Energy 23 August, 2023 7:35 am   
COMMENTS: Joanna Słowińska

Polish Briefing: 11th sanctions package I Orlen signs deal with Azoty I TGE’s new instruments

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What goes in Poland on 23th of August.

The 11th sanctions package is ready

The Radio News Agency (IAR) has reported that EU states have arrived at a compromise on the 11th sanctions package on Russia for the invasion of Ukraine. The deal includes Poland’s demand that no oil be transmitted via the Friendship Oil Pipeline. Germany is importing Kazakh oil via the pipe, but Poles are concerned that this is actually Russian fuel.

“On Wednesday, the ambassadors of the EU countries tentatively agreed on further restrictions. The procedures are to be finalised by Friday and will then enter into force once they are published in the Official Journal. The ambassadors said that among the more than 70 people and companies that will be subject to sanctions are those responsible for kidnapping Ukrainian children and exporting them for forced adoption to Russia. And this was one of the Polish demands,” the IAR press release said.

“In addition, there is a Polish demand concerning, among other things, the imposition of sanctions on the northern section of the Friendship Oil Pipeline,” reported IAR’s Beata Płomecka.

“There are Polish demands to seal land transport by banning entry for Russian trailers and trucks. There are elements that will open the possibility of applying secondary sanctions to those entities that systematically support bypassing the sanctions system. I am not negative about this package. There is a whole range of much-needed solutions,” said Polish ambassador to the EU Andrzej Sadoś, adding that another package of sanctions is already being prepared. Poland will again seek, among other things, an embargo on Russian diamonds, as well as the Russian nuclear sector.

Poland and Germany are seeking to impose sanctions on oil supplies from Russia through the Northern Strand of the Friendship Pipeline. It stretches from Russia through Belarus to Poland and Germany. The southern thread goes through Ukraine to the Czech Republic, Slovakia and Hungary. These countries continue to receive Russian oil. The Poles and the Germans don’t buy it anymore. Germany is taking advantage of the Friendship pipe to receive Kazakh oil, but the Poles warn that physically it is still oil from Russia.

Informacyjna Agencja Radiowa / Wojciech Jakóbik

Orlen signed gas contracts with Azoty and plans to nab the plant in Puławy

PKN Orlen has signed gas contracts with individual companies of Grupa Azoty, including Azoty Puławy, which it would like to take over.

The new agreements are to be valid from the first of October 2023, replacing the existing ones until the end of September 2026 with the option of extension until September 2027. The contract price is to depend on the price of gas on exchanges. “The price formula agreed in the new contracts is based on the market values of gas price indices. This is the most objective way of setting prices, widely used between companies across Europe,” Orlen said in a press release. These contracts are expected to be worth PLN 18 billion. “The terms of individual contracts do not deviate from market standards used in contracts of this type,” Azoty said.

“The signed contracts will enable the continuation of the existing cooperation between Orlen and Grupa Azoty in the field of natural gas supplies. The parties also concluded annexes to existing contracts. On their basis, from July 1, 2023, gas supplies will be carried out in line with the new terms, which, as they are now, will be based on gas prices on the exchange,” Orlen said.

“The annex to the Framework Agreement, together with new individual contracts, will secure, in the period from 2023 to 2027, at least 90 percent of the total gas demand of the companies of the Grupa Azoty Capital Group,” the fertilizer producer said. “New individual contracts have been concluded for a delivery period of 4 years starting from October 1, 2023 in the formula 3+1. After three years, the fourth year is optional and does not provide for contractual penalties for termination of the contract after 3 years, provided the period of notification of the intention to terminate it by September 30, 2025 is met,” the press release said.

Individual agreements have been signed with six Grupa Azoty companies: Grupa Azoty, Grupa Azoty Zakłady Azotowe Puławy, Grupa Azoty Zakłady Chemiczne Police, Grupa Azoty Zakłady Azotowe Kędzierzyn, Grupa Azoty Kopalne I Zakłady Chemiczne Siarki Siarkopol, Grupa Azoty Zakłady Fosforowe Gdańsk.

PKN Orlen is interested in acquiring Grupa Azoty Puławy. The parties signed a letter of intent on this issue, which includes an economic analysis, which is to be carried out by the end of the year. The price of gas accounts for one third of the production costs at the nitrogen plants. Currently, prices on the stock market are falling, but they can rise again in the heating season.

PKN Orlen / Grupa Azoty / Wojciech Jakóbik

TGE’s new instruments

The Polish Power Exchange (TGE) has introduced two new instruments on the electricity futures market: lowPeak (10-hour pre-evening peak) and highPeak (5-hour evening peak). These solutions are designed to use the peaks of energy demand to trade on the exchange.

TGE is changing the current structure of forward products. According to the exchange, their current shape may be insufficient in the future, due to changes related to market expectations and the demand profile in the face of an increased share of renewable energy generation and self-production (mainly prosumer).

“In this context, the current structure of forward-looking products in terms of 24-hour BASE products and 15-hour PEAK products seems to be insufficient for the future. Timely products, especially during peak hours, do not fully meet the needs arising from the generation of photovoltaic sources, on the other hand, there is a strong pressure to prevent price risks during the evening rush hours and in a situation where dynamic coverage of the needs of the system by conventional sources is necessary,” TGE said.

TGE, in consultation with market participants, decided to implement two new futures instruments, which will be offered in parallel with the products currently listed on the OTF platform, i.e. BASE, PEAK and OFFPEAK. We are talking about lowPeak (L-PEAK) – a 10-hour pre-evening peak for delivery in time from 07.00 to 17.00 (trading hours 8.00–17.00) and highPeak (H-PEAK)-5-hour evening peak for delivery from  17.00 to 22.00 (trading hours 18.00–22.00).

TGE reports that both instruments are provided for the delivery period only on working days in terms of: a week (in four series), month and quarter (in two subsequent series), traded throughout the year. In this regard, the list of instruments available on the futures market has been de facto expanded by six products of the Peak instrument.

“The implementation of the new instruments fits both into TGE’s activities related to the expansion of the offer for the RES sector, as exemplified by the launch in 2022 of SPOT indices based on the profiles of wind generation and PV production, as well as the optimization of the entire electricity sector in the area of trading on the stock market. The new solutions are also in line with the proposed changes in the functioning of the energy market in Europe, resulting from the Electricity Market Design Project and the dynamic transformation of the electricity sector in Poland, ” says Piotr Listwoń, vice president of TGE.

“The solutions introduced will contribute to improving the liquidity of a group of forward products during peak hours, reduce the costs and risks of hedging contractual positions (the so-called risk base for dynamically changing demand profile), increased flexibility of hedging tools and deposit limits for products with a shorter delivery period, better response of PV generation by products during peak hours (L-PEAK), as well as more complete market information in terms of prices of changing demand profile or the situation in the National Electricity System,” the company wrote.

TGE added that the new products have been consulted with the members of the exchange and with the trade associations that sit on the Market Council at TGE.

Commodity Energy Exchange / Jędrzej Stachura