The fight for gas for the Baltic Pipe in the time of crisis

PGNiG admitted that the target share of the company’s own gas output in its booked capacity for the Baltic Pipe will be achieved later than previously expected. This may be caused by the difficult economic situation in the sector. The missing amount is to be delivered thanks to new gas contracts, which reportedly there will be a few.

Less own gas production, and more gas contracts instead?

On the 21st of September, PGNiG CEO announced the company’s new acquisitions on the Norwegian Continental Shelf. The state giant bought shares in the Kvitebjørn and Valemon fields, operated by Norway’s Equinor and owned by Norske Shell. The purchase will increase PGNiG’s production in Norway from the current 0.7 to 0.9 bcm of gas a year in 2021. PGNiG explained to BiznesAlert.pl why the company wanted to add its own gas to the capacity of the planned Baltic Pipe gas pipeline. The state of the existing deposits indicates that PGNiG can expect to extract 2.2 bcm between 2026 and 2027. The previous board declared it wanted to produce 2.5 bcm a year in 2022, but already during its term that deadline had to be revised and updated to after 2022. The company refused to reveal to us its output estimates for 2022, when the new gas pipeline between Poland and Norway is to be ready. Future purchases may increase the share of own gas, which is desirable for economic reasons, as gas from own production is cheaper.

The remaining amount of the blue fuel will be delivered by external suppliers, mostly Equinor and Shell. PGNiG is silent about the negotiations on this topic, which is why it may turn out that we will learn about their results right before October 2022, when Baltic Pipe will be launched. This is caused by the market character of the gas trade on the Norwegian Continental Shelf, and by the probable form of cooperation. Poles should sign a number of various, medium-term gas agreements. There is very little chance that one, large, long-term contract will be signed that would be akin to the Yamal deal with Gazprom, a contract that will not be extended. Having relations with various suppliers (Equinor, Shell, etc.) improves Poland’s negotiation position, while shorter contracts will make it possible to adjust the Baltic Pipe supply portfolio to the fluctuating market situation. Today, that situation is not conducive to increasing output.

We won’t run low on gas, there is too much of it

The oversupply of LNG, the economic slowdown in Europe and warm winter are causing record-low drops in prices in Norway and changes to extraction plans. Last May, Equinor announced it was planning to start extraction from some of its deposits later than originally planned, because of the unfavorable economic circumstances. The company expects that the extraction from the Troll deposit will be lower than the planned 36 bcm a year, and a lot lower than the 38 bcm a year, which is in the permit. The dropping exports from Norway are caused by the Western European market, which needed less gas. Therefore, it is worth questioning the argument, popular in the Russian media, that in the future Norway would not have enough gas to supply the Baltic Pipe and Europe as such. “We are always able to find something,” Jerzy Kwieciński, PGNiG CEO, replied to BiznesAlert.pl’s question after his press conference.

The situation in the market today is that there is too much gas from the perspective of market needs. At the same time, new deposits are still discovered. For instance, in November 2019 Equinor found a deposit near the Troll area, which is estimated at being equivalent to 38-100 million oil barrels. There is also PGNiG’s discovery from October 2019 near the Skarv deposit, estimated at 19-38 million barrels and found on the basis of the PL838 license. It was the first independent exploration well drilled by Poles on the Norwegian Shelf. Perhaps the same economic issues forced PGNiG to postpone achieving the target pertaining to the amount of own gas, that will be delivered via the Baltic Pipe. PGNiG has declared it wanted to “approach 2.5 bcm a year in 2026”, which would then end up in the Baltic Pipe. The previous board had announced it wanted to achieve that level already in 2022. The higher the volume of own gas, the better. It may increase even further, thanks to new acquisitions and discoveries. The CEE market and Poland especially, need gas to facilitate the energy transition. This means the region will require more gas, which gives reason to believe that acquiring new shares and upping output is the way to go. Therefore, the appeal of this market may attract such suppliers as Equinor (the company confirmed this back in 2016, when it was still called Statoil), and encourage the companies from the Norwegian Shelf to sell shares to Poland.

To be continued

“If there are any other interesting deposits, licenses to take over, we are not excluding them,” Kwieciński ensured during the press conference. After the event he clarified to BiznesAlert.pl that the specificity of the Norwegian Shelf market allows PGNiG to acquire gas only by either purchasing shares from other companies, that already had control over the local deposits, or by buying exploration licenses. “Earlier we talked about our plans included in the strategy. Now we are talking about 2.5 bcm in 2026. Now we know we will have 2.2 bcm at that time, but some of that are exploration licenses. We are exploring the area, which means we might discover a deposit, which would increase production. A lot is happening around the world and on the hydrocarbon market, which has recently suffered a great deal. This is why we are looking for opportunities to acquire new assets,” the CEO ensured.

 

Źródło: BiznesAlert.com

Will Poland’s electric-vehicle revolution stall before it starts?

Will Poland's electric-vehicle revolution stall before it starts?

