Energy 26 September, 2017 12:00 pm   
Editorial staff

Shell Polska’s CEO: Poland may become a gas hub if it wanted to

Shell has been present in Poland for 25 years. In an interview for Piotr Dziwok, Shell Polska’s CEO assessed positively the so-called fuel package, which was introduced a year ago. However, he also criticized the Act on mandatory stocks. “This is a regulation that constitutes a serious threat to creating a gas hub in Poland,” the CEO stressed. He also pointed out that Poland was a very promising gas market.

Bartłomiej Sawicki: Shell has been present in Poland for 25 years. In retrospect how do you assess the opportunities and challenges that the cooperation between Shell and the Polish government is facing? 

Piotr Dziwok, Shell Polska CEO: At the end of the year we will be celebrating Shell’s 25th anniversary in Poland. We have been developing here and our investments have significantly contributed to Poland’s economy. Poland is a very attractive market for investments. This is caused by a number of factors, including constant economic growth, beneficial geographical location, access to the sea, sufficient road and gas infrastructure and last but not least – people.

The so-called fuel package was introduced a year ago in Poland. Its goal is to crack down on the so-called VAT carrousels. How does Shell, which sells fuels in Poland, assess these changes in retrospect?

We positively assess the recent legislative changes that regulate the fuel market, including among others, the fuel package and the transport package, which successfully reduced the shadow economy and increased the sale of legal fuel. The fight against the grey economy has been a huge challenge for us, but looking at the latest fuel sales results, we can say that the sector has definitely noticed a reduction of the grey and black economy. Naturally we are aware that dishonest businessmen are still looking for new ways to circumvent the law, but the market results testify to improved normalization. This is also confirmed by the increasing state budget tax revenue.

Why do you think these changes have not been introduced earlier? 

The stakeholders from the government and the sector need to cooperate for the market to function properly. We care about the proper analysis of the current and future legal regulations because they are extremely detailed and have an impact on the entire energy sector. In Krynica I had the opportunity to talk about the Polish gas market.  I stressed how the business appreciated the  government’s actions against the grey economy, but I also pointed to the roadblocks to the development of Poland’s gas market that have been recently introduced into the law. The regulations on mandatory stocks clearly hinder trade by making profitable import impossible and even forcing some of the companies out of business – this is actually already happening. Additionally, in our opinion these changes are significantly decreasing Poland’s chances at establishing a gas hub in the country, which in turn may impact the possibility of diversification of sources of supply.

The changes, as you mentioned, pertain also to the gas sector. The Polish government is diversifying gas supply by pursuing the Northern Gateway project, which includes the expansion of the LNG terminal and the Baltic Pipe – a connection with Norway. How do you assess this project? 

Poland’s gas market is promising. Its annual demand of 17 bcm makes it the biggest market, after Ukraine, in Central and Eastern Europe. Our country’s central geographical location could potentially facilitate the emergence of a regional gas hub. At the same time the initial condition for creating a well-functioning gas hub is market liquidity, which ensures access to various gas sources and companies that distribute the raw material.

Thanks to a number of new infrastructural investments, Poland is already very well connected with its neighbors, e.g. through the LNG terminal in Świnoujście. The construction of the Baltic Pipe, which will transmit gas from Norway to Poland, and the construction of interconnections with neighboring countries are also extremely important.

The so-called Act on mandatory stocks entered into force this year. It obligates companies present on the gas market to maintain natural gas stocks. Shell has reservations about the bill. What are they and where do they come from? Can this bill impact the development of a gas hub in Poland, and if yes how? 

For large companies, including Shell, unpredictable changes in regulations and lack of consultations with other players on the market constitute a serious barrier to development and a challenge to further investments. This forces us to constantly monitor the legislative process and requires considerable expenditure of time and money to adapt our business to the new requirements, which often enter into force quite unexpectedly. The recently introduced transport package can be an example here. It required a lot of organizational work and investing large sums in a short time. At the same time, we are approaching these new regulations with a credit of trust because we believe that thanks to them, among others, the fuel market will be facilitating competitiveness to a larger degree.

Despite the doubts, do you believe that the gas hub in Poland will be created? Will the Act on mandatory stocks impact the shape and the time it will take the market to emerge in Poland? 

