GAS LNG 9 November, 2018 10:00 am   

Why does PGNiG need the third LNG contract with the US? (ANALYSIS)

PGNiG surprised everyone. In the museum of gas, in the presence of the US Secretary of Energy and the President of the Republic of Poland, another contract for LNG supplies was signed. There may be more. Poles want cheaper alternatives to deliveries from Russia and greater involvement of Americans in the region, writes Wojciech Jakóbik, editor-in-chief of

Third LNG contract with the USA

Polskie Gornictwo Naftowe i Gazownictwo has signed a long-term contract for 24-year LNG supplies from the USA from Cheniere Energy. The contract is for deliveries of 0,52 million tonnes of LNG (0,7 bcm after re-gasification) in the years 2019-2022 and about 29 million tons (about 39 bn m) in 2023-2042.

In October, PGNiG concluded two binding long-term contracts for the supply of liquefied gas with Venture Global Cacasieu Pass and Venture Global Plaquemines LNG. each of the agreements provides for the purchase by PGNiG of approximately 1 million tonnes of LNG (ie approximately 1,35 bcm of natural gas after regasification) per year for 20 years. Deliveries will be carried out in a free-on-board (FOB) formula, meaning PGNiG assumes responsibility for the load from the moment it is loaded. The gas is to arrive from installations that are to be commissioned not earlier than in 2022 and 2023, that is after the end of the Yamal contract between PGNiG and Gazprom.

Additionally, there are LNG supplies from Qatar, which thanks to the May 2017 annex from the beginning of this year reach 2 million tonnes, or 2,7 billion cubic meters after regasification until 2034.
It is worth noting that supplies from Cheniere in 2019-2022, ie until the end of the Yamal contract, will be negligible, because for three years they will total together at 1,35 billion cubic meters. However, from 2023, they are to reach up to 2 billion cubic meters at the top annually. Together with deliveries from Venture Global (twice a year 1,35 billion cubic meters per year), From 2023 Poles will have 4,7 billion cubic meters of LNG from the USA annually at their disposal. If we add 2,7 billion cubic meters annually to it, 6,4 billion cubic meters per year are coming out of Qatar.

For this reason, in the media (especially Russian), there may be voices that in this case, the capacity of the LNG terminal in Świnoujście is not enough, which is to reach 7,5 billion cubic meters annually. However, supplies from Venture Global should be deducted. Theoretically, all imports from the USA could be diversified, but not all will be allocated for this purpose. It is worth recalling that these agreements with the FOB clause are dedicated to the global market.

Copernican breakthrough

The contract with Cheniere includes the Delivery ex Ship clause, which transfers the responsibility for delivering the cargo to an American supplier. This means that any fluctuations in the market will increase costs on the part of the supplier, but will not increase the price paid by the recipient, that is PGNiG. It is the success of the London office of PGNiG. The company’s president admitted that the talks were held for a year with various twists and turns.

– Deliveries are dedicated to the Polish market – said Woźniak. The Copernican breakthrough consists in the fact that deliveries contain the DES clause and go to Świnoujście because of their probable competitiveness to the offer on the European stock exchange. Their prices should not count with a 15 percent bonus for transportation in traditional Cheniere Energy contracts. Although officials can not reveal the content of the contract, I was convinced after the conference with US energy secretary Rick Perry that the price of the contract with Cheniere will be able to compete freely with the offer in Europe and is therefore dedicated to the Polish market. A representative of Cheniere Energy acknowledged that the contract contains a record allowing for the change of collection points.

The top of the delivery is expected to reach 2 billion cubic meters annually. According to the head of PGNiG, the contract has 20-30 percent better conditions than in the Yamal contract. In addition, the agreement for the Cheniere Energy gas terminal. – It is enough to support Cheniere’s investment plans – said Piotr Woźniak. The gas is to arrive from the terminals Sabine Pass LNG and Corpus Christi LNG. – The price obtained in the negotiations is much lower than in the contract with Gazprom – he added. The President of PGNiG also announced the signing of two further contracts for the supply of American liquefied gas. This is a harbinger of new realities on the gas market, where contracts are small and diverse, and there are many suppliers. It is worth noting that PGNiG diversifies not only the sources of supply to Poland, but also US suppliers, which improves its negotiating position on the other side of the Atlantic.

A game for Fort Trump

However, the agreement with Cheniere, like the previous ones, also has political significance. Poles encourage Americans to deepen their engagement in the region through successive business arrangements. – Today’s event is part of the Polish direction of supply diversification, energy security of the eastern flank of Europe – said energy minister Krzysztof Tchórzewski. In his opinion, cooperation with the USA is a pillar of Poland’s freedom and security. – The agreement is another contribution to the construction of Poland’s energy security after the expiry of existing agreements – he added.

– I hope that this is only a prelude to further cooperation, and Poland and the United States will undertake further undertakings strengthening it – declared the minister. He stressed that this is a matter of security for Poland. It is worth combining these words with negotiations on the construction of a US military base on the Polish territory called Fort Trump. Subsequent contracts for LNG, oil or coal will help keep Donald Trump’s administration in Poland focused on business relations. “Doing deals is good” said Rick Perry literally at the press conference.