FSRU is plan B. Norwegian Corridor is plan A. Commentary for Interfax Energy

FSRU Kłajpeda, Klaipedos Nafta

Poland’s announcement on Monday that it is considering a second LNG terminal makes commercial and practical sense, Oxford academic Jonathan Stern has told Interfax Natural Gas Daily.

Gaz-System, the country’s transmission system operator, will select a contractor to carry out a feasibility study by the end of March for the installation of a new FSRU in Gdansk Bay, the company said. The results of the feasibility study are expected by the end of the year and the FSRU could be online in the first half of 2021, said Gaz-System.

Stern, founder of the gas research programme at the Oxford Institute for Energy Studies, told Interfax Natural Gas Daily that an FSRU would provide a more practical and timely alternative to building the long-discussed pipeline link to Norway.

„An FSRU would certainly be cheaper than the pipeline,” he said.

However, Stern noted it was far from certain that a pipeline link with Norway would be onstream by 2022, if it were built at all. „The question is whether Poland is serious about not signing another contract with Gazprom post-2022. If it is, then it will need to have considerable LNG capacity onstream by then,” he said.

A second terminal would increase Poland’s import capacity from 4.1 billion cubic metres per year of regasified LNG to 8.1 bcm/y. The vessel would cost up to PLN 3 billion ($767 million) and would be capable of reloading LNG onto smaller tankers or bunkering it for use by gas-fuelled vessels, according to Gaz-System.

The project forms part of Warsaw’s strategy to reduce its dependence on Russia, which supplies around 70% of Poland’s 16-18 bcm/y of gas imports.

Wojciech Jakóbik, an energy expert at Poland’s Jagiellonian Institute, told Interfax Natural Gas Daily the FSRU remained a back-up plan and that the so-called Northern Gate project was still the preferred option.

„The Norwegian Corridor – [the planned] gas link to Norway – is ‘Plan A’ for real diversification in Poland. Plan B is to bring an FSRU to Gdansk Bay. The effect should be perfect freedom of choice when it comes to a supplier,” said Jakóbik.

Poland has been fighting fiercely to reduce its dependence on Russian gas imports. During the past two weeks, the country not only announced its aim to import no more than one-third of its gas from a single supplier but also signed a new supply deal to import LNG from Qatar and reaffirmed its plans to build a pipeline connection to Norway.

The new supply deal with Qatar will increase the amount of LNG Poland imports via the already operational LNG terminal in Swinoujscie over the next few years. Qatargas has agreed to send 2 mtpa between 2018 and 2034. Poland agreed to import 1.3 mtpa of Qatari LNG under the previous deal, which was signed in 2009 and came into effect last year.

Poland first announced its intention to build a pipeline connection to Norway, known as Baltic Pipe, 15 years ago, but the plan has now been updated. „The chances that it will not be built equal zero,” Maciej Wozniak, PGNiG’s vice president for trading, said earlier this month.

The revised Northern Gate project could deliver 10 bcm/y of Norwegian gas – equivalent to around 55% of Poland’s gas demand – through new pipelines connecting Norway to Denmark and Denmark to Poland. Northern Gate is similar to Baltic Pipe, although it will feature an additional new pipeline between Norway and Denmark.

The main components of the Baltic Pipe project.The main components of the Baltic Pipe project.

Deal breakers

But Northern Gate, which was announced last October, now looks less likely to happen as Gazprom has agreed to offer Eastern European states – including Poland – better contractual terms.

In a tentative deal struck between the Russian company and the European Commission’s Directorate General for Competition, Gazprom agreed to allow importers in Eastern Europe to renegotiate long-term contracts to better reflect hub prices. Gazprom said it would discard destination clauses, which prohibit importers from reselling Russian gas to other countries.

But Poland wants Brussels to take a harder line on Gazprom and has said it will take legal action to challenge the deal. Following the commission’s agreement with Gazprom, Polish Foreign Minister Witold Waszczykowski said Warsaw „will use all legal means, international courts, to present our view on this political project”.

However, Stern doubts the pipeline connection to Norway would have been built even without the EU-Gazprom agreement.

„The pipeline has never been built because it was never economic – and whatever the current feasibility study says, I have a major problem understanding how this could have changed in an era of hub prices,” Stern said.

Stern said the country can expect better prices because of increasing hub liquidity. „In any case, the currently not-very-liquid Polish hub will approximate to European hub prices by 2022, when the contract with Russia runs out,” Stern said.

Stern added that it is also not clear that Norway has the spare gas to sell to Poland. „[And] who is going to pay €3-4 billion to build it – unless Poland is counting on EU `solidarity’ to come up with the money?” Stern said.

Source: Interfax Energy

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