In 2020, there will be significant changes in the Polish energy sector, which, according to our experts, will have a long-term effect on Poland’s energy policy in the next 5-10 years.
After the formation of the new Polish government of Mateusz Morawiecki, the basics of energy policy as well as plans to reform energy companies and develop new energy sectors were presented at the 4th Industrial Forum in Karpacz, held on December 12-13, 2019. As a part of implementation of the European policy of decarbonization of the economies of EU member states, Poland is trying to make the most of the financial resources of relevant EU funds, as well as to take measures to consolidate energy business under the control of the government.
The priority of Poland’s new energy policy is to create a number of large enterprises in the main energy sectors (coal, gas, oil, electricity), which should ensure better management of the energy sector of the economy in a period of significant change.
At present, more than 200 state-owned enterprises, including such large energy companies as PKN Orlen, PGNiG, Gaz-system, and PSE, are subordinated to the newly created Ministry of State Treasury. The new Polish government plans to merge state-owned companies into concerns. The purpose of such measures is to increase the efficiency of business processes in companies, lobbying of the interests of the companies in international markets, more efficient use of resources, shifting the emphasis from internal competition to corporate partnership and cooperation. Representatives of the Ministry believe that such “mergers and acquisitions” will strengthen the competitive position of Polish energy companies. Thus, the oil company Orlen has started the acquisition of Energia, and also plans to acquire another important strategic state-owned company Lotos. The possibility and feasibility of merging gas and electricity network operators Gaz-System and PSE are also being discussed.
Under the new energy policy, Poland’s nuclear energy is seen as the main resource for replacing coal generation in the country. At present, coal output amounts to 78% in the total balance of electricity generation in Poland. It is planned that in 2040 coal generation will be 32%, and nuclear generation will amount to about 20%. In 2033, nuclear generation capacity may be 1.0-1.5 GW, and 6-9 GW in 2043. The cost of electricity from NPPs will be EUR 70.5 / MWh according to preliminary estimates. At present, coal generation costs EUR 97.4 / MWh.
At the same time, according to Polish experts, a period of electricity shortage is expected in Poland in the second half of the 2020s, the level of which will reach 3.6 GW in 2031, and 6.2 GW in 2033. To meet the demand, an increase of electricity imports or conditions for a rapid increase in alternative generation capacity will be needed, in particular, using natural gas and renewable energy sources.
Lubiatowo-Kopalino or Zarnowiec are considered promising regions for prospective nuclear power plants. The Ministry of State Treasury estimates that the share of Polish companies among project contractors will range from 40 to 70%.
During implementation of the Polish government’s plans to consolidate the oil and gas energy sector, Piotr Wozniak was recalled from the position of head of the oil and gas company PGNiG, and on January 9, 2020, Jerzy Kwiecinski was appointed to this position, previously having served as the Minister of Finance in the government of M.Morawiecki until recently. After that, the entire composition of the five-member PGNiG Supervisory Board was changed. The new board was elected for a three-year term.
Under Jerzy Kwiecinski, the PGNiG strategy is expected to change, both in the domestic and foreign markets. In particular, a qualitative shift in policy on cooperation between Poland and Russia is quite possible. Following the completion of a long-term contract with Gazprom in 2022, Russia can become an equal business partner for Poland on the basis of short-term gas supply agreements.
PGNiG will no longer focus on becoming independent of gas supplies from Russia, as contracts for gas supplies from other destinations (Norway, USA, Qatar) have already been concluded. Instead, the company will be forced to focus on the domestic gas market. As of 2025, the Polish government will liberalize gas prices for household consumers in the domestic market, where it can be purchased on the basis of free competition. Therefore, energy companies, in particular PGNiG, have to adapt to new conditions.
With national gas production declining, PGNiG will seek to strengthen and expand its investments in foreign markets. PGNiG announced its readiness to produce gas in Ukraine in December 2019 during a conference in Warsaw, where a mutual agreement between a Polish company and the American-Ukrainian ERU Trading company was signed. PGNiG is also interested in further gas purchases from the United States, Norway and Qatar and further gas sale to countries in the region, including Ukraine. After expansion of LNG terminal in Świnoujście and construction of the Baltic Pipe through Denmark, the Polish side intends to export up to 6 billion cubic meters of gas per year.
However, lack of interest of the Ukrainian side in the construction of additional gas interconnector “Poland-Ukraine” does not assist implementation of PGNiG plans in the Ukrainian direction. The Poland-Ukraine interconnector project provides for construction of a new gas pipeline with a diameter of 1,000 millimeters between Hermanowicz gas metering station (Poland) and Western Ukrainian underground gas storage facilities in Bilche-Volytsia and Oparske. It could increase the annual capacity of Polish-Ukrainian direction up to 5 billion cubic meters, and in the future – up to 7-7.5 billion cubic meters of gas per year in the long term.
