"An attempt to bargain": Poland does not intend to renew the contract with Gazprom after 2022

The Polish oil and gas company PGNiG announced that it is not going to renew the contract with Gazprom after 2022. The corresponding statement was made by the head of the company Pyotr Wozniak during the XXIX Economic Forum in the Polish Krynica-Zdroj.

“The Yamal contract expires in 2022. We are not going to extend it, ”he said.

He explained this step by saying that the price of gas in it was allegedly overstated. Also, the Poles are not satisfied with the take-or-pay system (“take or pay”), which is included in the contract. According to this condition, the supplier agrees to deliver the goods in the maximum volume, and the buyer must pay a certain part of it, even if in fact he did not purchase it.

In this way, the supplier insures its investments made to ensure maximum supply. Moreover, if the parties abandoned the take-or-pay system, these risks would be included in the price of the product, which would lead to its cost increase.

Poland annually consumes more than 15 billion cubic meters of gas, while independently produces less than half. The rest of it has to be imported, mainly from Russia. Under a contract with Gazprom, Warsaw may annually acquire 10.2 billion cubic meters of gas. At the same time, deliveries are made through the Yamal-Europe gas pipeline, which passes through the territory of Belarus.

Woźniak (#PGNiG): W 2022 r. #KontraktJamalski szczęśliwie wygasa. Nie zamierzamy go przedłużać z partnerem, jakim jest #Gazprom. Przez ostatnie lata okazał się on niewystarczająco wiarygodny # BA24 # Krynica2019 # ForumEkonomiczne2019

Wozniak added that Poland considers the price of Russian gas to be too high. At the same time, answering journalists' questions about further cooperation with Gazprom, he noted that proposals would be considered in Poland if they were received.

Trading and politics

According to the head of the analytical department of the National Energy Security Fund Alexander Pasechnik, such statements are made by Warsaw in order to bargain for a better gas price.

“The statement of the head of the Polish concern is an attempt to bargain. Of course, there is also a political basis here, but it is secondary. The Poles want to get the best price, announcing that allegedly Russian gas is unprofitable in the current conditions. Poland has already announced several times that there will be no extension, but there has always been a reservation, ”the expert said in an interview with RT.

At the same time, he emphasized that by 2022 the situation in the gas market could change dramatically, and not in favor of consumers.

“It will be possible to reason and build some scenarios in at least two years, because by this time the situation may not be in favor of the consumer. The dominance of liquefied gas may lead to the fact that the LNG project will strangle itself by this time, since a large offer generally reduces the price of gas, and Gazprom has everything in order to reduce the price and be more flexible, ”explained Beekeeper.

Indeed, for Gazprom, according to Bloomberg, gas sales will remain profitable even at prices ranging from $ 125 to $ 142 per cubic meter, while for US LNG supplies to Europe this figure is almost twice as high - from $ 213 to $ 266.

• Head of PGNiG Peter Wozniak
• Reuters
• © Agencja Gazeta / Grzegorz Celejewski

In turn, a senior researcher at the Institute of Slavic Studies of the Russian Academy of Sciences Vadim Volobuev believes that the decision is part of Warsaw’s long-term policy of abandoning Russian energy sources. In his opinion, this course is based not on economic considerations, but on political ones.

“Wozniak’s statement is a political move that fits into the trend of recent years. Poland has long set a goal - to achieve independence from Russian energy resources, which have always been 2-3 times cheaper than Norwegian, American or Qatari, ”he said in an interview with RT.

As the analyst explained, the former authorities, despite the rhetoric about energy independence, in practice nevertheless put economic feasibility at the forefront and continued to purchase Russian gas. The Civic Platform party, which ruled from 2007 to 2015, intended to extend the contract with Gazprom until 2037. However, the situation changed with the coming to power of the Law and Justice Party.

“Previous Polish authorities have always made a choice in favor of saving, and as a result, despite the slogans of energy independence, they extended the contracts with Gazprom. After the party “Law and Justice” came to power, the new government announced that it will seek to leave Poland from energy dependence on Moscow, regardless of the costs, ”Volobuev said.

According to Pasechnik, Warsaw’s possible rejection of Russian gas will not affect Gazprom’s revenues much, as the Polish market is not comparable to other Russian energy consumers.

“For Russia, the Polish market is not so impressive as to hold on to it, because in its size it cannot be compared with the market of Germany or Italy. In addition, by 2020, Gazprom will have diversification, pipe gas will appear on the Chinese market, which will pass through Siberia. I think that there will be a struggle for European pipe gas in Europe, ”the expert said.

In search of an alternative

Poland sees an alternative to Russian gas in the import of liquefied natural gas from the United States and Qatar. In 2018, Warsaw signed a contract with the American company Cheniere Marketing International for a period of 24 years. According to its conditions, in the period from 2019 to 2022 Poland will receive about 0.73 billion cubic meters of gas, and in 2023-2042 already - about 39 billion cubic meters.

In the same year, Warsaw entered into an agreement with another American company - Venture Global LNG. For 20 years, it is committed to supplying LNG to Poland in the amount of 2 million tons.

According to Pasechnik, for Poland in terms of logistics, American gas will be more expensive than Russian. He also emphasized that long-term pipe gas supply contracts are much more profitable than LNG in terms of price stability.

"The Poles do not take into account the moment of the" high "season, which changes gas prices and demonstrates how long-term contracts are more stable and commercially interesting," he explained.

At the same time, Warsaw and Washington have far-reaching plans in this matter: they intend to make a center for re-export of blue fuel delivered from the United States from Poland. Thus, Warsaw will receive the status of a major regional gas hub, from which gas will be supplied, including to the countries of Eastern Europe.

• US LNG Supply to Poland
• Reuters
• © Agencja Gazata / Cezary Aszkielowicz

According to Volobuev, the rejection of Russian gas can be explained by these plans.

“This statement is related to Poland’s intention to become the largest regional gas hub,” he said.

Baltic pipe

Another option considered by the Polish leadership for diversifying gas supplies is the construction of the Baltic Pipe gas pipeline, which will connect Poland and Denmark. Through it, Warsaw hopes to receive Norwegian gas. Wozniak told reporters about such an opportunity. The gas pipeline will supply up to 10 billion cubic meters of gas to the country annually. The implementation of this project began back in 2001, but then it was decided to abandon it, as its economic feasibility raised questions.

Then the project was revived several more times, but the construction of the gas pipeline did not begin in 2019. Moreover, if it comes to laying pipes, Warsaw will have to coordinate this with Russia, since the Baltic Pipe route will cross the Nord Stream 2, which is already 76% completed, the Financial Times said in January this year.

“The Baltic Pipe is an ephemeral model that is unlikely to be implemented, because in order to lay this pipeline, it will be necessary to cross the Nord Stream 2 at the bottom of the sea. This will have to be discussed, including with Gazprom. In this case, the Russian company will be able to submit an application that it wants to pump its gas to Baltic Pipe on the terms of the Third Energy Package, which involves booking 50% of capacity from third-party suppliers. So Gazprom has a chance to be in the Baltic Pipe with its gas, ”Pasechnik explained.

Recall that the Third Energy Package is part of European legislation aimed at combating a monopoly in the energy market. The purpose of its adoption is to prevent the energy supplier from controlling delivery routes, for example, gas pipelines, which would allow it to prevent competitors from entering the market.