Poland signs LPG deal with the US

Polish state-run gas company PGNiG has reached a long-term agreement with two American companies for the purchase of liquefied natural gas (LNG) from the United States amid efforts to make Poland independent of Russian supplies…

Polish state-run gas company PGNiG has reached a long-term agreement with two American companies for the purchase of liquefied natural gas (LNG) from the United States amid efforts to make Poland independent of Russian supplies.

Background 

Poland is a country located in Central Europe. It is divided into 16 administrative subdivisions, covering an area of 312,696 square kilometres (120,733 sq mi), and has a largely temperate seasonal climate. With a population of approximately 38.5 million people, Poland is the sixth most populous member state of the European Union.

Poland’s Cold War communist governments cultivated strong, durable trade relations with the USSR, aligning political and economic goals with Moscow. Historically, Poland’s energy needs have been fulfilled by Russian/Soviet state-owned oil companies which supplied up to 80% of the country’s energy requirements during the height of the Cold War. 

Poland started to diverge from its dependence on Russian oil in early 2018 when it agreed to purchase natural gas from Norway and Qatar. Poland’s decision came as a surprise to Moscow who was caught off-guard with the decision of its oldest natural gas importer. 

Analysis 

Poland’s state natural gas company has signed a 20-year deal to buy liquefied natural gas (LNG) from the US. In order to cut dependence on Russian energy, the country is willing to pay more for gas from America.

Under the agreements with the US Port Arthur LNG and Venture Global LNG companies, the Polish gas giant aims to import more than 100 billion cubic metres of LNG from the United States over 20 years, public broadcaster Polish Radio’s IAR news agency reported.

PGNiG, Poland’s gas company, said on that the US would provide two million tons of LNG per year, or 2.7 billion cubic meters of natural gas after re-gasification. The deliveries will start from 2022.

The country’s prime minister Mateusz Morawiecki said the deal would increase “sovereignty” and the “competitiveness” of Poland’s energy sector. PGNiG Deputy CEO Maciej Wozniak added that by the end of 2018 the company will sign at least one new long-term contract to secure LNG gas supplies for Poland.

PGNiG claimed that LNG from the US would be almost 30 percent cheaper than Russian natural gas. Official studies say otherwise. For example, the Oxford Institute for Energy Studies has published a memo saying that US LNG is more expensive than Russian gas, which is the cheapest option for Europe. The study also said that pumping gas through Nord Stream and Nord Stream 2 pipelines would be cheaper than transit through Ukraine.

“Purchasing of liquefied natural gas in the USA will not only allow further diversification of our import portfolio following 2022, but will also let us develop our trading competences and enable PGNiG’s presence as a global LNG market player,” the Polish gas company said back in June.

Russia’s Gazprom reported Wednesday that gas supplies from Russia to Poland have recently increased. “Supplies to Poland, amid all the rhetoric against Russian gas, grew by almost 10 percent this year,” the company said.

Earlier this year, Poland had agreed to purchase more natural gas and oil from Norway and Qatar in an attempt to reduce its Russian oil imports. The US agreement is a definitive fulfilment of the ruling Law and Justice Party’s promise to not extend the contract with Gazprom in 2022. 

Germany, Poland’s neighbour to the west, recently agreed to the Nord Stream 2 expansion, thereby cementing Russia’s supply lines to Europe. Nord Stream 2 has been criticised for circumventing Ukrainian pipelines and starving Ukraine from critical oil revenues. Ukraine is also Poland’s second largest supplier and Russia’s new project will certain dent Ukraine’s export capabilities.  

PGNiG in November signed a five-year deal for the supply of nine shipments of US LNG from the Sabine Pass LNG Terminal in Louisiana.

Counterpoint

PGNiG claimed that LNG from the US would be almost 30 percent cheaper than Russian natural gas. Official studies say otherwise.  The Oxford Institute for Energy Studies has published a memo saying that US LNG is more expensive than Russian gas, which is the cheapest option for Europe. The study also said that pumping gas through Nord Stream and Nord Stream 2 pipelines would be cheaper than transit through Ukraine.

Assessment 

Our assessment is that Poland’s wants to be completely independent of Russian gas supplies not to be vulnerable to potential political intervention by Moscow. We believe that Poland would prefer to use the Baltic Pipe natural gas pipeline , part of the Northern Corridor project, to diversify gas supplies by connecting the Polish gas system with deposits situated in the North Sea. The Baltic Pipe will transport gas to  Poland from Norway , via Denmark.