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Tuesday, October 25, 2016

The rejection of Russian gas to Poland will bring only the extra costs

Liquefied natural gas purchases on the spot market and a gas pipeline from Denmark, says Warsaw, Poland will ensure the gas independence from Russia. So Polish officials comment on their plans to abandon long-term contracts with Gazprom. Warsaw should take a closer look to what consequences these ideas have brought to Ukraine.

Deliveries to the LNG terminal in świnoujście and gas pipeline that will link Poland with the Norwegian shelf, can ensure Poland’s independence from gas supplies from the East” until 2022, said the representative of the Polish government on the development of strategic energy infrastructure Piotr Naimski.

“Poland is unlikely to remain without Russian gas, even if you break relations with Gazprom”

Naimski will accompany the President of Poland Andrzej Duda during his visit to Denmark on Thursday. In the course of the trip will be discussed including the construction of the Baltic Pipe gas pipeline to supply gas from Norway to Poland.

Earlier, Polish officials have already stated that after the expiration of the contract for the supply of gas in 2022 Poland no longer intends to cooperate with Gazprom on a long term basis, and in the matter of procurement of gas from Russia will be guided by the price of natural gas.

“I don’t think we are after 2022 on existing conditions, continued a long-term contract (with Gazprom). We will look for other ways and arrangements. Of course, if the Russian side will offer good price and conditions, we will treat this opportunity as open to negotiations,” Naimski said on the eve of the visit to Denmark.

The conclusion of a new gas contract with Gazprom for a period of 10-15 years is “hard to imagine”, Naimski added. “At the moment there is a departure from the long-term big contracts, rather it is the medium-term and short-term contracts for a smaller amount of gas”, – he concluded.

If Poland will not renew the contract for the purchase of Russian gas, after 2022 Gazprom may offer these volumes of gas to any other partner in Europe, responded Vladimir Putin. Russia does not see any problems or threats. Gazprom may make an offer to any other partners on the acquisition of the current volume for Poland at the Belarusian-Polish border after the end of the contract. As a prospective buyer, Putin called Polish, German, Austrian, Italian, French companies.

Poland consumes about 15 billion cubic meters of gas per year, a third that it produces alone, the rest is imports. Under the contract, Poland can expect to 10.2 billion cubic meters of Russian gas per year that come through the pipeline “Yamal – Europe” through Belarus. In 2015 Warsaw bought smaller – 8 billion cubic meters from Gazprom, covering the rest through the purchase of gas on the German stock exchange. In addition, Poland has signed a contract for 20 years with Qatar for the supply of 1.5 billion cubic meters of LNG annually.

Why Russia is so sure that you will not lose the amount of gas it now supplies to Poland?

The fact that other gas at a reasonable price Warsaw you do not find, neither in Qatar nor in Norway. With Qatar agreed to buy only 1.5 billion cubic meters, with capacity built for the LNG terminal, and that Poland itself is already not happy about this possibility, although it tries not to advertise.

According to the national energy security Fund, the Qatar liquefied gas now 70% more expensive than the Russian pipeline. Poland gets Russian gas at $ 160 per thousand cubic meters, then, for the Qatari pays 270 dollars. The terms of the contract with Qatar is almost identical with the terms of Gazprom: they also spelled out the rule of “take or pay” and the reference to the oil price. The only difference is the price. If Russia, over 8 billion cubic meters Poland pays $ 1.3 billion, for the same volume of Qatari gas it would have to pay 2.2 billion. The funny thing is that because of the shift of the timing of the deliveries of Qatari gas to the fault of the Polish side of Warsaw for the second year pays Qatar for gas, although it even in eyes did not see. The first delivery will take place only in June.

As regards Norway, it does not have extra gas to Poland, especially in such a large volume of 8-10 billion cubic meters. 15 years ago Warsaw was about to abandon the Russian fuel in favor of Norwegian, but even then it didn’t happen. Although at the time Norway had increased production. More recently, Norway is dramatically reducing its investments in oil and gas production. And while market conditions speaks in favor of what to expect from Norway significant growth in gas production is unlikely.

