Poland-Russia Gas Deal Strengthens Short-Term Energy Security
Maplecroft, a leading source of global risks intelligence, specialising in visual analytics across the corporate value chain, provides its assessment of the recent Poland-Russia gas deal.
On 26 October 2010, Poland finalised a new gas deal with Russia. The deal will see Gazprom supply 10.3 billion cubic metres (bcm) of gas a year to Polish state-owned PGNiG until 2022. This is an increase of nearly 40% from the current supply of 7.45 bcm. The agreement is said to be worth US$2.94bn at current gas prices. The deal also assures transit of Russian gas to Western Europe, via Belarus and Poland (through the Yamal pipeline) through to 2019. This may be extended further to 2045.
Following the agreement between Poland and Russia, the deal required the acceptance of the European Commission (EC), given the implications for European energy security. The EC had previously said that the pipeline would have to be managed by an independent entity and be open for third party use in order to conform with EU law, which had delayed the negotiations. However, on 2 November 2010, the EC announced that it was satisfied with the agreement, despite the fact that the Polish section of the pipeline is to be operated by Polish state-run Gaz-System.
Negotiations between the two countries have been ongoing since February 2009, when a dispute between Russia and the Ukraine meant gas supplies to Poland were cut. This new deal is designed to improve the security of energy supplies to Poland. However, critics say the deal will only serve to increase Poland's energy dependence on Russia. This dependence is evident in the fact that, of the 14 bcm of gas Poland is expected to use in 2010, 9 bcm (around two-thirds) will come from Russia. The remainder will be produced domestically or imported from Germany. Maplecroft's Energy Security (short-term) Index, which assesses the risk posed to the short-term availability of an affordable and reliable supply of energy within each country, ranks Poland 64 out of 184 countries and categorises it as a 'high risk' country, largely based on the fact that it is so reliant on a single source of energy.
The gas deal may also exacerbate this dependence by increasing uncertainty over alternative energy projects. These projects include: shale gas exploration by the Lane Energy Poland / Conoco-Phillips partnership near Gdansk; construction of a new LNG terminal at the Baltic Sea port of Swinoujscie, which should be operational in 2014; and plans for the country's first nuclear power plant, to be built by 2022. In an effect to reassure investors, Polish authorities have reinforced their desire to move away from dependency on Russian gas. There is particular optimism over the potential for shale gas production. Poland is estimated to be sitting on as much as 1.36 trillion bcm of shale gas and has reportedly sold around 60 shale gas exploration licenses to a variety of energy companies, including Chevron, ExxonMobil and Marathon Oil.
These energy developments should enable Poland to increase its energy independence and ensure security of supplies in the long-term. In the meantime, as these projects will take some years to complete, the new gas deal with Russia will ensure short-term security of energy supplies. This will no doubt reassure consumers and business ahead of the winter period.
Source: Maplecroft