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The issues with the quality of natural gas delivered from the east via the Yamal Pipeline to Poland lasted two days. The cause of the malfunction remains unknown. However, such problems have become part and parcel of Poland’s gas landscape.
The latest defect did not threaten the country’s gas security thanks to the implementation of measures that eliminated the problem, which did not originate in Poland, but at the pipe’s operator across the eastern border. In the long term, Gaz-System and PGNiG want to introduce medium- and short-term measures, which should mitigate supply disruptions through appropriate expansion of transmission infrastructure and changes in the import portfolio.
Unexpected issues
On Wednesday, 21 June Gaz-System, the Polish gas transmission network operator, announced that “due to poor quality of natural gas it is not able to off-take fuel to the domestic transmission system at the Interconnection Point (IP) on the Yamal pipeline.”
“Currently, the gas does not meet the quality parameters specified in the Transmission Network Code (TNC). GAZ-SYSTEM suspended the off-take of gas at the IP as of 21 June 2017, 6:00 am. The reduction of the transmission capacity at the IP is scheduled to last until 23 June 2017, 6:00 am.,” the company stated on 21 June. Yamal’s capacity is 33 bcm. On the basis of an agreement between PGNiG and Gazprom Polska it transmits ca. 10 bcm of gas through the Belarusian route (Yamal) and across Ukraine. EuRoPol Gaz as the owner of the Polish section of the Yamal pipeline, informed that the gas was transmitted via the Polish section of the pipe. “The reported drop in gas quality does not impact the transmission capacity of the Polish section of the Yamal gas pipeline. The rules governing gas transmission within Poland’s domestic gas transmission system managed by Gaz-System is a separate issue,” stated EuRoPol Gaz in a press release.
Cause remains unknown
The operator stressed that it was the gas supplier who was responsible for the quality of gas delivered to the domestic transmission system, in this case Russia’s Gazprom.
The gas that was delivered to Poland contained water. The transmission system operators in the east did not explain why this happened. This could be caused by a technical issue, such as a leak that occurred outside of Poland. In addition, they did not report the problem in advance. The fuel reached the German border without any interruptions and was cleaned in gas drying installations, which Poland does not have neither on the Yamal pipeline nor at the interconnection points.
The reverse gas flow on the Yamal-Europe gas pipeline is used, among others, to import gas from the German exchange. This gas is bought by PGNiG which is Gazprom’s client. Because the reverse flow on Yamal was blocked, Poland could not import gas from this direction, which is why it had to tap into its gas reserves from storage facilities to make up the shortages. “We do not have such equipment because our partners with whom we constructed the Yamal pipeline did not allow us to have it, which is why the gas cannot enter our transmission system,” explained Piotr Woźniak, PGNiG’s CEO at a meeting with journalists last Thursday.
On 22 June Woźniak gave an interview to Krzysztof Ziemiec after the evening news on the Polish Television. When asked whether Russians had political motives behind the issues with gas quality, the CEO did not answer the question directly. Still, he reminded that he did not remember any decision made by the company that was not supported politically.
“We have not received any information on the causes behind the breakdown,” he informed. Woźniak also stressed that PGNiG did not receive from Russia any details on the situation. “We did not get any response from Russia, who is the gas seller,” he pointed. He also assessed that the low quality of gas could be caused by a number of issues out of which technical problems were on top of the list.
The Polish Press Agency reported on 21 June that the problem was caused by a malfunction or negligence in Belarus or Russia. The agency quoted sources close to people responsible for the country’s energy security.
Gas import to Poland via Yamal blocked in the east and west
The bad quality of gas stopped its import not only from the east, but also the west. In an optimal situation, thanks to the physical and virtual reverse flows on the Yamal pipeline, Poland is able to import 5.5 bcm of natural gas a year from Germany on the basis of continuous delivery.
Additionally, the reverse flow in Mallnow allows for the usage of the available capacity on interruptible basis, which ensure an additional 2.7 bcm of gas a year. However, both possibilities are available only when gas flows via the Yamal pipeline to Germany. The events from 21 June made it impossible for Poland to accept the fuel transmitted via the Yamal pipeline.
