The potential of the liquid natural gas terminal named after Lech Kaczyński in Świnoujście, (…) is 5 billion cubic meters and our sister company in Poland, which deals with the infrastructure, Gaz-System, is currently expanding this terminal, is about 8 billion cubic meters. This will provide us, on the one hand, with diversification of supplies and will ensure us full independence from Russian gas. – Said Jerzy Kwieciński CEO of he Polish Oil Mining and Gas Extraction.
Jolanta Pawlak: Good evening. I am Jolanta Pawlak, welcome to the Economics Report. Today my guest will be President of PGNiG, or the Polish Oil Mining and Gas Extraction, Jerzy Kwieciński. We will discuss Poland’s greater energy independence, the upcoming expiry of the agreement with Gazprom and the next steps, what is to happen if Russia offers us good, favorable gas prices, would we benefit from it. These and other topics will be discussed today. My guest is Jerzy Kwieciński, President of the Polish Oil Mining and Gas Extraction Company. Good evening, Mr President.
Jerzy Kwieciński: Good evening.
Jolanta Pawlak: On 30 March PGNiG won the arbitration with Gazprom for gas prices in the Yamal contract. We had a verdict that said that these prices were overstated, that they were unrealistic and detached from the prices that exist on the market. The situation was such that the verdict was to force Gazprom to not only correct the invoices, but also return the surplus. This did not happen for a moment, and it was only in the media that the deputy minister of State Assets, Janusz Kowalski, appeared, who, in an interview with Wprost, said: “Poland will effectively enforce its receivables from the assets of the Nord Stream 2 gas pipeline under construction in the wake of Ukrainian kerosene.” Please tell me, was this a real threat?
Jerzy Kwieciński: 30 March was, in fact, a great day. I think it was good not only for our company, for PGNiG, but generally it was a great day for Poland, because it was the first time we managed to win such a serious battle with the Russian side. In this case it was a battle between PGNiG and Gazprom. This price dispute, as this judgment of the Stockholm arbitration court, put an end to an over five-year-long price dispute between our companies. This judgment was very positive for us. The judgment concerned the price formula, the method of setting the price of gas. As you very rightly pointed out, the prices paid by PGNiG over the years were in fact non-market prices, overstated prices. Under this judgment, a new price formula was established, which was beneficial for us. The decision of the arbitration court automatically translates into the functioning of the agreement between us and Gazprom and without immediate effect, we, as PGNiG, started to implement the decisions of the arbitration court on that first day.
Jolanta Pawlak: Did Gazprom also begin implementation?
Jerzy Kwieciński: Of course. Please remember that this new price formula was established at the moment when the price dispute began, in November 2014. This means that on the basis of this decision we can claim back the overpayment for the previous years and months, between November 2014 and the end of February 2020. This formula also translates into our current settlements with Gazprom, and it is being consistently implemented at the moment.
Jolanta Pawlak: Mr President, but you did not answer my question. I quoted a statement made by the Deputy Minister of State Assets, Janusz Kowalski, who threatened to seize the assets of the Nord Stream 2 gas pipeline under construction, because there was a risk, as I understand it, that Gazprom would not comply with the judgment.
Jerzy Kwieciński:Your editor, this dispute, which was brought forward, is being conducted at the level of our companies, PGNiG and Gazprom. This dispute was not brought here on the level of governments, although it is known that the implications, decisions or, in this case, the ruling of the arbitration court, have an impact on our direct relations between Poland and Russia. The ambition of PGNiG over the years was for our business relations to be true business relations. This applies both to gas prices and cooperation, because I would like to remind you that not only did we suffer from this in our relations, that these prices were too high, but also that many times this inflow of gas to Poland was stopped. We were never sure whether this gas would or would not flow to us, or. As it was recently the case, that the gas that flowed to Poland was damp with a lot of water, so it could not be used by us.
Jolanta Pawlak: What is the relationship with Gazprom now? Are these invoices already being corrected according to the arbitration judgment?
Jerzy Kwieciński: We had a slight obliteration right after this verdict, but here I must say that we managed to explain everything in a relatively fast pace. What is most important, as if the first settlement that had already finished was the one concerning March, there was already a calculation made according to this new price formula and I think that the same will happen in the following months. We will soon settle the accounts for April, and the following months. I would like to clearly say that we are using this formula, which means that we pay Gazprom for gas according to this new price formula, which has nothing to hide, is much more advantageous for us and this new formula is at European prices.
Jolanta Pawlak: Now, Mr President, a question arises: since the agreement with Gazprom will end in 2023, I believe…
Jerzy Kwieciński: In 2022.
Jolanta Pawlak: Yes. If Russia offers good market prices, are you in favor of buying gas from Russia or not?
Jerzy Kwieciński: We are constantly aiming to diversify gas supplies to Poland. For the time being, it looks like our domestic resources allow us to cover about 20%, or one fifth of our total demand. Extraction in Poland is less than 4 billion cubic metres, we consume almost 20 billion cubic metres in Poland. This need is mainly being covered by PGNiG, but not only, because other companies are also covering this need. We are extracting half a billion cubic metres on the Norwegian shelf and we will be increasingly producing our own gas in Norway, but for this we need a special pipe, the Baltic pipeline, which will allow this gas to flow to Poland. The rest is to be imported. Until recently, almost all the gas imported from abroad was gas from Russia. As early as 2016, it was 87%, but as early as last year, 2019, it was only 60%, as if our dependence on Russian gas was decreasing. We strive to achieve as diversified a portfolio of this gas as possible. The gas that arrives to Poland in this moment not only flows through pipes, but also arrives on ships in liquid form, in the form of liquefied natural gas. We have contracts with Qatar, or very good long-term contracts with the United States, and about a fifth of the gas we have in Poland, the liquefied natural gas. We are diversifying gas supplies, and we want to become completely independent from Russian gas.