The situation is developing better with respect to the northern direction of Polish gas policy. On January 31, 2020, the subsidiary PGNiG Upstream Norway (PUN) received final administrative approval to acquire additional 10% shares in PL636 and PL636B licenses on the Norwegian continental shelf in the North Sea. Thus, PGNiG’s shares in both licenses increased to 30%. As a result, the volume of gas production at the Duva field, which can be attributed to PGNiG Upstream Norway company, will ultimately increase to 0.2 billion cubic meters per year.
The Duva field was discovered in 2016, and 3 years later the Norwegian authorities approved a plan for its development and operation. Production is expected to begin in late 2020 or early 2021. Acquisition of deposits at the Norwegian continental shelf is one of PGNiG’s investment priorities. The aim is to ensure the largest possible share of gas of Polish production in total gas production from Norway to Poland after the launch of the Baltic Pipe. Currently, PUN holds 29 licenses at the Norwegian continental shelf.
In general, in recent years, the Polish government and PGNiG have taken the following steps to diversify their hydrocarbon supplies and strengthen their position in the regional gas market:
in October 2018, the acquisition of a share of the Norwegian state energy company Equinor in the Tommeliten Alpha gas field at the Norwegian continental shelf was worth the Polish side USD 220 million;
during 2018, several long-term contracts were signed for the supply of liquefied natural gas from the United States (according to the Polish side, this gas is 20-30% cheaper than Russian pipeline gas);
active use of the terminal in Świnoujście was launched to receive LNG from the USA, Qatar and Norway. It is planned to launch LNG imports from Nigeria;
in April 2019, an agreement was signed with the European Commission to co-finance the Baltic Pipe in the amount of EUR 215 million. The pipeline will connect Danish and Polish gas transmission systems, in the result of which gas will come to Poland from the Norwegian shelf. Its capacity will be 10 billion cubic meters of gas per year (in 2019, PGNiG imported 8.95 billion cubic meters of gas from Russia). Construction works are scheduled to begin in 2020 and will be completed by October 2022;
in October 2019, permission was received from the Danish government to build an underwater part of the Baltic Pipe;
in December 2019, an agreement with the Ukrainian ERU Management Services was signed on cooperation in exploration and production of hydrocarbons in Ukraine.
In the conditions of reduction of transit of Russian gas through the territory of Poland and expectation of termination of its deliveries, while simultaneously forecasting increase in volumes of annual consumption in the country from 17 to 21-27 billion cubic meters of gas until 2040, the development of a network of underground gas storage (UGS) facilities is an important part of Poland’s energy policy.
The Polish government and Gaz-System company have developed a ten-year plan to modernize and develop the country’s underground gas storage network for the period of 2020-2029, which is aimed to increase gas storage capacity from current 2.9 to 6-7 billion cubic meters of gas and to ensure flexibility of the Polish gas transportation system, Baltic Pipe and Polish LNG terminals in modern conditions.
At present, the capacity of Poland’s underground storage system is approximately 2.985 billion cubic meters. It has five underground storage facilities: “Wierzchowice” (1.2 billion cubic meters), “Husów” (0.5 billion cubic meters), and “Strachocin” (0.36 billion cubic meters), “Swarzów” (0.09 billion cubic meters), “Brzeźnica” (0.1 billion cubic meters) and two reservoirs in the salt caves “Mogilno” (0.598 billion cubic meters) and “Kosakowo” (0.145 billion cubic meters).
Visualization of an underground gas storage facility in a depleted reservoir
Gas Storage Poland, a member of the PGNiG Group, will be responsible for implementing the plan on expansion and modernization of underground gas storage in Poland. The underground storage facility “Mogilno” is expected to be modernized by 2028 and expanded to 0.800 billion cubic meters; “Kosaków” will be modernized and expanded to 0.300 billion cubic meters by 2035; “Wierzchowice” will be expanded to 2-3 billion cubic meters.
In addition, the chemical company Ciech, as commissioned by Gaz-System, has already drilled a test well in a salt cave which is being explored for natural gas storage in Kuyavian-Pomeranian Voivodeship, near Damasławek. The design capacity of the gas storage facility in Damasławek should be about 1 billion cubic meters of gas. The commissioning of the underground storage facility is scheduled for 2035.
Leasing underground storage facilities in Ukraine is also considered as an alternative to expanding gas storage capacity, but even in this case a problem of solving the issue of construction of the interconnector “Poland-Ukraine” arises. Thus, the primary option to solve the problem of flexibility of the gas transportation system of Poland remains the modernization and expansion of existing Polish underground storage facilities by increasing the pressure in them by 20-30%.