GAS LNG Nord Stream 2 Norwegian Corridor 25 March, 2022 10:30 am   
COMMENTS: Tomasz Stępień

Stępień: Talks on speeding up the FSRU project in the Gdańsk Bay are underway (INTERVIEW)


“Due to the situation in Ukraine, in Europe, talks on accelerating the construction of new LNG terminals have started. Also, in Poland, we are analyzing scenarios related to the faster implementation of the FSRU project, i.e. the floating LNG terminal in the Gdańsk Bay,” says the president of Gaz-System Tomasz Stępień in an interview with Should Poland accelerate gas diversification in the face of the threat from Russia?

Tomasz Stępień: Poland is currently in a much better market position than Germany. The long history of gas schemes orchestrated by the Russians against Poland has taught us that the assumption adopted by our western neighbors – that Russia supplying gas to European countries, including Poland, was guided solely by market considerations – was wrong. At the right time, as a country, we have learned the lessons of history and that is why our gas infrastructure diversification projects, such as the Baltic Pipe, the expansion of the LNG terminal and interconnectors with Lithuania and Slovakia are now being completed. Technically, we have prepared a system that allows us to transfer gas without having to pump it from the East.

Of course, as a company, we still have several projects, the prospect of which goes beyond 2022. However, these projects have more to do with the need to meet the growing demand for gas on the Polish market than with the necessity to diversify gas supply sources.

PGNiG urged to speed up the FSRU…

We are in constant contact with our partners from PGNiG also on the subject of the FSRU project. The investment process for the FSRU terminal requires many arrangements. It will be possible to complete the project quicker, only if legal changes are introduced to streamline the administrative and permission-granting processes. However, all new solutions in this area must first be agreed at the EU forum in Brussels before being implemented in our country. Considering how attitudes have changed in Germany and in Brussels itself, we have grounds for optimism in this regard.

Was Gaz-System granted for this purpose PLN 3 billion?

Through its investments, Gaz-System implements primarily the government’s security strategy. However, we operate in market realities and in order to finance numerous projects in such a short time, the company needs to be recapitalized, as its ability to continue borrowing on the financial market has ended. I can only confirm that, in cooperation with the Chancellery of the Prime Minister, we are currently working to recapitalize Gaz-System by the State Treasury in excess of PLN 3 billion. Gaz-System will allocate the funds from the co-financing directly to the implementation of new strategic investments.

Other projects have also been expedited, for example, we will receive gas deliveries from Lithuania already in May.

The Poland-Lithuania gas pipeline is about to be completed. We are planning to launch this pipeline commercially from 1 May, which is a little earlier than originally planned. In May, we will make available to the market the full capacity of this pipeline, i.e. 1.9 billion cubic meters annually from Lithuania to Poland. In contrast, the capacity from Poland to Lithuania will initially be reduced to 2 billion cubic meters, but in the fall it will increase to 2.4 bcm a year.

From the point of view of the Polish gas market, we will have real access to the Lithuanian LNG terminal in Klaipeda already in May 2022.

Does Gaz-System reckon with the possibility that, as a result of an embargo or other developments on the front, the supply of Russian gas may be interrupted? Do we know what to do if that happens?

Gaz-System is prepared for many crisis scenarios, including those related to the announcement of an embargo on Russian gas. Already in 2019, we were faced with a threat of a serious crisis on the Polish gas market, because there was a high risk the transmission agreement, which was then being negotiated by the European Commission, Ukraine and Russia, would not be extended. Since then, almost every day we are ready for the possibility of interruptions in gas supplies from Russia to Poland.

The main assumption that we adopted at Gaz-System before launching our large investment program in 2016, including the Baltic pipeline, the expansion of the LNG terminal, or new interconnectors with Lithuania and Slovakia, was that we needed to prepare the gas infrastructure, so that after the end of the unfavorable Yamal contract in 2022, Poland would not have to ask Russians for even one cubic meter of gas.

In the current situation, it is worth noting that the Baltic pipeline is only one of several investment projects that increases the energy security of our country. We have an expanded LNG terminal, the Yamal gas pipeline controlled by Gaz-System that can work on reverse, interconnectors with Lithuania and Slovakia that are being completed, and we have sufficiently filled gas storage facilities, so today we can balance the domestic transmission system from the transmission infrastructure side without gas from Russia.

Will Gaz-System take over Gas Storage Poland?

Gas Storage Polska is an operator of gas storage facilities, but does not own them. They belong to PGNiG and there are no planned changes in this area. Gas storage is key infrastructure on which the continuity and flexibility of the gas transmission system operated by Gaz-System depends. The government’s decision to appoint a company that is completely owned by the State Treasury as the operator of gas storage facilities was the right thing to do. The functioning and operation of an operating company is completely different from that of a listed company. One of the reasons is the fact that the operator’s primary objective is to ensure continuity of service, and therefore also to invest in appropriate infrastructure at a regulatory level acceptable of return on capital.

The Russian invasion of Ukraine has clearly showed that the security of gas supply is more important than a high financial return on investment. Therefore, entrusting this responsibility to a company in which the State Treasury has a 100% stake is a good step towards the implementation of the security strategy.

