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    Poland’s Overseas Overtures [NGW Magazine]


Poland has contracted to buy US LNG and bought more upstream activities in Norway too as it looks beyond the European Union for security. (This article is featured in NGW Magazine Vol.3, Issue 20)

by: Dmitry Shlapentokh

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NGW News Alert, Top Stories, Europe, Premium, NGW Magazine Articles, Volume 3, Issue 20, Import/Export, Supply/Demand, Liquefied Natural Gas (LNG), Poland

Poland’s Overseas Overtures [NGW Magazine]

Representatives of a dozen or so central and eastern European countries met in Bucharest September 17-18 as part of the Three Seas Initiative to discuss ways to increase their co-operation, especially in the energy sector. According to some reports, their major concern was the dependence on Russian gas, which would rise after the completion of Nord Stream 2 (NS2).

The alternative to this gas would be US LNG. Poland was one of the major players in the discussion, and the entire meeting received the blessing of the US. Logically, soon after the meeting, the Polish president Andrzej Duda met the US president Donald Trump in Washington, where several agreements were signed, of which one was related to gas.

A month later the Polish state-run energy company PGNiG converted two heads of agreement to buy US LNG from Venture Global into firm contracts; and it bought an upstream stake from Equinor the following day (see box).

Supposedly, the gas would be enough not only for Poland’s needs, but also for the countries which had attended the previous meeting. Trump promised his Polish counterpart that the price for gas would be “good” and the entire arrangement looked almost like a newer edition of the Berlin Airlift of 1948, when the US provided blockaded West Berlin with all the necessities of life.

It is unlikely, however, that Trump, with his mindset of a salesman and “America First” philosophy, would provide Poland, or any other country, with much of a discount. It is Poland that seems ready to pay up, as the gas is linked to prices beyond Trump’s direct control.

Poland’s desire to accommodate Trump can be seen in another proposal: Warsaw proclaimed that it was ready to provide several billion dollars to build “Fort Trump” in Poland, which would be a permanent military base, manned only by American soldiers. What explains Warsaw’s generosity and desire to have an American base, given it is already a member of Nato and has a Nato base? The number of American soldiers would not be much larger than are already housed there, so the question arises, why is Warsaw eager to please Washington?

One seems to find an easy answer: Poland is quite concerned about Russia from several points of view, gas included: gas is high on Poland’s agenda. Warsaw is fearful that Russia could use its control over the gas lines from the Soviet era and block gas delivery in the event of a political crisis.

One could note that Warsaw took into account possible problems after 2019, which is the year when Moscow plans to finish building NS 2 and end the sending of gas through Ukraine, or at least diminish the amount considerably. Poland could suffer as a result of this arrangement. Still, even here, Poland would not suffer: Russian gas would reach Germany, and from here it could cross the eastern border and enter Poland.

Germany has ambitions to become the gas hub for all of Europe, with the two Nord Streams and LNG import capacity as well as Norwegian and Dutch pipelines coming in to its grid. Germany is a part of the EU, as is Poland, and German officials, including the current chancellor Angela Merkel, have publicly proclaimed that Germany will take into account not just the interest of EU members but even Ukraine, which is not a member of the EU.

Judging by Berlin’s rhetoric, Warsaw should not be concerned. However, the image is clouded by the fact of Warsaw’s hostility to Berlin as well as to Moscow. And Warsaw is not alone here. The issue with Moscow has deep roots in the Polish national consciousness. Partition in the 18th century; numerous anti-Russian uprisings; the Katyn forest tragedy; and several decades of Russian/Soviet occupation – all these have left a strong imprint on the Polish national consciousness.

On the other hand, relations with Germany are also strained, and not just because of the memory of the Second World War and occupation. As a matter of fact, Berlin continued to make mea culpas for this period of history, and does not raise other issues, such as the deportation of Germans from lands annexed by Poland.

The issue with Germany is mostly contemporary in nature. Poland, as well as many other countries of eastern, central, and southern Europe, took the advice of Western experts, who led their economic transformation after the collapse of the Warsaw Pact and socialist regime. All these advisors convinced the leaders of the new, post-Communists states that industrial production, actually any production, was the stuff of the past. The security net – free education, medical services and so on – were also proclaimed to be bad for the economy. Most of the leaders of eastern and central European societies followed this advice. Institutionalised Western economists provided a rosy picture of these countries’ ride along the road of economic progress.

