Polish storage obligation comes under scrutiny. Commentary for Interfax Energy

Poland’s gas importers could be obliged to keep gas in storage to bolster security of supply, but the proposal has been criticised on the grounds it could increase costs and hamper market liquidity.

Under new laws being pushed through by the Polish government, importers would be required to keep a minimum of 30 days of gas in storage.

In a letter sent to the government in July, the European Federation of Energy Traders (EFET) said it was concerned the new obligation would, among other things, pose „extremely high costs to importers” because storage in Poland – which is owned by subsidiaries of state-owned PGNiG – is several times more expensive than in other EU countries.

Moreover, EFET said the obligation would increase storage costs by artificially inflating demand. The new law also fails to clarify how storage capacity in neighbouring countries could be used to meet the requirements.

The obligation would also undermine the opportunity for LNG importers to contribute to security of supply via the Swinoujscie LNG terminal „as it makes the new terminal commercially unattractive”, the letter said.

„EFET believes that the amendment proposal goes against the policy ambitions envisaged by the Polish government and contradicts the spirit of solidarity and regional cooperation fostered by the ongoing revision of the EU Regulation on Security of Supply,” the letter said.

„This draft proposal could discourage non-Polish companies from participating in the Polish market and be seen as ring-fencing [Polish] consumers from the possibility to benefit from trade and cooperation with neighbouring countries,” it added.

Wojciech Jakóbik, an energy security analyst with Polish thinktank the Jagiellonian Institute, said the Polish government would need to notify the new regulation to the European Commission to ensure it complies with EU antimonopoly and competition laws and state aid rules.

„The Sejm – the Polish parliament – is working on this act and a majority is supportive so there is no internal hurdle. The question is, what would be the stance of the commission in terms of antimonopoly and competition law? That might be an external hurdle.” Jakóbik told Interfax Natural Gas Daily.

Solidarity principle

EU regulation 994/2010 obliges member states to ensure they can supply gas to essential customers – households, schools and hospitals – for a minimum of 30 days during periods of extreme weather and/or supply disruptions. However, the rules do not specify that all gas companies should share the burden.

Moreover, the commission’s proposal for a revised security of supply regulation – which was released in mid-February – did not strengthen the storage obligations for member states but instead proposed a ‘solidarity principle’ in case of emergencies.

„The problem in Poland is that only PGNiG can provide […] gas storage and there is a difficulty with storing the gas abroad. For now, only PGNiG carries the burden of the 30-day storage obligation. In future, all the players will share it and [will] have enough gas to survive possible disruption, but that means prices will go up,” Jakóbik said.

Poland imports most of its piped gas from Russia, although the Swinoujscie terminal offers some flexibility. Earlier optimism around domestic shale gas production has faded after several majors pulled out of projects in recent years.

Around 87% of Poland’s power generation is coal-fired and most of its coal is sourced domestically. Moreover, although Poland’s per capita energy consumption is currently relatively low in comparison with Western Europe, demand is expected to increase, according to a recent paper by ratings agency Moody’s.

„This makes it challenging for policymakers to comply with EU decarbonisation policies while still protecting the country’s energy interests,” Moody’s said. „Poland’s National Energy Plan up to 2030 does not make clear how the country is to transition to a lower-carbon economy. Hard coal and lignite will continue to dominate the fuel mix over the long term, although other technologies – including renewables, gas and nuclear – will have a greater role,” it added.

PGNiG has recently held meetings with Gazprom to discuss price adjustments to the company’s long-term Yamal contract, which is set to run until 2022. PGNIG began arbitration proceedings at the Stockholm courts last May and said it had filed its case in February this year.

„Gas in Poland will be an attractive source of energy and will have an important role also in the chemical business. The condition is real diversification, meaning depoliticisation of the gas trade, which [the country has] not achieved yet due to the dependence on Gazprom,” Jakóbik said. „Until then, there are real risks for security of supply and Poles will pay extra for security, for example through storage obligations.”

Source: Interfax Energy

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