It is boiling hot, from Paris to the remote Syberia the temperatures are breaking records, but in the quiet, air-conditioned offices of managing boards and advisors, experts are working hard on establishing a new multi-energy company in Poland. However, the 35-degree heat and the euphoria after the victorious tie with Spain are not an excuse to not work, so here it is – another analysis of mine on the “new” Orlen. This time I will focus on the undestanabley extremely important question of the role of gas in the new company – Jerzy Kurella, expert at the Staszic Institute, writes.
Natural gas – the obvious stepping stone to hydrogen fuels
I am one of those energy experts who believe that at least until the middle of the 21st century the role of methane, in its widest meaning, will be absolutely critical if not decisive if we want to be serious about arriving at a zero-emission economy in 2050. Methane and biomethane are the cheapest, most efficient and most flexible replacements for industries and utilities currently running on bituminous and black coal. Additionally, gas will be replacing oil in commercial transport to a larger degree, which will strengthen its position as the leading energy carrier at the global scale.
I wholeheartedly agree with the opinions of those experts who believe that gas is a “transition” fuel. Of course only in the sense that gas will be the natural “transition” to an economy based on hydrogen fuels, and that the transition will last at least 40-50 years at the global scale. This has been also noticed by the European Commission, which is placing ever more emphasis on methane as the source of primary energy. The best example of this is the latest decision made by the EU energy ministers on 11 of June 2021, which prolonged the subsidizing of cross-border gas projects. Of course, only in case they facilitate the EU’s climate goals. This position is the practical implementation of the so-called EU taxonomy for sustainable activities from the 21st of April this year, where while gas and nuclear investments have not been included in the support system, it has been declared that decisions (positive) in this regard will be made this year.
Clients will decide anyway
Evidently the climate for “blue fuel” is becoming more friendly, a fact that is impossible to ignore when working on the merger between Orlen and PGNiG. Already the Orlen Capital Group is the biggest consumer of gas in Poland that uses the gas not just for refining processes, but most of all for production at Anwil’s chemical factory, or the Orlen Południe installations in Trzebinia and Jedlicz that are currently in development. One should not forget about the fact that Lotos is also an important gas consumer, which in case of the merger with Orlen will strengthen the new company’s gas portfolio. Hard data are clear – gas will be of key importance for the new, multi-energy Orlen.
However, the question remains – is it necessary to buy the bakery to eat a bun? So, what should ultimately determine the process of merging Orlen with PGNiG? I will stress yet again that I am not convinced by the argument that “the bigger the company, the more it can do”. That’s not the way. This is where we are back to square one. At the end of the day, the client – the recipient of the energy services – should be at the center of the interests of decision makers and ambitions of managers. Even the biggest acquisitions and structural changes that are taking place at energy and fuel companies, where the state dominates, should be about well-defined client needs. Customers should expect that in result of the transition they will receive a product offer that is widely accessible, flexible and has the best price. They are not really interested in the 200-billion capitalization on the exchange, because it is an abstraction even for the specialists who work on the financial market on a daily basis.
One needs to understand these changes not only through the perspective of gas and power bills or the cost of fuel at fuel stations. The price of gas used for the above mentioned chemical and fertilizer products may be even more impactful for the entire economy. If the business model for this merger is designed badly, it may lead to a situation where a truly important branch of the Polish industry will no longer be competitive, the company’s international position will not be strengthened, and gas prices will impact the lack of possibility of selling chemical products at competitive prices. It is not always the case that the bigger company is cheaper, more efficient and effective: the opposite is often true…
No fusion without gas
Considering this, for the merger of these two companies to make sense, the corporate structure and the way the gas market in Poland functions need to change significantly. In its current shape, PGNiG stands no chance at surviving on a competitive gas market, which will be here before 2024 at the latest. The people in the know understand that PGNiG’s dominance – some claim monopoly – on the gas market is propped up artificially with legal regulations that for years have been questioned not just by other energy companies, but by the European Commission as well. Not to get into the details of the current “gas policy”, but it is not conducive to the growth of the gas market and its competitiveness and nobody doubts that it needs to change. This could be happen thanks to structural changes that should take place in result of a planned fusion. Otherwise, the archaic and inefficient managing model, which is convenient for the few and very bad for everyone else, will be ossified.
In order for the merger to be efficient, Orlen needs to very seriously take into consideration the perspective of the increasing role of gas in the multi-energy company. It is high time to de-mythologize the “gas policy”, “confidential contracts”, price conditions, etc. Political careers are built on these secrets, but it does not facilitate the regular energy market. Gas is part of the global fight for interests, but not more than oil, RES or, soon, water. I am not calling for revealing trade secrets, but for establishing clear conditions for all stakeholders on the energy market. Orlen should absolutely take over PGNiG’s competencies in managing the gas market by consistently pursuing fee market and competitive actions in this regard. If that doesn’t happen the newly established company will be missing out, and so will the clients and the entire economy. This is the last moment to open up and reject archaic doctrines.