“The existing situation made it impossible to import gas to Poland via the Yamal pipeline both from the east – Russia, as well as from the west via the reverse flow. This stemmed from the fact that the reverse deliveries to Poland from Mallnow on the Polish-German border have been stopped by the Polish and German gas transmission system operators,” explained PGNiG in a press release. At the same time Gaz-System stated that clients who transmitted gas via the interconnection point, including those who used the virtual reverse in Mallnow have been notified about the decrease in transmission capacity.
The causes of the drop in gas quality could be explained on Monday. The Gazeta Polska daily reported that Deputy Chairman of Gazprom’s Management Committee, Alexander Medvedev, would visit Poland on 26 June. He is EuRoPol Gaz’s Chairman of the Supervisory Board. On Monday the company’s board will hold a meeting where it will discuss, among others, the issues with gas deliveries.
Short-term remedial actions
To guarantee gas supply to its clients disrupted by the drastic drop in the gas quality from Russia, PGNiG limited the storage of gas for the 2017-2018 winter season and started to pump its gas reserves from cavern storage facilities into the transmission system. The company stressed that currently the gas deliveries to Polish consumers were not at risk. Also the operator reported the stopping the gas take-off at the interconnection point did not impact the balance and security of the transmission system managed by Gaz-System.
PGNiG started to release gas from the storage facility in Mogilno to the Yamal pipeline between two interconnection points. PGNiG’s CEO said that the reserves pumped from Moglino could not be replenished with new deliveries from Yamal. “If the intermission is short, we will obviously make it up. If it is short, there should be no risk at the beginning of the 2017/2018 heating season,” he added. He also ensured that the current issues would not put at risk gas deliveries in the heating season. “We will make up the volumes that are currently not flowing to the storage facilities in the south. We are using up the reserves from Mogilno, which is in the north. We have a few storage facilities and currently all of them should be receiving gas for the winter season. If the situation normalizes by 23 June at 6 a.m., there will be no problems in the winter,” ensured PGNiG’s CEO.
At the same time PGNiG decided to partially limit the pumping of gas reserves to other storage facilities. The country’s balance of gas supply will be also replenished through the LNG deliveries to the terminal in Świnoujście. The next spot delivery will enter the terminal on 4 July 2017.
Medium-term remedial actions
PGNiG’s CEO also stated that an investment in gas drying installations should be seriously considered before the Yamal contract is terminated. “If our Russian partners at EuroPolGaz do not let us build this installation on the Yamal pipeline, we will need to build two of those in the exit points in Włocławek and Lwówek. This will make us immune to the quality issues with Russian gas. We have money to do this. We have money to modernize the storage system and the current situation is directly related to storage. Such a preparation, despite the short time that is left until the contract runs out, should be conducted,” he said.
Poland does not have such installations. PGNiG and Gazprom are shareholders of EuRoPol Gaz, which manages the Yamal pipeline. The Polish company owns half of the shares and every decision has to be based on consensus. “Earlier we did try to build such an installation in Poland. However, we did not receive consent,” added Woźniak.
“In my opinion this costly investment will take two or three years,” he said. It has to be done despite the fact that only 5 years are left until the Yamal contract ends. In 2022 PGNiG wants to change its import portfolio. When it comes to the gas drying installation, the company stated it did not want to speculate because so far such installations have not been designed or built in Poland. “We have drying installations and we use them in our gas mines in Poland. However, in this case there is a normal investment cycle. We would need at least a two-year investment cycle and we still have time to do this,” the CEO pointed out.
Long-term remedial actions
PGNiG stressed that the deliveries from the East carried full risk. “Either because of a situation like the current one (where the Yamal gas does not fulfill quality requirements – ed.), or other threats related to statements made by operators and owners of the transmission system located in Ukraine, who threaten they will shut down that system in 2019,” Woźniak stated. At that point, Gazprom wants to start delivering gas via the alternative route at the bottom of the Baltic Sea through the Nord Stream 2 pipeline. The pipeline will pump 55 bcm of gas annually bypassing transit countries, including Poland, Slovakia and Ukraine.
