For years Poland has been trying to reduce its dependence on oil and gas import from Russia. These efforts, which in the majority have been successful, have amplified Poland’s dependence on… the Baltic Sea. Poland’s interests in the Baltic go beyond hydrocarbons, and the sea’s role will continue to grow in the coming years – Mariusz Marszałkowski, editor at BiznesAlert.pl, writes.
Gas interests
I have previously written about the fact that Poland is not protecting its interests in the Baltic well enough. This time I would like to put a lens to projects that either already exist by the Polish seaside, or will be completed in the near future. It is worth grasping the scale and scope of those investments, as well as their impact on not just the energy sector in Poland, but on the country’s general security, both in the economic and military term.
In Poland natural gas has become the most talked about hydrocarbon in the media in recent years. In 2020 we used about 18.6 bcm of gas, out of which 14.8 bcm was imported, and 3.8 extracted in the country. It is worth stressing that the demand for gas will be growing in the coming years. There are two reasons for that. Firstly, new units in gas-fired power and CHP plants will be placed in service (e.g. Ostrołęka PP, Żerań CHP plant). Secondly, gas is becoming increasingly popular as source of heat in households. Moreover, the data for 2020 do not reflect the actual demand for this raw material, due to the unusually warm winter (in the 2020/2021 season Poland’s gas giant PGNiG has already reported record-breaking demand for gas a few times), and the coronavirus pandemic, which have had a clearly negative impact on the biggest industrial gas consumers.
In order to meet the growing demand for gas in Poland in the coming years and to successfully continue the diversification process of gas supply, it is necessary to increase our ability of importing the fuel. According to the data from 2020, 60.8 percent of the imported gas comes from the east, i.e. Russia, and 13.8 percent is from the west and south, i.e. via interconnectors with Germany and Czechia. The majority of this gas is actually from Russia as well. The remaining 25.4 percent is imported via the LNG terminal in Świnoujście. To visualize this change we need to go back to 2016 when 88.9 percent of gas was imported to Poland from the east, whereas LNG constituted only 8.4 percent of the import and 2.7 percent came from the south and west.
As the government has announced, after 2022, i.e. once the Yamal contract expires, Poland is to completely cease gas imports from Russia as part of long-term agreements. This will be possible thanks to the expansion of the LNG terminal in Świnoujście and the launching of the Baltic Pipe, which will radically change the structure of gas import to Poland. In the coming years both projects will increase Poland’s ability to import gas by over 13 bcm a year (10 bcm via the Baltic Pipe, and an additional 3.3 bcm via the LNG terminal in Świnoujście after its expansion). In 2020 Poland imported 9 bcm of gas from Russia. Considering the growing gas consumption in the 2026-27 perspective, an FSRU (Floating Storage and Regasification Unit) is to be built in the Gdańsk Bay. Market research is now being conducted to verify the technical possibilities of such an investment. According to initial estimates, the unit will add an additional 4.5 bcm of LNG a year to Poland’s gas import.
In order to partially meet the demand for the American contracts in the FOB formula (FOB – a contract formula that places the responsibly for transporting the load from the export terminal on the purchaser. This allows the buyer to direct the purchased gas to any place in the world. It’s the opposite of the DES – Delivery Ex Ship – formula where the seller provides the transport to a harbor previously selected by the buyer), PGNiG decided to charter two LNG tankers from a Norwegian company Knutsen Shipping. PGNiG is planning to increase the number of such units in its fleet in the future.
Oil diversification
Oil is another important piece in the puzzle that is Poland’s diversification and security. Annually Poland imports between 24 and 26 m tons of oil. The average daily consumption is about 700 thousand barrels of oil and other fuels. According to the International Energy Agency, in 2019 about 920 thousand tons of oil was extracted in Poland, which was a little over 3 percent of the total amount of oil consumed that year in the country. Oil extraction, apart from onshore locations, takes place on two drilling platforms owned by Lotos Petrobaltic. The platforms are located in the Polish Exclusive Economic Zone (EEZ), about 70 km north of Cape Rozewie. Interestingly, the associated gas, generated during the oil production on the platform is used to fuel the CHP plant Władysławowo. The plant has two gas turbines, which generate electricity as well as heat. Its peak power is 15 MW.
