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    A man looks into a tube representing a natural gas pipeline at the booth of Nord Stream at the Hanover industrial fair in Hanover, Germany (File)

    US-Polish 20-Year LNG Deal Fraught With Risks

    © AP Photo / Jens Meyer
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    Warsaw's incentive to reduce dependence on Russian pipeline gas has prompted Poland to sign a 20-year deal with a US LNG producer. It remains unclear whether the new deal obliging the Eastern European state to buy 2 million tons of super-chilled fuel per year will prove profitable for Warsaw.

    Polish state-run gas company PGNiG announced on October 17 that it had finalized a 20-year deal with the US-based Venture Global LNG producer to import up to 2 million tons of LNG — or 2.7 billion cubic meters after re-gasification — annually.

    However, although PGNiG's CEO Piotr Wozniak claims that US LNG will cost about 20-25 percent less than the Russian pipeline gas for Poland, the much celebrated deal appears to be fraught with risks.

    Under the contract, the Polish company is obligated to buy US LNG from two of Venture Global's subsidiaries on a free on board (FOB) from 2022, when the Venture Global Calcasieu Pass LNG export facility is expected to become operational. The agreement struck by the former government of Waldemar Pawlak with Moscow on the supplies of Russian natural gas will expire the same year.

    The LNG tanker Clean Ocean is pictured during the first US delivery of liquefied natural gas to LNG terminal in Swinoujscie, Poland June 8, 2017.
    © REUTERS / Agencja Gazata/Cezary Aszkielowicz
    Currently, Poland imports almost two thirds of its gas from Russia and is struggling to reduce "energy dependency" on Moscow. Commenting on the US-Polish gas agreement, Polish Energy Minister Krzysztof Tchorzewski stressed that "in the Polish context, this gas is a civilizational good."

    On the other hand, according to Wozniak, Poland will be able to re-sell the acquired LNG worldwide. It is probable that while striking the deal, Polish exporters had China's rapidly growing energy market in mind. Indeed, it is expected that the People's Republic of China's gas demand will grow by 60 percent between 2017 and 2023, reaching 376 billion cubic meters (bcm).

    One can't rule out that Warsaw wants to capitalize on the US-China energy spat that erupted after Donald Trump announced a third round of tariffs against Beijing. The People's Republic has dramatically decreased purchases of US LNG and oil and eventually stopped them. Under these circumstances, Poland may play the role of an intermediary between the two rivals.

    And as frosting on the cake, the Polish state-owned company can possibly use the contract with Venture Global as a lever to exert pressure on Gazprom post-2022.

    However, as of yet, the details of the contract have not been revealed, prompting justified suspicions about Warsaw's benefits.

    First, a free-on-board (FOB) condition means the Polish company will be responsible for transport of the cargoes of the LNG, which could add about 30 percent to the initial price.

    Given this, it seems unlikely that the deliveries of American super-chilled fuel will be cheaper than the Russian pipeline hydrocarbons.

    Second, Calcasieu Pass and Plaquemines, where PGNiG is supposed to buy LNG, are scheduled to become operational in 2022 and 2023, respectively. Moreover, the US Federal Energy Regulatory Commission (FEARC) has yet to issue permission to build these plants.

    Third, there are no guarantees that Poland will manage to occupy a niche on the Chinese energy market in 2022: on December 20, 2019, Gazprom's Power of Siberia will begin to pump cheap pipeline gas to the People's Republic, delivering 38 bcm of gas annually.

    Additionally, Russian President Vladimir Putin and his Chinese counterpart, Xi Jinping, have recently come to an agreement on the route of Gazprom's second pipeline to deliver another 30 bcm of natural gas from Russia to China. Furthermore, Russia's Novatek is continuing to boost its LNG supplies from Yamal to the People's Republic. Apart from Russian LNG, China has been buying super-chilled fuel from Persian Gulf states for years.

    It is doubtful that PGNiG will manage to earn dramatically in this highly competitive environment.

    As for Warsaw's apparent incentive to use American liquefied natural gas as a tool to manipulate Russia into making concessions, it also looks hollow: pipeline gas is typically less expensive than LNG.

    While Poland's financial benefits from the much-discussed deal do not look very obvious, Warsaw is appearing to use LNG purchases to boost US-Polish relations. Meanwhile, however, Poland bought just 3.4 billion cubic feet (0.097 billion cubic meters) of LNG from Washington in 2017. For comparison's sake, Moscow provided the Eastern European country with 10.47 billion cubic meters of hydrocarbons in the same year.


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    Liquefied gas, Russian natural gas, liquefied natural gas (LNG), Gazprom, Yamal LNG, PGNiG, Novatek, Vladimir Putin, Xi Jinping, Europe, Poland, United States, Russia
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