“The situation has become very dangerous because it is possible to cut Poland off of the supply from the Yamal pipeline without impacting deliveries to the west. For 7 years the Russians have been saying that in 2019 they will cut off the Ukrainian transit, through which the rest of the gas flows to Poland. If this happens, and it seems very likely it will, we will be cut off from the southern flank in the east. The latest incident shows that the northern flank in the east on the Yamal pipeline can also be cut off,” he said.
Woźniak stressed that this situation was an encouragement to speed up diversification projects, including the plan to tap into the Norwegian continental shelf in order to avoid risks.”If gas is cut off in the summer, it does not have major consequences, provided the transmission of proper quality gas is resumed quickly. If this takes longer, every day may have consequences for the level of gas reserves for the winter,” said Woźniak.
The Norwegian Corridor
Let us remind that during her last visit to Denmark in June, Prime Minister Beata Szydło together with her Danish counterpart Lars Løkke Rasmussen signed a memorandum on the construction of the Baltic Pipe.
The Norwegian Gateway project, which will connect the Norwegian continental shelf through Denmark with Poland, includes five components:
A gas pipeline from the Norwegian system in the North Sea to the Danish tie-in, which will connect the two countries and enable the transit of the fuel;
Expansion of existing capacity of the Danish transmission system from the west to the east;
A submarine pipeline from Denmark to Poland (Baltic Pipe);
A gas compressor station;
Expansion of the Polish transmission system
According to the feasibility study, which was conducted at the end of 2016, the project pertains to the analysis of the construction plan of the Baltic Pipe gas pipeline (capacity of up to 10 bcm) and of the remaining components of the Norwegian Gateway. According to Gaz-System and Energinet.dk the investment should be completed by 2022.
Gaz-System’s calculations show that the company will need to invest EUR 874 million to construct part of the Baltic Pipe.
Whereas, according to the documentation by the Danish operator, the construction of the Baltic Pipe from the connection with the Norwegian pipeline Europipe II on the North Sea to the expansion of the Polish transmission system will cost between EUR 1.58 and EUR 2.06 billion. Depending on the final cost, Gaz-System would need to invest from EUR 841 million to EUR 1.09 billion, and Energinet.dk from EUR 744 million to EUR 986 million.
Expansion of the LNG terminal
Last April Gaz-System decided to expand the Lech Kaczyński LNG Terminal in Świnoujście. After the investment is completed the terminal’s regasification capacity will increase from 5 to 7.5 bcm a year.
The planned investment encompasses the expansion of the existing SCV re-gassification installation. Currently Gaz-System and its subsidiary the Polskie LNG company are preparing a tender for the completion of the initial design works (FEED). The companies are also in the process of securing a construction permit, which means they need to obtain an environmental decision as well. In the future they also want to add a third LNG tanker at the terminal.
National production
Domestic gas sources are the third element. Every year Poland extracts between 4 and 4.5 bcm of natural gas. However, it is becoming more and more difficult to sustain this level of production because the Polish deposits are running out. Extraction of methane from coal deposits before they are exploited, is an opportunity that could be captured in the next few years. PGNiG is testing the extraction of methane through hydraulic fracturing. However, the research is at an early stage.
Moscow’s silence
Gazprom did not inform Poland about the issues with the gas quality. On Wednesday 21 June, Gazprom, through the Russian media, said it was ready to help and solve the “technical” problem.
The Russian company declared it would take suitable steps to make sure the issues with gas quality in the Yamal-Europe gas pipeline did not impact the deliveries to European clients.
“A short-time technical problem with the quality of gas shipped via the Yamal-Europe pipeline occurred in the evening on June 20. Specialists of the involved Gazprom Group companies take all the necessary measures to promptly solve this issue and to deliver gas of appropriate quality. Specialists of our company have taken all the measures to guarantee that this situation would not impact Gazprom Export’s ability to meet the nominations of our European clients and the security of supply of Europe,” said Gazprom Export in a press release.
“Since that afternoon (Thursday, 22 June) the quality of the natural gas, which enters the Polish gas transmission system has been in line with the contract,” said the company.