The remaining 97 percent of oil that Poland’s economy needs is mostly imported from Russia. In 2019 the oil from that country constituted 61.5 percent of all oil imports. The main oil pipe that supplies this raw material to Poland is called Druzhba. However, the role of the Naftoport oil terminal in Gdańsk in diversification efforts is growing. The facility makes it possible to not only import raw materials for Polish and German refineries, but also enables the export of petrochemical products manufactured in refineries.
In 2019 the Naftoport in Gdańsk handled 304 tankers and a total of 16.8 m tons of oil and oil products. The year before it handled 314 tankers that transported to or out of Poland 15 m tons of oil. In 2017, 264 ships reached the harbor (the worst individual result in the last 8 years), that carried 12.4 m tons of oil or oil products. Complete data for 2020 are not available yet. The annual capacity of the Naftoport is over 40 million tons. The importance of this project will become even greater when the second line of the Pomerania oil pipeline, that will connect the Naftoport with the refinery in Płock will be completed. The investment is scheduled to end in 2023.
A renewable opportunity
In the next two decades the Polish strategy to complete the energy transition will rely even more heavily on the Baltic. This is because of the plans to build offshore wind farms in the Polish EEZ. According to the Polish Energy Policy by 2040, the participation of renewable energy sources in the country’s energy mix is to reach 23 percent in 2030. To a large degree this will be possible thanks to adding 5.9 GW of power generated in offshore wind farms in the Baltic to Poland’s power grid. By 2040 the farms are to reach a capacity of 11 GW. However, these estimates are rather conservative, because experts expect that the participation may be even higher thanks to, among others, the advancements in the wind turbine technology. The investments in the offshore wind farms will contribute not only to transforming Poland’s energy mix, but also to developing new sectors that will provide, e.g. maintenance and installation services, as well as production of components. The seaside town of Gdynia is to play an important role in the construction of the farms, as the installation port will be established there.
It is also worth taking a look at the potential of these investments. The wind farms are to become the main producers of „green” hydrogen, i.e. hydrogen generated in the process of electrolysis. In the coming years, Poland will have to build a complete infrastructure on the seaside to facilitate the generation, transport and storage of hydrogen. The possibility of storing hydrogen in salt caverns, e.g. in Dębogórze near Gdynia, is already being researched, which has been signalled by Gas Storage Poland.
Underwater cables
Apart from the offshore wind farms there are two other infrastructural projects, which are strongly linked to the energy sector. The first one is the submarine cable laid in 2000, which connects Poland’s and Sweden’s grids. SwePolLink can transmit 600 MW in both directions. Usually the power is transmitted to Poland, but sometimes, e.g. in early February this year, Sweden had to import power from Poland due to high demand.
The second project, which is even more important from the point of view of the Baltic states, is the Harmony Link, a 450-km long cable that will connect Lithuania’s Klaipeda and Poland’s Władysławowo. The cable will be able to transmit 700 MW of power in both directions.
It has strategic importance, as it will allow the Baltic states to disconnect from the post-Soviet IPS/UPS BRELL system and connect to the European ENTSO-E network. Thus, the Baltic states will not be dependant on the transfer of electricity from continental Russia to, e.g. Kaliningrad. Also, this will be the last physical element that connects the three countries with Russia and Belarus. Harmony Link will also expand the possibilities for Poland and the rest of the states by the Baltic Sea to trade energy.
In recent years, Poland’s dependence on the Baltic has been systematically growing. The Baltic has solved many of our energy sector’s problems. It is hard to imagine a situation where Poland does not own the Naftoport in Gdańsk and a crisis, similar to the one in 2019 with organic chloride, occurs. That breakdown stopped oil supply via the Druzhba pipeline for over 40 days. Back then, Polish refineries were forced to get by on deliveries coming from the sea for over a month. Today, the issue of oil supply to Poland is a topic that can be discussed calmly. Soon the same will peratin to natural gas. In a decade new wind farms will be connected. Going forward, the farms will produce green and POLISH hydrogen.
All of this will be possible thanks to the fact that we have access to the sea. It would make sense for Poland to, instead of just profiting and adding up the oil barrels, MWhs or billions of Zlotys from taxes, think how much the probability of problems occurring on the Baltic will cost us, and how much are we willing to pay to secure our interests. Bearnig in mind that while it’s nice to reap profits, counting losses is not.