PGNiG informed that the Stockholm Court of Appeal announced that Gazprom had filed a complaint to set aside the partial ruling of the Arbitration Tribunal of June 30, in which it ruled that the contractual condition entitling PGNiG to demand a price change for gas delivered to Poland under the Yamal Contract has been fulfilled – writes Wojciech Jakóbik, editor-in-chief of BiznesAlert.pl.
LNG problems in favor of Gazprom
– According to PGNiG, there are no grounds for requesting the partial verdict of the Arbitration Tribunal to be set aside. Gazprom’s decision raises concerns about intentional prolongation of the proceeding, which, after a partial ruling favorable to PGNiG, aims at a positive outcome for the Polish recipient – reports the Polish company.
Poles questioned the pricing formula proposed by Gazprom, which is dependent on the oil price index and, in their view, remains uncompetitive in relation to alternatives. Nevertheless, natural gas imports from Russia to Poland increased. PGNiG reports that between January and July 2018 the increase was 6 percent (0,4 billion cubic meters more). At the same time, 60 percent more LNG was contracted (by 0,6 bcm more).
The challenge for the development of LNG imports are periodic fluctuations in liquefied gas prices. In the autumn and winter it will be hard to reach attractive contracts in Europe, because the price of fuel is being boosted by Asia. I wrote in BiznesAlert.pl that liquefied gas was growing last year due to the growing demand of the Middle Kingdom, which is implementing energy transformation using gas energy. This year LNG is more expensive than in the corresponding period of last year by 40 percent. Currently, it is around $ 12 per mmBtu. Forward delivery prices at the end of this year already reach 13-14 dollars per mmBtu.
Analysts wonder if it can be even more expensive. LNG imports to China in 2017 amounted to 38 million tonnes. It was an increase of 46 percent compared to 2016. Weather and pollution will have an impact on growth. According to WoodMackenzie, the import of liquefied gas may increase by 37 percent to 52 million tonnes this year. However, it is not known how much of the demand will be covered by the Chinese from stocks stored in warehouses.
Demand for LNG will also be driven by cold autumn in Europe and Europeans’ commitment to energy transformation. However, they have alternatives that are gain importance due to the increasingly less competitive prices of liquefied gas: supplies from Russia, Norway and North Africa. This is a problem for the LNG terminal in Świnoujście reserved by PGNiG. The alternative for Poles is supplies from the German stock exchange and from Russia. In the future, it will be supplies from Norway thanks to the Baltic Pipe gas pipeline.
These facts can be used by Gazprom to create a narrative that Russian gas is the cheapest and it is not worth looking for alternatives. It can be expected that this will be the interpretation of the Russian company’s move in court against PGNiG and will be a tool for the image deterioration of the Poles. Is it a coincidence that just on the day when the Court of Arbitration ruled against the decision, Russian Gazprom published information on the increase in gas exports to Poland? Gazprom’s gas exports to Poland increased in the nine months of 2018 by 11,7 percent in correspondent period last year – reported Gazprom on Twitter quoted by the Polish Press Agency.
In the last six months, gas from Russia is doing better and better in competition with deliveries from other directions. However, it is not worth being fooled by temporary fluctuations. The long-term diversification policy is intended to impregnate Poland for price fluctuations.
The LNG terminal gave an alternative to the time of economic attractiveness of LNG, and it will come back, as it has happened many times in history, for example after leveling the Fukushima effect in Japan, when prices dropped from 11-12 dollars per mmBTU to 5-6 dollars. A similar effect may occur in the autumn, when demand for gas in Asia will ease, or with the emergence of new gasports, and thus the availability of LNG on the market.
Baltic Pipe is to give a sustainable alternative to supplies from Russia, which will be economically attractive. It will also be available during the period of LNG’s economic inability, as it is now. If we had Baltic Pipe today, it would be possible, due to LNG problems, thar imports would increase, but from Norway, not Russia. This may be after 2022, when the Norwegian gas pipeline will be completed.
It is worth recalling that the Russian media have quite recently tried to manipulate the supply of gas from Russia. Interfax agency quoted the alleged statement of the Ambassador of Poland to Russia, Włodzimierz Marciniak. – We do not intend to abandon Russian gas supplies at all, but we want Russia to sell it as cheaply as possible and that is why our country diversifies its sources of supply – Interfax quoted the Ambassador. – Please be advised that the statement of Ambassador Włodzimierz Marciniak quoted by the Russian agency Interfax did not take place – commented the spokesperson of the Ministry of Foreign Affairs of the Republic of Poland. In the past, the Russian media have already manipulated the statement of the foreign minister, as informed by BiznesAlert.pl. RIA Novosti has published an unauthorized interview with Foreign Minister Witold Waszczykowski, in which he stated that LNG from the USA is too expensive. Then the Ministry of Foreign Affairs also denied this information.
Maybe, in addition to attempting to delay the resolution of the dispute with PGNiG, Gazprom wants to give a contribution to intensifying discussions on the sense of diversifying sources of gas supplies to Poland? If Russian gas is so cheap, why invest in alternatives?
The future is open
Gas from Russia is attractive today because market conditions have changed. It is not known how it will be tomorrow, because the LNG price fluctuates. It is certain, however, that in the past the main supplier to Poland abused its market position, which was proved by the European Commission, unexpectedly limited or interrupted deliveries, and the Yamal contract, according to PGNiG, was the most expensive option available on the market. That is why Poles are seeking a free choice on the market.
– I believe that LNG will compete with gas from gas pipelines also in Europe, and it is in the strategic interest of Poland not to extend the contract for gas supplies with Gazprom in its current form – said Piotr Naimski at Bloomberg New Energy Finance. Asked by the moderator if in this case it is possible to conclude a contract with the Russians, but on other conditions, he stated briefly: – The future is open.
It is worth recalling that in the dispute over the pricing formula between PGNiG and Gazprom, the court agreed with the Poles. Despite market changes and increasingly better offers of the Russian company for other clients, PGNiG has an unfavorable Yamal contract that is a relic of political gas negotiations, the elements of which are being viewed by the prosecutor’s office. Poles have the right to apply for a price review, and if the Russians do not cooperate, to finish the contract, which they announce. Even if at the moment gas imports from Russia have increased, this is not an argument for abandoning efforts to obtain the best alternatives. The future is open, and thanks to freedom of choice, the Russians will have to try to keep market shares in Poland in 2022.