On Wednesday Poland temporarily suspended gas transit from Russia via the Yamal-Europe gas pipeline, aka the Yamal gas pipeline. This was caused by the fuel’s low quality.”As of today’s afternoon the quality of gas that enters the Polish transmission system is in line with the contract,” said Gazprom Export.
When asked whether the issues with gas quality had political strings attached to them, Piotr Woźniak, PGNiG’s CEO, said that he did not remember any decision made by the company that did not have a political subtext; but in this case there was no indication about the causes behind the malfunction.
The Russian portal Prime cited Deputy Chairman of Gazprom’s Management Committee, Alexander Medvedev after Bloomberg, who said that “it was a one-day situation.” “Poland wanted to make a mountain out of a molehill,” he added. He also said that the technical issue which had caused the drop in quality had been dealt with. Gazprom ensured that it would take any means necessary. “The Russians accused Poland of overreacting even though the Polish companies and Ministry of Energy kept their distance about the incident,” rightly pointed out Wojciech Jakóbik, Biznesalert.pl’s editor in chief.
According to Neftegaz.ru, the sharp increase of water content in the gas could have been caused by the fact that the standards of modernization works performed in Russia nearby Torzhok might have been breached. The majority of Russia’s most important transmission gas pipelines cross in that area. The portal also reported that Poland had the right to charge contractual penalties for the poor quality of gas.
Reaction of Germany and the European Commission
“The German gas transmission network operator Gascade extended the restrictions on accepting the gas from the Yamal-Europe gas pipeline,” reported the Prime Agency on the basis of information acquired from the company. According to the release, the limits are related to the gas’s low quality. They were supposed to be extended until 6 a.m. on 24 June.
On June 23, the same Russian agency stated that Gascade extended the restrictions until 6 a.m. on 26 June. While Gaz-System informed that as of 6 a.m. on Friday, 23 June, the quality of the gas delivered to Poland went back to its optimal state.
On Thursday, 22 June a press conference was held at the European Parliament. The participants included professor Jerzy Buzek, Chair of the European Parliament Industry, Research and Energy Committee, Maroš Šefčovič, Vice-President of the European Commission in charge of Energy Union, and guests from Ukraine led by Andriy Kobolyev, Naftogaz’s CEO. Tomasz Majka, a journalist from the Polish Radio, asked Maroš Šefčovič for a comment about the issue with the Yamal gas pipeline. The Vice-President said he knew about the problem and was updated about it, but at the current stage did not want to make a comment.
Gas quality back to normal
The operator of the transmission system informed that due to the low quality of gas, which was discovered between Wednesday and Friday morning, Poland did not accept ca. 35 mcm of gas from the Yamal pipeline. According to Gaz-System, as of Monday Poland took in 15.6 mcm of gas from Yamal a day. On Tuesday the volume dropped to 12.2 mcm and on Wednesday, when Gaz-System announced it suspended the transmission, it dropped to as little as 7 tcm. On Thursday the volume dropped practically to zero. At 6 a.m on 23 June, Gaz-System restarted the transmission of the gas to the domestic transmission system at the interconnection point, because the gas quality went back to normal.
Piotr Woźniak stressed that because of this problem, PGNiG will charge Gazprom with contractual penalties. “This is not what gas business is actually about. The point is not to impose penalties, the point is for the gas to flow without problems,” he said.
In the past few years the Polish company recorded at least 6 interruptions of gas supply from the east, which had not been previously reported. We have not learned about their causes. Maciej Woźniak, PGNiG’s Vice-President of the Management Board for Trade, said at last year’s conference Nafta-Gaz-Chemia 2016, that only in the last summer did three interruptions take place.
“Some of them were longer, others shorter. Unfortunately they almost became a routine. And the truth is they were never fully explained, even though they were paid for. Still, we are dealing with a permanently raised alert, which is not ending, which is very important. Our client says it also wants its gas deliveries to be secure and that nothing threatens them. This is why the development of infrastructural projects, including the connection with Norway, will increase security,” Woźniak stressed back then.
According to PGNiG, the deliveries from Norway should have a competitive price. Secondly, the company wants to buy fuel from countries, which take care of their infrastructure and make sure that if interruptions occur, they are caused by business reasons only.
