Poland's LNG Terminal Like a “Shotgun on the Wall”
Poland's Świnoujście LNG terminal, to be completed in May 2016, bears numerous drivers like diversification, security, having options, or business interests.
But in a session entitled "The Role of Gas in the Future Energy Mix" at the 25th Economic Forum in Krynica, Poland, Mr. Jakub Jaworowski, Secretary of State, Chancellery of the Prime Minister, Poland, likened his country's new LNG facility to a “shotgun on the wall.”
Calling it a game changer, both for Poland and the region, that shotgun is there on the wall “just in case.” He explained, “So it greatly enhances our negotiating power with our suppliers, because we can always say 'well, maybe we can buy some gas from other destinations.'”
A real gas market, he added, does not exist if the infrastructure is not in place. He said that now it is almost impossible to move LNG from Spain to Poland. “Out of Spain's 230 bcm of LNG regasification capacity, more than one-fourth is in Spain. But it doesn't matter, because there is no pipeline connection between Spain and Poland, so in case of any crisis we cannot move any gas from Spain to Poland,” said Mr. Jaworowski, who added that this had encouraged Poland to invest in infrastructure in the last 7 years.
Poland has to liberalize its market, insisted Ms. Malgorzata Szymanska, Director of the Department of Oil and Gas, Ministry of Economy, Poland, who explained that the real turning point will be utilization of Poland's LNG terminal. She commented: “This will introduce a new era in the Polish gas market, and not only in Poland, but for the whole region as it is considered by the European Commission's Directorate-General for Competition as overrun by the influence of the Russian supplier.”
In connection with this Poland, she said, has invested a great amount of money into its transmission system, offering opportunities for neighboring countries like the Czech Republic and Slovakia, Ukraine by connecting them to the Polish system, all for the sake of enhancing security of supply in Central Europe.
Moreover, LNG in Poland will offer the country new opportunities via new appliances and technologies, like small-scale LNG road transportation, marine vessels in the Baltic Sea region. “So it really gives us marketing opportunity, bargaining power, negotiation arguments and, at the same time, new possibilities for new businesses to break a little bit the dominant position of companies already active in the Polish gas market.”
As for how much of a game changer Świnoujście actually is, Willem Braat, Gas Market Analyst, International Energy Agency (IEA), offered some of the specifics. Noting that it will have a capacity of 5 bcm in the context of Poland's 15 bcm gas demand (previously supplied by Russian gas), he admitted: “It is a little bit of a game changer – 5 bcm is 30% of Polish demand.
“In a European perspective, LNG regasification capacity is around 200 bcm, so it's a couple of percent for Europe, and the good thing is that most are based in northwest and southwest Europe, so for eastern Europe this is a great thing to happen.”
Diversification is the key word when speaking about gas in Central & Eastern Europe, according to Michael Labelle, Assistant professor, CEU Business School, who opined that the Energy Union is working towards that robustly, at a political level. “At the national levels, there's always going to be pressure to keep energy prices low – we see that here in Poland, for example, in its pursuit of shale gas, retaining coal. It's not a problem, but occurs in every country.”
He noted unsustainable, low prices in Hungary and Bulgaria, something which fuels energy policy actions at the national level.
“The Energy Union as a whole, as it plays out over time, will be much more of a technocratic project that tries to buffer these political swings from privatization to re nationalization, and develops the market that's integrated through infrastructure and certain network codes that allow the gas to be traded within the region,” said Prof. Labelle, who predicted the market would eventually be more stable as a result.
The Energy Union is certainly possible, according to Mr. Chris Johnson, General Manager, New Markets Europe, Shell, who said his company is very supportive of that initiative, but admitted that it depended on national commitments to those agendas.
He offered, “There's a clear driver there. In terms of energy security, it's a key part of it being able to move the gas throughout Europe to actually unlock the diversification, so there becomes a clear drive for that, ultimately showing a competitive market which is good for consumers.”
As to the question of how much LNG will actually be available and at what price, Mr. Johnson said that on the supply side large new volumes are becoming available out of Southeast Asia and Australia. “Previously, a lot of LNG in the last few years has been flowing out of the Atlantic Basin to serve those Asian markets – that becomes available with those coming onstream,” he explained.
Next year, he noted, US LNG will be flowing, an estimated 100 bcm into the next decade, which would support the market, and many projects are on the drawing board, as well as those that can be expanded – meaning the supply will clearly be there.
“We need to make sure,” he added, “that Europe sends the right signals as well to attract that LNG. It is a global commodity and other markets have been demanding that moreso than in Europe in recent years.”
But would Gazprom's share of supply have gone down, even without the Ukraine crisis?
The IEA's Willem Braat said it's important to realize that indigenous European production of natural gas is decreasing in the coming years, by 35 bcm, while demand will reach 500 bcm by 2020. “So, Europe, either way, will need to get more supply,” he said.
Noting there have not been any disruptions in Russian supplies in the last 5 years, Mr. Braat said that Europe will need to secure its gas supplies for the future. He said, “How we will do that is basically the question of diversification.”
“Geopolitics is absolutely inseparable from this debate,” said Secretary of State Jaworowski. “Given the fact that Russia supplies about one-third of Europe's gas demand makes it the 'elephant in the room' – it's obviously a key factor.”
From Poland's perspective, he explained, not much has changed since Russia's invasion of Ukraine in 2014. “All of the things we've been saying and all the fears simply materialized – we've always been saying that there is a problem there,” he recalled, “that, out of 28 EU countries, 10 rely on Russian gas for more than 50% of their gas supplies. And we've always advocated a change in EU policy towards the gas market. The only thing that's changed is that more people realize it's a threat.”
Still, he conceded, much has happened since the gas shut-off of 2009: interconnections and the price movements of a real gas market. The Ukraine crisis, he said, has only accelerated a process that had already begun.