There has never been any love lost between Poland and Russia. Angst between the two countries dates back to Soviet dominance over Poland which started during World War II. Post war, Poland fell under the Soviet sphere of influence, along with increasing energy dependence, and a communist government was installed in Warsaw.
Poland does produces crude oil and natural gas but only in small quantities, therefore it’s a net oil and natural gas importer. The country contains shale resources, some 146 trillion cubic feet (tcf) of technically recoverable shale gas resources, according to a 2015 EIA study, but to date companies exploring for economically recoverable volumes have had disappointing results.
With limited oil and gas development, and with Moscow wielding a powerful energy stick, the country became reliant on Russian gas as far back as 1944, to the dismay of most Poles. In 2015, Poland consumed 530 billion cubic feet (bcf) of natural gas, while 80 percent of the country’s gas supply needs were meet by Kremlin-controlled Gazprom.
The antagonism over Russian natural gas supplies to Poland spiked as the Kremlin used gas as a geopolitical weapon to try to regain regional hegemony it had lost since the breakup of the Soviet Union. In January 2009, Moscow upped the ante during the middle of winter by cutting off all gas supply to Europe through Ukraine, impacting a dozen countries that were literally left out in the cold, including Poland. About 80 percent of Russian gas to Europe is shipped through pipelines crossing Ukraine. Other smaller pipelines run through Belarus and Turkey. At the time state-run Gazprom said that it cut supplies to Ukraine after the two countries failed to agree on prices and transit fees for 2009. Related: Moon Fuel: A New Multi-Trillion Dollar Treasure
Poland has also lobbied against Russia’s ambitious and controversial Nord Strom 2 gas pipeline project, which would ship gas on the seabed of the Baltic Sea to Germany, for distribution to Europe. It would double the existing Nord Stream pipeline’s current annual capacity of 55 bcm and is expected to become operational by the end of next year.
Weaning off of Russian gas
Since 2009, several EU members (particularly the Baltic states, along with Poland) have searched for ways to wean themselves off of Russian gas. Earlier this year, Poland, announced that it had finally freed itself off Russian gas dominance, but it’s an announcement fraught with difficulties.
“We’re not diversifying our supplies in order to continue with Russia,” said Piotr Naimski, the government official in charge of strategic energy infrastructure. “It’s a question of security and the Baltic Pipe is not a part of negotiations with Gazprom.”
The government said that it would not renew a long-term contract with Gazprom that is scheduled to end in 2022. However, that’s easier said than done since Polish state-controlled gas distributor PGNiG SA has had to revive the Baltic Pipe project, a link to Norway that was postponed about 20 years ago. The Baltic Pipe is on schedule, according to a February Bloomberg report, but it is tight since it has a completion date of October 2022 – around the same time that Gazprom gas shipments would cease.
“If we want to prolong the Gazprom contract we would need to start talks in December 2019, but by that time we’re going to be certain that the Baltic Pipe will be built, so we’re in a comfortable situation,” Naimski added. “At the same time, Poland is ready for any kind of supply risk in the transition period.” Related: Tehran: Taking Iran’s Oil Out Of The Market Is ‘Impossible’
Now, Poland is pivoting toward US-sourced liquefied natural gas (LNG) in its efforts to diversify its gas supply. On Tuesday, PGNiG said it signed long-term agreements with US-based Port Arthur LNG and Venture Global LNG for LNG deliveries. PGNiG will conduct talks with both US-LNG suppliers regarding provisions of the purchase of 2 million tonnes per annum (MTPA) of LNG from each company over 20 years, the company said.
Poland also signed in November 2017 a mid-term deal with Centrica LNG Co Ltd on nine LNG shipments in 2018-2022.
Another tight time-line
However, just like plans to build the Baltic Pipe before gas supply contracts from Gazprom expires in 2022, LNG shipments from the US won’t begin to arrive until late 2022 or sometime the following year, which could create a supply gap for Poland of several months or more.
Going forward, increased American LNG deals with Europe will still be hard to come by amid the current political environment of the Trump Administration. Much of Europe sees US-sourced LNG as a tool wielded by Donald Trump to increase American influence in the region, instead of an option to wean the continent off of geopolitically charged Russian gas.
By Tim Daiss for Oilprice.com
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Nowhere in Tim's article does he mention how much more expensive US shale gas is compared to Russian piped gas.
Poland is a poor country without a competitive economy. Replacing Russian gas with US shale will only add to Poland's economic problems.
Poland's actions are the very definition of cutting your nose off to spite your face. But I suppose if the Polish people get fed up with higher gas prices they can just move to a European country that still buys Russian piped gas.
Then he says Russian gas is "geopolitically charged", but US shale is even more so "geopolitically charged" in Europe these days.
Honestly, The US is going to have a very tough time trying to export its expensive LNG anywhere really.
I expect the US government to simply sanction all the nations that refuse to buy its LNG.
There is no doubt in my mind that Poland’s decision was motivated by geopolitics.
Poland and other Baltic and East and Central European States Hungary, Lithuania, Latvia, Estonia, the Czech Republic, Slovakia and Romania (perhaps instigated by the United States) have lobbied against Russia’s ambitious and controversial Nord Stream 2, which would ship gas on the seabed of the Baltic Sea to Germany, for distribution to Europe. Still, despite their lobbying and threats of sanctions by the United States, Nord Stream-2 pipeline construction will start in 2018 and will be completed by the end of 2019. In fact, German Chancellor Angela defied President Trump threats of sanctions and started building its portion of Nord Stream 2 —in its Baltic Sea port of Lubmin.
And despite concerns over Russian dominance over gas supply, the EU has imported a record high 224 billion cubic metres (bcm) or almost 40% of its needs from Russia in 2017. Poland’s dependence on Russian gas imports amounted to 53% in 2017.
The Polish government said that it would not renew a long-term contract with Gazprom that is scheduled to end in 2022. Instead, it signed long-term agreements to purchase 4 million tonnes per annum of US LNG over 20 years. However, US LNG shipments won’t begin to arrive until late 2022 or sometime the following year, which could create a supply gap for Poland of several months or more. Moreover, Poland will pay far higher prices for US LNG than the Russian piped gas. So for Poland, it is a case of cutting its nose to spite its face.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
We pay a premium for security - whether in the form of military spending, energy independence, or home security monitoring.
Eastern Europe knows better than anyone the dangers of being close to Russia - both geographically and economically. It's not an issue of cutting off one's nose to spite one's face; it's an issue of keeping a very real threat off your lawn. I use a sign in my yard that says, "Protected by Brinks Home Security".
Eastern Europe has made it very clear: it is allying with the West and NATO, and for very good reasons not the least of which is security. And security always comes with a price. Don't forget to factor that into your economic models.