 

State-owned Polish company EMP has recently unveiled Poland’s first electric car, the Izera, which is set to start rolling off production lines in 2023. But some believe it might not happen at all.

Poland’s state-owned firmElectroMobility Poland (EMP) unveiled plans in late July to open an electric-vehicle production line in the southwestern region of Silesia in the middle of next year. Poland has had no national carmaker since the closure of FSO Polonez in 2002, which went under after state subsidies from the communist era were pulled.

When EMP was founded in 2016, Poland’s Prime Minister Mateusz Morawiecki announced that his government was planning to bring one million electric vehicles (EVs) on Polish roads by 2025, saying „this is our moment, this is our time.”

At the same time, Morawiecki was quite aware of the challenge ahead for Poland to follow in the footsteps of Turkey, Vietnam and Russia, who all said they wanted to create a national electric-car brand of their own. „Are we able to leap and surf on this fourth wave of the economic revolution which is before us?” he asked rethorically.

‚Golden opportunity’

Malgorzata Krolak, director of the EMP project agency, hopes the Polish carmaker will be ready to roll its first Izera cars off production lines in 2023, with the car coming in two models: a hatchback and an SUV. Their prices would be „affordable for the average Polish driver,” and technical parameters would be similar to other electric cars, she said.

According to EMP, the cars will have a range of 400 kilometers (240 miles) on a full battery, acceleration from 0 to 100 km/h in eight seconds, and the battery will recharge up to 80% in 30 minutes. EMP enlisted the help of German firm EDAG and Italian stylistic studio Torino Design.

„This is a golden opportunity to create a specialized Polish field based on our own solutions that will be able to compete with other players in the global market,” Malgorzata Krolak said, adding she expects the project to create 3,500 jobs initially, and a further 3,000 at a later stage. Moreover, the government hopes for a boost to Poland’s domestic electricity, Information Communications Technology (ICT) and mechanical engineering sectors from EV production.

Poland is already home to one of the largest battery plants in Europe and Mercedes-brand owner Daimler said in January it will open its own battery plant in Poland. Meanwhile, two European banks are promoting the electric car industry with an investment in the new plant in central Poland.

Political interest waning already?

„It is great that Poland is trying to embrace e-mobility and use it as a way to escape the middle income trap and move up in the international value chain,” says Rafal Bajczuk, senior policy expert at the Electric Vehicles Promotion Association (FPPE). „However, when you look closer at the development in e-mobility in Poland, you realize that no real actions are following the bold rhetoric,” he told DW.

Bajczuk believes this was a political decision, not a business one and that the governing Law and Justice (PiS) party is far less enthusiastic about it than it was in 2016. He notes that no system of monetary incentives has been put in place. „Basically only enthusiasts of e-mobility are buying these vehicles.”

The Polish government has so far launched only a small program for car subsidies that were available only in the month of July this year. It was targeted primarily at private consumers, but Bajczuk says, about 80% of the new cars were sold to companies.

Financing on shaky ground

Financing for the new e-car project hasn’t been budgeted by the government yet, but industry sources have floated a figure of €1 billion ($1.1 billion) needed to get it off the ground.

„There are some issues that may delay the development of this undertaking. The key issue in this respect is financing,” Piotr Ciolkowski, a partner in the Energy Projects Department in CMS Warsaw told DW.

The largest financial backing comes from four state energy companies PGE Polska Grupa Energetyczna, Energa, Enea, and Tauron Polska Energia, each holding 25% of EMP shares. But the financial condition of these electric utilities has deteriorated, as they are heavily reliant on coal, which is getting less economically viable.

Construction of the manufacturing facility will cost about 4 billion zlotys (€920 million, $1.08 billion). EMP shareholders are expected to finance at least 3 billion zlotys of the total investment, and no banks have yet stepped in to help with financing.

Manufacturing issues

Bajczuk thinks that despite the commitments, financing is still rather uncertain, and likely to be not the only problem facing the project. „There are more unknowns than knowns about the project. We don’t know anything about the technological part of the car: what platform, what batteries, engine etc. and who will actually construct the car and build the factory.”

EMP hasn’t decided yet on what platform it wants to manufacture the car’s chassis and motor. The company said it’s currently in talks with Volkswagen over its MEB platform, as well as with Toyota and Hyundai, offering their e-TNGA and E-GMP platforms respectively.

Wojciech Jakobik, editor of Biznesalert, thinks the problems surrounding the e-car project are also the result of changing government policy.

„There is a lot of confusion around Izera coming from the fact that the priorities of Polish economic policy are different: energy sector reorganization, fuel-sector fusion between Orlen and Lotos, building a nuclear power plant, he told DW, adding: „There is a question if there is enough policy will or money to support Izera efficiently in the meantime.”

Other analysts say the timing of the Izera car could also be a problem, as it would be entering a much more competitive market in 2023. German car-making giant Volkswagen is already building an EV factory in the Polish town of Wrzesnia, while BMW plans a new factory in neighboring Hungary.

Is Poland ready?

