Russian gas deal needs more time

Officials renegotiating a long-term gas delivery deal with Russia's Gazprom will not have a pact ready for Russian President Vladimir Putin to sign during his Warsaw visit this week, while analysts say it's unclear how changes to the deal would impact last year's gas import agreements with Norway. Putin's official visit comes after Economy Ministry and state-owned gas monopoly Polskie Górnictwo Naftowe i Gazownictwo (PGNiG) representatives met with counterparts in Moscow late last week, looking to amend a 1996 pact that calls for delivery to Poland of 12.5 billion cubic meters (bcm) of gas per year after 2010. Ministry officials were keen to change the fine print of the 1996 deal - which obliges Poland to buy contracted gas even if it cannot consume it - since officials have cut back long-term projections for domestic demand. "We do not expect (decisions) to be made in the course of Putin's stay," a spokesman for the Economy Ministry said Friday, adding that PGNiG and Gazprom would continue dialogue on the 1996 agreement. "Both Poland and Russia will enter an interstate committee that will coordinate the talks," the spokesman said. The government, led by the Economy Ministry and Treasury Minister Wiesław Kaczmarek, have criticized the previous government's long-term forecasts, and said the nation will need only 14.9 bcm-19.8 bcm in 2010 rather than the earlier projections for 18.4 bcm-22 bcm. Deputy Economy Minister Marek Kossowski told Reuters news service last week the revised forecast accounts for lowered economic growth projections and that the new numbers will be the basis for talks with future suppliers. The Solidarity Election Action (AWS) government - voted out of office last September - used the high-end projections when negotiating an $11 billion deal signed last year between Poland and a consortium of Norwegian gas producers to pump 74 bcm into Poland between 2008 and 2024. Assumptions for increased demand included expectations that Poland's aging electricity plants would soon be overhauled in favor of more environmentally friendly - and European Union (EU)-mandated - gas-fired facilities. Successive governments have treated the reforms as a political hot potato, said Susanna Prinsowa, analyst at the U.K.'s Gas Matters. "Nobody wants to tackle that one," she said. The lowered projections for gas demand and the new government's scrutiny of the AWS-brokered Norway deal have fueled speculation that officials will opt for hard economics, and not diversification of gas imports, when calculating Poland's long-term gas needs. Of Poland's 11 bcm of gas consumed annually, 70% is imported from Russia. Russian gas, however, is cheaper, costing about $120 per 1,000 cubic meters while Norwegian gas is estimated at $150 per 1,000 cubic meters. "We've heard the rumors, but as far as we're concerned, we've signed a deal we're happy with," said Else Katherine Nesmoen, a spokeswoman with Statoil, one of the Norwegian companies that signed a deal with Poland. "It's natural that a new government would need time to look into the agreement." But the new government didn't need much time to make sweeping changes at PGNiG. The Treasury Ministry in December dismissed the entire board of directors at the company, including President Andrzej Lipko, who brokered the deal for Norwegian gas. "It's difficult to say how (the government) can withdraw from the contract," said Michał Mierzwa, analyst at Erste Securities Polska, noting the secrecy surrounding the terms of the contract. "They could pay compensation to Norway, which wouldn't be a good situation at a time when the budget is out of money." The Norway deal also hinges on the construction of the Baltic pipe gas line from Zelandia in Denmark to Niechorze in northern Poland. The 230-kilometer undersea stretch would cost about $1 billion-$1.5 billion. "The Norwegians are not willing to put money into a pipeline to supply only 3 bcm (Poland's projected annual feed off the line) ... it would be big enough to supply 10 bcm," Prinsowa said. "They haven't got those extra customers."