In addition, the emergence of a new route for delivery of Norwegian gas – through the pipe Baltic Pipe through Denmark to Poland – is in serious doubt. This idea is also not new, but now she has become economically more attractive. On the contrary, at low prices projects for the construction of pipelines become more risky.

The more that we are talking about the pipe with a modest capacity of not more than 10 billion cubic meters. For comparison, the capacity of the pipeline “Yamal – Europe”, through which Russian gas goes through Belarus to Poland today – 33 billion cubic meters.

Interestingly, earlier Warsaw wanted to use Baltic Pipe in order to export its surplus LNG terminal świnoujście (it was empty). Whereas Denmark wanted to import Russian gas via the Baltic Pipe and Poland. The configuration is now changing, but for the project at least have to wait for the rising prices of oil and gas. Yet to find investors in such a project is unlikely to succeed.

As a result of Poland by 2022 could remain without long-term contract with Gazprom, and without a sufficient amount of imported gas, if you make a bet on LNG and Norway.

Why Poland is such a step? Apparently, this is an attempt to dislodge from Gazprom to lower gas prices. Claims to the Russian gas price in Warsaw are always there, now there is for this reason the proceedings before the court. Paradoxically, a higher price of Qatari gas Polish politicians happy: at least for this reason claims to the courts they direct and political accusations against Qatar was not present.

Actually Poland is unlikely to remain without Russian gas, even if you break relations with Gazprom. Which, by the way, she does not want to do. The Polish official agreed that it is not a complete rejection of Russian gas. Warsaw may go on short-term or medium-term contract, that is, not for 10-15 years, as used to sign Gazprom, and probation for one to five years. This will allow Warsaw each time before signing a new contract to organize bargaining. Another question is whether Gazprom to endure such a partner and would you like a moment to sign the Poland contract?

Poland, too, can understand: for the duration of the long-term contract for 10-15 years, market conditions may change several times. And if at the signing of the contract oil prices were low and the preservation of the oil reference to a formula price of gas seemed beneficial for the buyer, then the rise in oil prices buyer wants to change the principle of pricing.

Another calculation of Poland may be that she will be able to buy all the same Russian gas and without a contract on the spot market and through a European intermediary. Germany or Austria take over the current volume of the Polish market, buying them at the Belarusian-Polish border instead of poles. But then the traders re-sell Russian gas to Poland. This is exactly what Putin said: supplies of Gazprom do not suffer from this.

At the same time, Poland can also look for economic meaning for themselves. Warsaw hopes to be able to buy Russian gas not from Russia directly, but through an intermediary – the European trader, and thus cheaper. It can actually be more profitable – and may not be available. For example, in April on the border of Germany to the Russian gas cost $ 128 per thousand cubic meters. Directly Poland buys Russian gas for 160 dollars per thousand cubic meters. However, in the first figure does not include the cost of transportation plus a margin, which the mediator will want to obtain.

Then Warsaw would have to look to the experience of Ukraine, which also decided to buy Russian gas not from Gazprom, through a European intermediary. Talking about reverse gas from Europe. As it turned out (and admitted it finally Ukraine itself), the reverse Naftogaz buys gas at a price higher than you could buy directly from Gazprom.

European traders consider when selling gas at the prices on the spot market. And the price jump it during the year depending on demand. In the summer, as a rule, the cost of fuel on the spot market are lower than in winter. And in the cold winter when the peak demand may be a shortage of free gas and a sharp jump in prices. And if Ukraine has a large underground vault, where in the winter you pump gas and use it in the heating season, Poland’s UGS capacity is limited, they are not enough to prepare for winter. That is why in Europe as developed and adopted a system of long-term contracts with Gazprom, and Norway, which all of these risks of the spot market level.

Thus, Gazprom will find someone to sell the gas even if Poland refuse him. But Warsaw with confidence still can not say, whether she wins anything from the possible cancellation of a long-term contract with Gazprom.

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