Polish Briefing 4 February, 2019 9:00 am   
Editorial staff

Polish Briefing: PGNiG is changing its course in the Middle East

What goes on in Poland on the 4th of February.

Poprawa: PGNiG is changing its course in the Middle East. A comeback to Iran would be difficult

In January, representatives of PGNiG SA and Ras Al Khaimah Petroleum Authority and RAK GAS LLC signed a contract that enables the Polish company to search for and extract hydrocarbons in the Emirate of Ras Al Khaimah in the United Arab Emirates. – This is a change in the current investment strategy of PGNiG in the Middle East. So far, regions that are politically risky but geologically attractive have been selected. The investment in the Emirates is a change in this trend – Paweł Poprawa, an energy market expert from the AGH University of Science and Technology in Kraków, commented on the portal.

According to Paweł Poprawa, PGNiG is looking for its niche in the region with very well-recognized oil and gas extraction resources. – Their investment strategy included entry into the market with high political risk, but low geological risk. Most of the investments concerned regions where political risk was high, which led to the withdrawal of PGNiG. In Libya, this was related to the Arab Spring, in Iran uncertainty about the return of US sanctions. The company is conducting highly advanced talks on LNG supplies from the USA and it was necessary to put this commitment as a priority – said the oil and gas market expert. – The entry of PGNiG into the United Arab Emirates is an attempt to break the tradition of choosing between greater political and geological risk. This investment allows you to get involved in a region where the political risk is relatively low and the geological resources are well recognized. The example of this country shows a change in strategy in the selection of investment areas – he added.

PGNiG chooses less political risk but more difficult geological conditions

In his opinion, the UAE is a province mature in terms of extraction and a well-penetrated area. – Entering countries where there is less political risk, we must take into account the high investment saturation, so the risk usually passes to the geological side, as geologically easy projects have usually been implemented. PGNiG is not, however, one of the largest players looking for large deposits. The Polish company can successfully extract raw materials, also on concessions, where the deposits are medium-sized or small. Big discoveries in the UAE are hardly to be expected, but the smaller ones, which PGNiG can hunt for, may still be many.

However, it is difficult at this moment to assess the profitability of the area where the company will be working, although its specialists probably already have a preliminary idea. The proceedings of PGNiG, in the light of previous experience, seem understandable. Many companies in Libya assumed that in such countries as this investment can pay back after a few years. The Polish consortium did not manage to hit the safe period, giving a chance for a quick return on investment. In Iran, unlike in Libya, where PGNiG was already present in the reconnaissance area, the withdrawal was low cost, because it occurred at the beginning of the engagement – he explained.