Ruhrgas plan casts doubts on import deals

Natural gas import deals signed with Norway and Denmark this year were in doubt last week following an announcement by Germany's Ruhrgas that the government would approve its pipeline project, analysts said.

"The new government appears to have been against the Scandinavian deals anyway," said Michał Mierzwa, a liquidity analyst at Erste Securities in Warsaw. "This makes it even more likely that they will disappear, though not without a struggle and some serious legal questions raised."

Ruhrgas spokeswoman Antje Nickel confirmed last week that Ruhrgas had contacted the government about building an alternative pipeline from Bornicke in eastern Germany to Szczecin in northwestern Poland. "We came up with the project in 1998 and it was thrown out by the last government," Nickel said. "So we decided to put it to the new government. It would be a much cheaper and more flexible option than the others on the table." Nickel said the German pipeline would supply Poland with gas from Holland, Norway, Denmark, the U.K. and Germany, although she would not say how much the deal is worth.

Ruhrgas said it would seek help in the project from Polish energy firm Bartimpex, which is said to have strong links with the ruling Democratic Left Alliance (SLD). For its part, the SLD has historic ties with Russian energy giant Gazprom, in which Ruhrgas owns a share. VNG, an eastern German energy company, would also participate in the pipeline, according to a Ruhrgas statement.

State-owned gas monopoly Polskie Górnictwo Naftowe i Gazownictwo (PGNiG) signed a long-term gas import deal with Denmark's DONG in July that would pump 16 billion cubic meters (bcm) of gas into Poland from 2005 to 2013. The agreement calls for the construction of a $330 million undersea pipeline linking the two countries. In September, PGNiG also signed a 16-year gas import deal with Norway's GFU for zł. 50 billion ($12.2 billion). This project will import 74 bcm of gas to Poland from 2008 to 2016.

Andrzej Lipko, PGNiG's president, said last week that Ruhrgas' plan was to "torpedo" PGNiG's contracts with Norway and Denmark. He reiterated the position of the previous government that Poland's long-term interests would best be served by moving away from dependence on Russian gas, which a deal involving Bartimpex could signify. Analysts said the new government's close relationship with Bartimpex could convince it to unravel the deals with Norway and Denmark, even though the Ruhrgas plan would not necessarily diversify Poland's gas resources. In fact, they said Ruhrgas' plans may reinforce Poland's reliance on Russian gas because of the German firm's close links with Gazprom.

Economy Minister Jacek Piechota said in a local press report last week that PGNiG's earlier estimates that Norwegian gas would be 30% cheaper than Russian gas had not taken into account Norway's higher transmission fees.

An analyst who asked to remain anonymous said it was possible that some elements of the Norway-Denmark deals could be retained alongside the Ruhrgas plan. But this would depend on Poland being allowed to sell excess gas to third parties, such as the Czech Republic and Slovakia, both of which have shown an interest in importing more gas. Nickel confirmed that third-party sales were also part of Ruhrgas's strategy. "Our project would allow the Polish side to test the waters, to see how much domestic demand for gas grows and then if it wants to sign any long-term contracts," she said. However, analysts said the Norwegian contract limits Poland's ability to sell unused gas to third parties.

Furthermore, if domestic demand does not grow as forecast to about 18 bcm in 2010 from 11 bcm now, the result could prove expensive for Poland. The Norwegians have said they need to sell at least eight bcms a year to Poland to make the project viable, while the Polish side has said it wants to import only five bcms a year.

GFU, which includes Statoil, Norsk Hydro Produksjon, TotalFinaElf Exploration Norge, A/S Norske Shell and Mobil Exploration Norway, said the Norwegian pipeline would start to pay dividends only if GFU can be assured of higher exports. GFU wants to export eight-10 bcm a year to ensure that the 1,100 kilometer-long pipeline is profitable. Construction costs are estimated at $1 billion-$1.5 billion.

Joe Harper