SLD blows cold air on Norway gas deal
By : Leo Broomfield
Turning up the heat: Politicians and businessman are pressuring the government to scrap the Statoil gas deal.
Political and financial pressures may derail the signing of a long-awaited gas import contract between Poland's state-owned gas monopoly Polskie Gornictwo Naftowe i Gazownictwo (PGNiG) and Norway's Statoil this week.
At issue is 5-8 billion cubic meters (bcm) of Norwegian gas to be exported to Poland from 2008 to 2024 and worth about $11 billion.
The deal is slated by the government to go through before the Sept. 23 elections. But if no deal is signed by then, the current opposition, which is likely to form the new government, said it has no intention of going ahead with it. "As everyone knows, the opposition will win the election and whatever the present government has signed they will unsign it or may choose to drop it," said a gas market broker who wished to remain anonymous.
Yet despite the threats that a newly formed government would attempt to annul the deal, PGNiG and Statoil remain optimistic that a contract will be signed this week. "The talks are going well," said Statoil public affairs spokeswoman Katryna Nesmoen. "There are only a few issues left to be resolved." A PGNiG statement reported that a decision on the deal may be made at the company's Aug. 27 management board meeting.
The deal is a key element of the government's long-term strategy of diversifying its gas supplies. The government's energy policy assumes gas demand in 2010 at an annual level of 18.4 bcm, including 6.1 bcm to be consumed by the newly constructed gas-fired power plants.
Russian retreat
At present Poland is reliant on Russian gas imports. Although Russian gas is cheaper than that provided by Norway and Denmark, successive Polish governments have said they want to reduce their reliance on their Russian partner, Gazprom.
Of Poland's domestic consumption, around 11 bcm a year, nearly 70% is imported from Russia, with the price of gas rising by about 70% in 2000 alone, to about $120 per 1,000 cubic meters. This compares with an estimated $150 per 1,000 cubic meters from Norway.
Besides the historical ambivalence in Russo-Polish relations, the political drive to sign a deal with Statoil is also related to controversy surrounding an extension of the existing international pipeline linking Russian fields with Western European markets the Yamal pipeline.
Gazprom and PGNiG have been vying for control over EuRoPol Gaz, a joint venture that runs the Polish section of the Yamal pipeline. Gazprom and PGNiG each have a 48% stake in the venture, with the remaining 4% owned by Gaz Trading. PGNiG has accused Gazprom of exerting pressure, via its majority control over Gaz Trading, to increase export prices to Poland and reduce transmission earnings that PGNiG desperatly needs the company is about zl. 6 billion ($1.4 billion) in debt and cannot raise domestic prices to cover increased import prices.
PGNiG signed a deal in May with Denmark's DONG, in which PGNiG is to import 2 bcm from the Danish company between 2003 and 2008. The deal, worth $8 billion, includes the construction of a gas pipeline (BalticPipe) linking the two countries. To industry analysts the move is seen as the first step in an effort to link Poland's market with Danish and Norwegian gas companies. Statoil is reported to have until early 2002 to decide if it wants to join the consortium building the pipeline. But it is rumored the Norwegians are insisting on financial guarantees from the government before signing any sales agreement with PGNiG.
The question hinges on whether the Polish side can sell the gas if it imports more than its domestic need.
Statoil reportedly needs to sell at least 8 bcm of gas annually to Poland for the project to be financially viable. The Polish side has expressed interest in only 5 bcm a year.
Critics of the deal point to the fact that since 1997 domestic gas demand has stayed flat at 10.2 to 10.3 bcm per year. And many argue that power generated from gas cannot compete with power generated by coal-fired power plants. Some estimates put gas consumption in the power sector at 2.5 to 3.5 bcm rather than government estimates of 6.1 bcm.
The deal has also been attacked from other quarters. The leftist opposition Democratic Left Alliance (SLD) the likely winner of the Sept. 23 elections said it will reverse any long-term gas import deal with Norway if it comes to power. It said it wants to leave Poland's gas import options open.
But critics of the SLD position point to the political and business links between the party and several Russian counterparts that would be upset if the deal with Statoil goes through. Aleksander Gudzowaty, director general of Bartimpex, recently voiced his opposition to the proposed deal with the Scandanavians. Bartimpex is the main buyer and distributor of Russian gas on the Polish market.
Leaving options open
Several corporations have also expressed their concerns that the import deal and pipeline would have a negative impact. According to Enron officials, who wished to remain anonymous, the U.S. utility agrees that Poland should leave its options open rather than tie itself into a deal that it would not be able to change for several years. They said the pipeline deal would smother any liberalizing tendencies in the domestic gas market and complicate Poland's adoption of the EU's Gas Market Directive. The EU Commission itself also recently criticized the deal, saying it might violate the EU's liberalization directives.
PGNiG president Andrzej Lipko said recently that the Norway gas supply contracts will be the responsibility of the four distribution companies that the government intends to spin off from PGNiG when the company is sold in the next three to four years. He said investors would have to honor the long-term deals when they buy controlling stakes in the company
Opponents point to several alternatives to the long-term deal with Norway. Western European gas trading hubs, for example, offer flexible gas supply contracts with terms of up to 10 years, they said. Another option is to build a second gas transit pipeline from Russia to Western Europe, which would include large capacity interconnections between the Polish gas transmission system and the interconnected EU countries' gas grids. They said this would give Poland access to the existing Western European spot and medium-term gas markets.
"As a result, Poland would be in the position to perform a more balanced evaluation of the optimum share of the direct, single contract, long-term gas supplies," Astramowicz said.
Another option is the construction of a gas terminal by the U.S-Based LNG on the northwest coast that would take gas from North Africa and other sources and mainly service the larger power generators and chemicals plants in the area. Lipko recently backed the project and others said it could make financial sense and even complement Danish and Norwegian gas imports.
