanded its terms be met under threat of withholding gas supplies.

“Our incompetent politicians could do nothing about it,” he said, forecasting that Russia would go even further in the future. “Moscow is gradually making Poland dependent [on its gas supplies]. It is just a matter of time until they deprive us of our shares in EuRoPol Gaz.”

Years of neglect

The deal between the energy companies should enter into force once ratified at the governmental level. Prime Minister Donald Tusk (Civic Platform, PO) has so far stressed that the agreement is between the companies and that “some political settlement” is still required. Once that is reached, “we will be ready with full information,” he said.

Economy Minister Waldemar Pawlak, meanwhile, said that the Polish and Russian governments would approve the deal “within a matter of weeks.”

According to independent energy expert Andrzej Szczęśniak, the details of the agreement are being kept secret because the topic is exceptionally politicized. “Years of neglect are turning into a shouting match in the public sphere,” he said, noting wryly that some opposition members who are criticizing the government were part of previous administrations that had also caved in to Gazprom’s demands.

Thus, according to Szczęśniak, Poland has only itself to blame for its weak negotiating position. “We have done nothing to build our position over the years. We played hardball against our supplier without any trump cards,” he said. Nevertheless, he called the agreement a success. “Not having enough gas meant a great threat of shortages for industry,” he said.

Tomasz Lotz, an energy expert for the Adam Smith Center think tank, stressed that continuity of gas supply is crucial, noting that 70 percent of gas imported to Poland is used in industry, mainly chemicals and petrochemicals.

Rival pipelines

Poland’s bargaining position is unlikely to improve in the near future, particularly given the fact that work is progressing on the German-Russian Nord Stream gas pipeline. Nord Stream is expected to run along the Baltic seabed, bypassing Poland, Ukraine, Belarus, Slovakia and the Czech Republic.

Central European leaders fear this would give Gazprom too much leverage, as Western EU members might be less eager to step in during gas disputes if they suffered no shortages themselves. Although Poland has done its best to block the project, its completion looks inevitable. Sweden and Finland recently signed off on construction of the pipeline in their waters. Construction is expected to begin next year.

To decrease its dependence on Russian gas, the EU is planning to build the Nabucco pipeline from Turkey to Austria. The cost of the project has been estimated at €7.9 billion (Kč 202.3 billion), which will be co-financed by the European Bank for Reconstruction and Development (EBRD). Construction is scheduled to start in 2011 and finish in 2014.

Supply-security options

So how could Poland reduce its dependence on Gazprom gas? Szczęśniak suggested opening up the country’s gas market and inviting in large multinationals. This would break PGNiG’s monopoly but could foster greater energy security by increasing the number of firms supplying gas to the market, he said.

Experts also say that Poland should construct more underground gas-storage facilities. Prime Minister Tusk announced last month that plans to construct such facilities are being developed. Poland is in dire need of more storage space—according to Lotz, Germany’s supplies could support the country for a year, while Poland’s would probably last for only a few weeks.

Diversifying Poland’s supply is the most obvious solution. The government has taken steps to improve the diversity of Poland’s gas supply, and although Alelksander Gudzowaty has described these as “media ploys,” many experts seemed optimistic. “The government has already done a lot,” Adam Smith Center’s Lotz said, though he added that more could be done.

One diversification project that has already gotten off the ground is the creation of a liquefied natural gas (LNG) terminal in Świnoujście. Construction on the terminal should start by next August and finish in time for the first deliveries from Qatar, scheduled for July 2014. The terminal will receive around 2.5 billion cubic meters of LNG a year.

Another way to diversify would be to create new interconnectors linking Poland’s gas pipeline system with its neighbors to the south and west. Several experts noted that interconnection of Europe’s gas infrastructure is key to Poland’s energy security, as Poland’s transmission network is mainly eastward-oriented, a legacy of the country’s recent past as a Soviet satellite. Poland has only one interconnector at present—to Germany’s system—leaving it technically unable to import gas from the West.



The price of security

However, diversification of gas supply comes at a price. According to daily Dziennik Gazeta Prawna, members of the chemical industry are against building the LNG terminal in Świnoujście, fearing it will push up gas prices and thus production costs. The LNG that PGNiG plans to buy from Qatar is expected to be 40 percent more expensive than gas purchased from Gazprom.

Recent reports by daily Rzeczpospolita indicating that the government plans to introduce a “diversification fee,” to foot part of the bill for the LNG terminal and other energy diversification plans, have done little to allay concerns that gas prices will rise. The fee is rumored to amount to an additional Zł 0.03 (Kč 0.18) to Zł 0.05 per cubic meter of gas and may be introduced after the Świnoujście terminal is finished, in 2014.

Even so, the price may be worth paying to avoid over-dependence on Russian supplies. “Energy security is more than just pure math,” Elżanowski said.

This is an edited version of a story published by Warsaw Business Journal.