As I have already mentioned, the Act on mandatory stocks is one of those regulations that constitutes a serious threat to Poland’s gas hub. If it is not corrected, it will also negatively impact the development of the LNG market. Some companies have already left the Polish gas market after the regulation had been introduced. If the changes do not take place quickly, the neighboring countries may use this chance and create a regional hub somewhere else, e.g. by connecting the markets in Austria, the Czech Republic, Slovakia and Hungary or Croatia and Ukraine. Despite that, as Shell we still believe in the huge potential of Poland’s gas market. The market is developing dynamically and demand for the fuel is constantly increasing. The potential for a regional gas hub may be realized through legal regulations that support access, diversity and competitiveness for various entities. Naturally we agree that the basic point is to ensure the country’s energy security.

At Shell we are convinced that natural gas has a future. According to a forecast of the International Energy Agency, between 2015 and 2040 the demand for gas will go up by 30 percent. The role of natural gas will also increase in the EU in the coming years. At the same time domestic production in Europe is going down. This is why the EU needs additional gas import sources, even if the demand and deliveries through the existing gas pipelines will be sustained at the same level. If a gas hub is created in Poland, suppliers, industrial services customers and consumers will benefit from the availability of various gas sources. This may have a positive impact on, among others, prices for consumers. When promoting the creation of a Polish gas hub for Central and Eastern Europe we are drawing on experiences of other hubs in Western Europe, e.g. the National Balancing Point in Great Britain and Title Transfer Facility in Holland. These examples show that the entire region, not only our country, may benefit from a Polish gas hub.

Last July Shell opened a new service center in Kraków. Is the company preparing ground for a gas hub in Poland? 

Our business service center in Kraków, the Shell Business Operations, is one of Shell’s existing divisions in Poland. The center was built 10 years ago in Zabierzów near Kraków, whereas this year we moved to new premises in Kraków. Currently we are employing there almost 3 thousand people in 9 business departments, including specialists in finances and accounting, but also, among others, supply and logistics, communication, HR, law and client service. This investment is especially important for Shell and we are developing it regardless of the progress made in the plans to construct a gas hub in Poland.

Shell is a leading LNG seller. Poland is aware about the significant potential of the LNG terminal in Świnoujście. Is Shell thinking about using the regasification capacity of the Polish facility or LNG serivces? 

The acceptance for LNG as an energy solution is constantly increasing, especially in developing countries. Poland is a very promising market for gas development, but also other kinds of fuels, and as the world’s biggest energy company we will definitely be looking for ways to participate in this market with regard to the available and commercially profitable possibilities. We are open to all new gas perspectives, especially because we are already producing LNG, for instance in the USA. Shell is developing LNG fuel for, among others, transportation. We took over a Norwegian company that delivered LNG to ships and industrial clients. In 2015 we were the first client who used the new LNG transport infrastructure, including the terminal and landing place at the Rotterdam port. This month we delivered the first small scale LNG transport to Lithuania’s terminal.

We are investing in liquefied natural gas and in biofuels as well as hydrogen as they emit less CO2 in road and maritime transport. We have invested in the CCS technology, which is the key to a significant reduction of global CO2 emissions. The development of the LNG sector is a chance to stimulate the domestic fuel market and an interesting solution for road transport. Technical innovations in the LNG industry are offering energy consumers more options, one of the innovations is, e.g. the LNG floating storage and regasification unit that has been developed in the past decade. Such a technology offers a quick and flexible way to provide consumers with secure access to energy. The floating units turn LNG into gas such as the one in offshore deposits. Then the gas is pumped into the country’s transmission system, mostly through the existing infrastructure.

At the same time it is important for Poland’s decision makers to, just like in other countries, support the LNG market and hydrogen for transport – we believe that positive encouragement from the government (e.g. freezing the excise duty or exclusions from the alternative fuel list) will allow these promising technologies to ripen in our country. This would be useful not only because of the economic benefits for Poland’s huge transport fleet, but it would also support the efforts of the many institutions that are fighting against smog.

Shell is bankrolling the construction of the Nord Stream 2 gas pipeline, which entirely  depends on Russia’s Gazprom. Isn’t the engagement in both projects: the Northern Gateway and Nord Stream 2 mutually exclusive?

As a global company that has bet strongly on gas across the world, we are engaging in various projects that involve this raw material and we expect that the additional access channels to gas are to bring benefits to the final consumer. Bearing this in mind, a few years ago we made a strategic decision to merge with BG, we invest in LNG, we actively participate in many projects in various countries. Currently gas constitutes half of Shell’s global income portfolio. We have access not only to gas from Russia, but also from Norway where we are the second biggest producer, or the USA.

When it comes to Nord Stream 2, it is yet another gas access channel. We believe that it would supply the European market with more gas, which will contribute to sustaining economic competitiveness. It does not have to be a roadblock to other supply sources.

Interview by Bartłomiej Sawicki