But, for the majority in eastern European countries, the story was different. Rapid deindustrialisation and the rapid decline of living standards caused a strong reaction, leading to “populism” with a clear authoritarian overtone. At the same time, Germany, oblivious to fashionable theories, continued to preserve its industrial capacities, and became the economic superpower of Europe. Germany dominates the EU not only economically but geopolitically.

Germany also wanted to reinforce its economic/geopolitical clout by becoming the major gas hub, with Russian gas as the major source.

Poland, together with other, smaller eastern and central European countries, resented this. Nord Stream appears a reincarnation of the old war-time alliance of 1939, which led to the partition of Poland. Warsaw distrusts Germany almost as much as it distrusts Russia, and most Poles most likely trust Berlin, as a reliable supplier of gas, not much more. At the same time, Poland clearly has its own geopolitical ambitions, and plays the role of regional leader in an increasingly fractured EU and Nato.

In the new geopolitical context, Poland wants to be a gas hub and deliver American and Norwegian gas to other parts of Europe, bypassing Russia and Germany. And Poland started to build infrastructure for the delivery of “Polish” gas to Slovakia. Ukraine is already a minor customer for gas from Poland, even if physically the gas comes mostly from western Siberia. Poland, thus, wants to wrest the role of major gas hub from Germany, and this is clearly not pleasing to Berlin. It is possibly also not welcome in Brussels, Vienna or Budapest.

Germany and, one assumes, its allies, are not just unhappy with the transformation of Poland into a major gas hub, but also with building “Fort Trump.” Berlin’s issue with Poland reinforced the issue with Brussels. Indeed the European Tribunal launched an investigation of Poland for violating the provisions of the European constitution. And here, Polish leaders sense the emerging trends and attitude of Washington.

Washington’s questioning of the viability of Nato emerged long ago and was related to the increasing sense that Germany and possibly other major European powers, such as France, are not so much allies as competitors and alien powers. The split between them and the US became quite clear with the beginning of the Iraq venture, when the then-secretary of state Donald Rumsfeld asserted that Germany and other large, strong European countries belonged to “old Europe.” In this reading, they lost their momentum and were overshadowed by much more dynamic and pro-American “new Europe.”

Trump reinforced this hostility to Berlin, and this was felt by Warsaw. The Polish elite senses this and is ready to strengthen Poland’s alliance with the US as a counterbalance to the emerging peculiar Moscow/Berlin alliance. The desire to shift to US LNG is not just a sign of suspicion of Russia, but also rising tensions withint the EU and, to some degree, Nato. The web of alliance, an heirloom from the Cold War era, is beginning to give way to pragmatic, transactional obligations between the US and “new Europe,” with Poland possibly as a contributor.

Equinor has agreed to sell non-core assets, namely its stake in the 1977 Tommeliten gas/condensate discovery offshore Norway, to PGNiG for $220mn. The asset is in the greater Ekofisk Area.

The deal comprises a 42.38% interest in PL 044 TA and 30% interest in PL 044, both operated by US major ConocoPhillips. The latter has a 28.26% stake while Italy’s Eni has 9.13%. The stake equates to 52mn barrels of oil equivalent (boe) net recoverable resources. PGNiG said that there is significant exploration upside nearby. 

The Polish company estimates the field could increase its net Norwegian production by 0.5bn m3/yr for six years, if developed.

PGNiG is also planning to drill a well offshore Norway and it would be the first Polish company to do so. "We are expanding our presence in Norway as planned. The focus of all our efforts is to be able to launch deliveries of natural gas to Poland via the Baltic Pipe in 2022. Step by step, supported by the Polish government and working with reliable partners, we are implementing a programme to diversify sources of gas supplies to Poland," said CEO Piotr Wozniak. "We intend to actively participate in future licensing rounds in Norway."

The licence area is directly adjacent to the Aker BP-operated Skarv gas field and Aerfugl gas development, in both of which PGNiG holds a 12% interest. Skarv production in 2Q 2018, largely gas with some condensate, was about 116,000 barrels of oil equivalent/day, making it one of the larger gas producing fields offshore Norway.

LNG to come later

The two LNG supply and purchase agreements that PGNiG signed with Venture Global are each for 1mn metric tons/yr for 20 years. The first is from Calcasieu Pass LNG, expected to come onstream 2022; and the other is from Plaquemines LNG, expected at some point in the following year. Both will be for sold free on board so not all might end up in Poland. 

PGNiG described the contracts as "a milestone towards building PGNiG's position in the global liquefied natural gas market. The contract conditions in the USA are very attractive. The LNG price is based on the American Henry Hub index along with liquefaction costs.” It said the contracts are the first long-term contracts for purchase of US LNG to have been announced in central Europe.