If this happens, is Gaz-System planning more investments?

In Poland, considering the projected increase in natural gas consumption, the construction of gas storage facilities is a necessity. Gaz-System has been preparing for many years to invest in underground gas storage facilities in Damasławek. The granting of operator status can significantly speed up investment decisions and will allow to move to the implementation phase.

Does Gaz-System cooperate with the Ukrainian operator? We’re hearing about a reverse flow with nonstop deliveries. Is there anything else?

We have good relations with the operator of the Ukrainian transmission system. Our company has been very actively supporting Ukrainian companies in adopting legal and regulatory changes in order to adapt the Ukrainian gas market to the requirements of the European market. We have repeatedly shared knowledge with the Ukrainian operator and helped to implement the procedures and principles of the EU network code. However, not all legal solutions were possible to implement due to the historic gas contracts concluded between Ukraine and Russia.

We are in constant contact with Gas TSO UA, which is why a few days ago we decided to temporarily change the product offer at the exit point from Poland towards Ukraine. The capacity offered there will now be continuous. This solution gives Ukrainian customers the confidence to deliver natural gas, which is of great importance due to the Russian invasion.

We have been following the disputes over the Yamal gas pipeline between its co-owners – PGNiG and Gazprom. Is Gaz-System concerned about any decisions that could threaten the security of supply or about threats from the Russians?

In our opinion, the situation regarding the legal status of the section of the Yamal gas pipeline that runs through Poland has been practically settled. In accordance with the provisions of the recently revised energy law, the network transmission operator, i.e. Gaz-System, will acquire full rights to manage the Yamal gas pipeline under a trust agreement from January 2023.

This bill passed last week through the Sejm and the Senate without amendments, with almost 100 percent support, which is a rare example of political consensus in our country. Thanks to this change, Gaz-System will acquire the right to carry out investments, manage operation and trade issues on the Yamal gas pipeline on the basis of the new trust agreement.

Since the fall of 2021 the Russians have been transmitting gas through this pipeline sporadically, we want to use its spare capacity for the needs of the national transmission system. In this regard, we are planning to connect this pipeline with our domestic infrastructure at several points.

Nord Stream 2 was stopped, sanctions were imposed on the company and the climate foundation, which was supposed to protect the pipeline, was dissolved. Does that mean this project is dead?

From the point of view of EU regulations and the changing approach among western countries, this project has come to an end. The company has laid off employees and we hear that it may soon declare bankruptcy. I hope that, despite the fact that this pipeline physically exists, Europe will never come back to the idea of restoring this project.

What is the lesson the war in Ukraine has offered in terms of strategic energy infrastructure in Germany, in the heart of Europe?

Every European country is likely to learn its own individual lesson from this tragedy. But the general message is that if anyone thought that Russia was a professional market player and a trustworthy partner that respected universal rules, they should now radically revise their position. Russia in its doctrine has always regarded gas as an extension of diplomatic tools that serve to achieve political goals.

How should this impact EU regulations? Are there any solutions implemented by Poland that the EU should adopt?

It is worth considering copying the Polish solution on the system of compulsory gas reserves. We took care of this bit in the Polish law several years ago, and therefore today the Polish customer is safe and does not have to worry about interruptions in gas supplies.

In addition, I remember that Poland and Germany began to consider the construction of LNG terminals at about the same time, i.e. in the middle of the first decade of 2000. Meanwhile, by 2022 Poland has built the LNG terminal in Świnoujście and is currently carrying out its significant expansion, and is also starting the construction of a second one, whereas Germany is only now trying to return to LNG projects that have existed for almost 20 years only in the sphere of ad hoc press releases.

Is the gas market experiencing its own “end of history” moment?

History doesn’t end, it repeats itself. It is necessary to be aware that in the perspective of 15-20 years the demand for gas will go up and then flatten, because it will no longer be in our interest to increase it. Gaz-System showed this trend in the official forecasts of gas consumption in Poland in the National Ten-Year Development Plan. I estimate that gas consumption in the country will stabilize at a maximum level of 30-35 billion cubic meters and the rest of the energy mix will be supplemented by other sources. Poland has a nuclear program, offshore and other opportunities. Our energy mix should be balanced and not dependent on a single supply chain of energy carriers, fuel or technology, because only then will we be able to responsibly manage the energy supply to the economy in the long term.

What will happen to the Fit for 55 package that was supposed to hinder gas investments?

Every transition must be grounded in reality. Poland does not question the idea itself, but believes that before we implement any idea at all cost, certain conditions must first be met, such as security of supply and acceptable energy prices for Poles.

Without this, no transformation will succeed, because not only its goals, but also its effects should be acceptable to the recipients. We are now in the process of a major change. New talks have begun in Brussels on supporting LNG projects to make Europe independent of Russia. At the same time, it is no coincidence that a new REPowerEU program was introduced, which aims to reduce Europe’s demand for gas from Russia by two thirds by the end of the year.

Interview by Wojciech Jakóbik