Jolanta Pawlak: Does this mean that if in 2020, or 2022, if Russia offers good prices, we will not cooperate with them?
Jerzy Kwieciński: For the time being we have an agreement. The agreement with Russia was terminated last year, so on the basis of our current relations we are ending our cooperation at the end of 2022 and we are preparing. At the moment everything is going according to plan, to be completely independent from Russian gas in 2023. I will remind you how we will do it. It is this Baltic pipe, that is the pipeline that will run from Norway through Denmark to Poland, that will be able to flow even 10 billion cubic metres of gas. Now, we import around 9 billion cubic metres of gas from Russia every year. Moreover, we are importing gas in liquid form, which after regasification will be about 8 billion cubic metres. At the moment, the potential of the liquid natural gas terminal named after Lech Kaczyński in Świnoujście, the terminal which receives this gas flowing to Poland by tankers, is 5 billion cubic meters and our sister company in Poland, which deals with the infrastructure, Gaz-System, is currently expanding this terminal, is about 8 billion cubic meters. This will provide us, on the one hand, with diversification of supplies and will ensure us full independence from Russian gas.
Jolanta Pawlak: So the end of the construction of Baltic Pipe, that is this strategic gas infrastructure which will allow for the transmission of gas from deposits in Norway to the Polish market, will begin when the agreement with Gazprom is terminated. Are you not afraid of any perturbations on the road to the launch of Baltic Pipe, for example on the part of the contractor? And if not, what about fake news? We have read in the media that the Baltic Pipe is too expensive of an investment, and that Norwegian deposits are drying up. Are you not afraid of this?
Jerzy Kwieciński: There is nothing on the market that is hinting towards the drying out of these deposits. The Norwegian shelf in Europe has the second largest gas supply after Russia. Russia has more or less 130 billion cubic metres, and the Norwegian shelf more or less 100 billion cubic metres. What is interesting, as the demand for gas in the world, in the European Union, in Europe, is constantly growing, this additional demand is currently being satisfied by the supply of gas in liquid form. The amount of gas imported in this way is comparable to the amount of gas that is imported to Europe from the Norwegian shelf. The diversification of supplies to Europe also takes place here. Please also remember that Poland is connected by pipelines, not only by the Yamal pipeline, which flows from Russia through Belarus to Poland and further to Germany, but also has other connections with our neighbors. These are connections with Germany, with the Czech Republic, also with Ukraine. At the moment, we as Poland, as well as our partners from Gaz-System are working on connections by pipelines with Slovakia or Lithuania, the Baltic countries.
Jolanta Pawlak: Is this what President Andrew Duda spoke about two days ago when asked about the strategy for national security? To quote: “Among other things, I plan to build gas interconnectors together with the countries neighboring Poland”. Did he mean something new?
Jerzy Kwieciński: That is exactly what I am talking about right now. Here President Andrzej Duda deserves high praise, as in this case he continues the concept, or the strategy of late President Lech Kaczyński, namely, that Poland should be safe. This is also in terms of energy, to diversify the gas supply, and this is what the connections between our countries are supposed to do. Please also remember that this undertaking is the most advanced project that is currently being implemented under the Three Seas Initiative, our 12 countries. It is important that we are connected by such pipelines, and that in a situation when one country is lacking reserves for some reason, these needs can be satisfied from another country. This gives security to Poland and the whole region.
Jolanta Pawlak: Mr President, PGNiG has successfully completed tests of another well on the Przemyśl deposit, the largest gas deposit in Poland. Does this mean we can now increase production in Poland?
Jerzy Kwieciński: It may not be much, but we have some deposits in Poland. The fact is that these are deposits which have been exploited for a long time. Let us remember that Poland, in the Podkarpacie region, gave birth to the oil industry in the world in the 19th century. We are trying to continue to use the potential we have, to extract gas, as well as oil, from the deposits we have in Poland. We are also continuously looking for new deposits. I am pleased to say that in the case of the Przemyśl deposit, one well has recently been drilled successfully. We have further plans, which we assume will give us an additional output of somewhere around 60 million cubic metres per year. As I mentioned earlier, in Poland we produce 3.8 billion cubic meters per year of natural gas. The gas that comes from the Podkarpacie region amounts to around 1.4 billion cubic meters, so we are constantly looking for new deposits in the country, and we are constantly trying to make better use of our deposits and wells that are currently operating. We are able to do this thanks to the application of new technologies. This may sound strange, but the innovation of technology is also possible in our oil and gas industry, and this is a manifestation of it.
Jolanta Pawlak: This extensive topic is surely for a separate program. Thank you very much for today. Jerzy Kwieciński, President of PGNiG, thank you, good night.
Jerzy Kwieciński: Thank you very much.
Jolanta Pawlak: Thank you very much. Good night.