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The Russian media react to news of the third PGNiG contract for LNG supplies from the USA. It involves mixing information about different contracts to support the thesis that they can not be profitable. The agreement with Cheniere reveils its lies – writes Wojciech Jakóbik, editor-in-chief of BiznesAlert.pl.
Politics or business?
RIA Novosti journalist Maxim Rubchenko presented the facts and opinions about the PGNiG-Cheniere agreement for the supply of liquefied gas from the USA. The companies have signed a long-term agreement for 24-year LNG supplies from the US 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 bcm) in 2023-2042.
Rubchenko describes these contracts along with two earlier ones from 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.
The Russian journalist states in advance that the agreement with Cheniere is political in character. In his opinion, the US will be loyal to Poland in exchange for lucrative contracts that will be unprofitable for it. Meanwhile, Poland is to be guided by the principle: “what’s good for the US, is good for us” as part of the confrontation with Germany and France in the European Union. Meanwhile, LNG supplies to Poland using the terminal in Świnoujście are possible, among other things, thanks to the project’s support by the European Commission. In turn, the said Germany declares that they will build an analogue gas terminal at home, and the French ENGIE is involved in the Cameron LNG export terminal project in the United States. LNG supplies from the USA are therefore an attractive business direction for PGNiG, as well as its counterparts in Western Europe. It is also an important political direction supported by the entire European Union.
Comparing apples and pears
The Russian describes inaccurately the difference between contracts concluded by Poles in the autumn. The October agreements include the Free on Board clause, which dumps all responsibility for the load and price changes on the Poles. They are to be dedicated to the global market and probably will not go to Poland. The agreement with Cheniere takes into account the Delivery ex Ship clause, which means that Americans take responsibility for the cargo. It reminds that they will go to the Polish market. However, a bit further Rubczenko states that the contract with Cheniere dumps the transport costs on Poles. This is a mistake or deliberate manipulation. PGNiG informs that the price negotiated in this agreement is not increased by these costs, and their fluctuations fall on the US shoulders thanks to the DES clause, which is not mentioned by the RIA Novosti journalist.
Rubchenko suggests that transport prices will grow because of expected harsh winter. However, in the case of a contract with Cheniere, these fluctuations are a risk for the Americans and will not affect the costs incurred by the Poles. The Russian adds an argument to fluctuations in LNG prices on the Henry Hub, from which the contract with Cheniere will be dependent. The answer to this volatility is, however, a contract for delivery through the Baltic Pipe gas pipeline. Another problem for Poles is the fact that American yards are just going to release new tankers needed for the implementation of LNG contracts signed with PGNiG. This is to mean that the costs of their construction will also be included in the contract. It is worth once again referring to the DES clause, which leaves all variables of this type on the shoulders of the supplier. Readers of RIA Novosti will not find out about it from this agency’s press release.
One might wonder whether RIA Novosti deliberately analyze all three contracts at the same time despite the fact that the third differs from the first two. These agreements have different conditions and have been signed for different purposes. The October contracts are directed to the global market and with the FOB clause transfer responsibility for price changes to PGNiG. The contract with Cheniere aimed at the Polish market with the DES clause does not take into account transport costs and transfers responsibility for fluctuations in prices to Americans. Rubchenko puts them in one bag and states that they must be unprofitable for the Poles.
Meanwhile, PGNiG is able to successfully sell liquefied gas with the US model of Austrian OMV or Dutch-British Shell in Asia. Nevertheless, the RIA Novosti journalist argues that LNG from the USA will find it difficult to compete with supplies from the Russian gas pipeline, Siberian Power, to be ready by 2020. He does not mention that he will not be working immediately with a full capacity of 38 billion cubic meters annually and will not meet the constantly growing demand of China, which increase the import of liquefied gas.
On the other hand, supplies from Cheniere to Poland with a breakthrough record on the American Stock Exchange and the responsibility for price fluctuations on the American side may be competitive to the offer in Europe, including Russia. PGNiG declares that they will be cheaper than the gas offered under the Yamal contract by 20-30 percent, which means that they can be comparable to levels on European stock exchanges.
LNG from the USA may threaten Russia
Comparing apples and pears combined with political subjugation Poska vis-à-vis the US is to divert attention from the fact that the PGNiG-Cheniere agreement is lying to the key thesis of Russia’s information policy that LNG from the United States will not be competitive with supplies from Russia. It is the opposite. The contract concluded in November will be one of the elements that will allow Poland to economically reduce or abandon deliveries from Gazprom, and thus offset the political influence of Moscow resulting from the dependence on Russian gas imports.
