Poland Unveils New Gas Policy “to Improve Energy Security”

Text of report by Polish newspaper Gazeta Wyborcza on 22 March

The government has unveiled its plans for natural gas. The employees of PGNiG [Polish Oil and Gas Extraction] will not receive the employee shares they have been expecting for 11 years. The government is not planning to build a second thread of the Yamal pipeline from Russia to Germany. On the other hand, a pipeline from Scandinavia is meant to be built in late 2010 or early 2011.

Already in august of last year, the Economy Ministry was meant to announce a new program for PGNiG, replacing the program that had been adopted by the Marek Belka government back in October 2004. Ultimately, the government has only now adopted a document called “Policy for the Natural Gas Industry,” which sets new objectives not only for the stock exchange listed monopoly PGNiG, but also for the state-owned company Gaz-System, which manages the network of gas pipelines transporting natural gas throughout Poland.

The main objective of the government program is meant to be “improving energy security.” How is that to be achieved? As the key tasks, the government has identified building a direct gas pipeline link to Scandinavian deposits, building a port terminal for receiving liquid natural gas (called a gas port), and securing long- term contracts for gas supplies from sources “other than Eastern ones.”

And what about the second thread of the Yamal gas transit pipeline? The documents show that the PiS [Law and Justice] is not planning to build the pipeline, which could compete with the Russian- German pipeline across the Baltic Sea in circumvention of Poland. Deputy Economy Minister Piotr Naimski confirms: “This policy does not envision building a second thread of the Yamal pipeline.”

The government is planning for us to have, in late 2010 or early 2011, both a gas port and a gas pipeline running from deposits in Scandinavia. On what basis was this timeframe set? “Those are estimates,” admits [Economy] Minister Wozniak. He confirmed that the pipeline to Poland is meant to be an extension of the planned Scanled gas pipeline running from southern Norway to Sweden, and potentially to Denmark.

Data from Norway casts doubt on the government plans. Scanled is meant to involve investments by 18 company from Norway and Sweden, and its construction is to be overseen by the Norwegian state company Gassco. According to its press releases, the decision to build the pipeline is meant to be made only in 2009, while the pipeline is to be ready to transport gas in 2011 or 2012. In that case, how could Scandinavian gas reach Poland in the timeframe being envisioned by the government?

The Scanled gas pipeline from the Norwegian city of Karsto to southern Sweden is meant to cost some $1.2 billion and to transport 3.7 billion cubic meters of gas per year, for companies in Sweden and Norway. Deputy Minister Naimski recently said on the radio program “Sygnaly dnia” that the pipeline from Scandinavia would bring in 3 billion cubic meters of gas per year to our country. That would require Scanled’s planned throughput to be doubled. Naimski promised this while PGNiG was announcing it would invest $1 billion in extracting more than 6 million cubic meters of gas from deposits in northern Norway.

Gassco spokesman Kjell Varlo Larsen warns: “The current concept for Scanled is not prepared for an extension to Poland. Transport to Poland would require the Danish or Swedish infrastructure to be augmented.”

And so how much could the pipeline from Scandinavia to Poland cost? Wozniak avoided answering this, and PGNiG president Krzysztof Glogowski did not want to talk to us about the investment.

The state-owned company Gaz-System also has great outlays in its future. It is meant to expand the gas networks in western and northern Poland, and to purchase the pipelines it leases from PGNiG by 2009. At the same time, Gaz-System is meant to lower the fees for gas transport. How is lower revenue to be reconciled with taking on large loans? Wozniak claims that Gaz-System has great credit capacity.

The PiS government’s program also dashes the hopes of 61,000 PGNiG employees and retirees who have been waiting to receive employee shares since 1996. This promise was reconfirmed in connection with PGNiG’s stock exchange debut in autumn 2005. Now the government is ruling out the possibility of such shares being issued to employees, maintaining that doing so could block the objectives of the new policy and prevent Poland’s energy security from being ensured. Wozniak criticized the floating of PGNiG on the stock exchange, maintaining that the company had had very good financial figures and did not have “any reason to sell its shares.”

[Commentary by Andrzej Kublik] The Government Is Pushing Up Gas Bills

“I am going to set up a pump to draw heat from the earth,” a natural gas industry specialist I know has been telling me for some time, when he listens to the government’s plans to ensure Poland’s energy security.

On Tuesday [ 20 March] the government adopted a “Policy for the Natural Gas Industry” and there are no more illusions: there are higher and higher gas bills in our future. We will pay for the investments to improve our country’s energy security. PGNiG already announced several weeks ago that it would spend the astronomical sum of $1 billion on gas deposits in Norway, which would suffice to supply Poland for only five months. It is not clear whether that investment will be returned, and the government is already preparing new plans for the publicly-listed PGNiG. In one fell swoop, the company is meant to spend another several hundred million dollars on building a gas port to import liquid natural gas, while at the same time investing in a gas pipeline link to Scandinavia. That likewise means a cost of several hundred million dollars, something gas buyers will feel in their pockets.

Once the government finally does allow competition into the industry several years from now, PGNiG could turn out to lose most of its clients overnight as a result of its excessive prices, and end up saddled with debts. What will then happen to the gas monopoly’s share prices?

[Description of Source: Gazeta Wyborcza in Polish -- leading daily with center-left orientation; supports free market policies.]

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