Charging stations for electric cars are still few and far between in Poland, because the number of battery-powered vehicles is still small. In addition, investors shun the high costs of building and operating charging stations.

Charging an EV outside one’s home is expensive and the market is limited to homeowners. „About 45% of people in Poland live in flats and don’t own a parking spot,” says Bajczuk.

According to latest figures published by the Polish Automotive Industry Association (PZPM) in February, there were 9,803 electric cars registered in Poland. Other types of battery vehicles are also rare, and include 606 electric trucks and vans, over 7,300 mopeds and motorbikes, and nearly 300 electric buses. At the end of February, there were 1,093 charging stations in Poland, compared with 27,000 in Germany.

Julia Poliscanova, a senior director at the think tank Transport & Environment’s (T&E), is also skeptical that Poland’s electric-car project will ever get off the ground. „From a wider EV perspective, I’d only say that it’s clear there are huge questions over the ability to manufacture Izera on time and deliver the actual product on the market,” she says, and points to the struggles US e-car pioneer Tesla had to mass produce its cars.

Still, she’s not entirely giving up hope for Poland to „establish itself in the future-proof e-mobility field,” even though „competition will be fierce.”

 

Źródło

From bad to worse – US and EU response to Nord Stream 2

From bad to worse – US and EU response to Nord Stream 2

Americans no longer coordinate their sanctions policy with the European Union; and thus, increase the popularity of Nord Stream 2 supporters in Europe. However, only a unilateral approach to this matter stands a chance at stopping this contentious project. This discussion should also be about Germany’s schizophrenic policy.

EC keeps to the letter of the law

So far the European Commission’s policy was based on the assumption that it could not block Nord Stream 2, which is formally an initiative led by a Russian company and bankrolled by companies from Western Europe. This approach is questioned by Poland’s Office of Competition and Consumer Protection. Previously the office decided that the parties involved could not form a consortium, as it was against the competition law. Now it is investigating whether the companies’ current form of cooperation is just a scheme to get the same result without establishing a consortium. Moreover, we should acknowledge the fact that the European Commission is inconsistent, as it managed to stop the South Stream gas pipeline, which was to land in Bulgaria, by questioning the legality of tenders. It is unclear whether the EC would be able to stop Nord Stream 2 if it had political support, like it did in the case of its southern twin.

Still, the Commission did take measures to protect Europe against the negative consequences of Nord Stream 2. In 2019 Brussels proposed to review the EU law, specifically the Gas Directive, so that it could be applied to the contentious gas pipeline from Russia to Germany after it will be completed. This would ensure the protection of European clients against possible abuse by Russia. Poland together with other countries supported this initiative, which yielded initial success. Germany has to implement the Gas Directive’s regulations with regard to Nord Stream 2, which will at least delay the project, which originally made Gazprom the sole provider and owner of the pipe through a company Nord Stream 2 AG. That was in line with Russian law, which gave the company a monopoly on export via gas pipelines, but it was against the Gas Directive, which imposes ownership unbundling. As long as Nord Stream 2 is not adapted to the EU law and the EC does not approve its application, the gas will not be allowed to flow, even if the pipe is completed.

The US is continuing its old policy in Trump’s era

Americans took a step further and want to stop the construction of Nord Stream 2. They do not agree with the EC’s assumption that the project cannot be legally stopped. So, they introduced sanctions against companies that are building the contentious gas pipeline, which forced Switzerland’s Allseas to abandon the construction site. They are also planning to widen the sanctions to encompass all entities, including European companies, that support Nord Stream 2. US senators sent a letter to the harbor in Germany’s Sassnitz warning that the new restrictions would financially destroy it. The US administration started a dialogue with German businesses warning against the negative consequences of the impending restrictions. This policy has not been consulted with the European Commission, which potentially could stop Nord Stream 2 provided Russians are not be able to finish the pipe on their own, or transmit gas right after it will be completed. Germany’s Uniper, which is the first financial partner of Nord Stream 2, admitted it was concerned about the future of the contentious gas pipeline, and it was considering lowering its contribution in case the project was delayed further or even stopped. It happened on the day Germany’s Foreign Minister Heiko Maas was visiting Moscow, where he maintained, together with his Russian counterpart – Sergey Lavrov, that in the end Nord Stream 2 will deliver gas to Europe.

The case of Nord Stream 2 shows how Brussels and Washington changed their approach to sanctions against Russia after the illegal annexation of Crimea. Until then they coordinated their efforts very well. However, Americans created a precedence when in 2015 they introduced sanctions against Gazprom’s project on the Yuzhno-Kirinskoye field on Sakhalin without coordinating this decision with the EC . This was before president Donald Trump, who is criticized for pursuing policies that go against the expectations of Western Europe, assumed office. Back then the EC was silent and did not comment on what the Americans were doing. The introduction of US sanctions at the end of 2019 and plans to widen them in 2020 are an analogous situation to this case, but this time the EC decided to stand up for European companies that might be impacted by the new restrictions. The difference in Brussels’s reaction in these two instances is apparent, as the EU did not intervene on Shell’s behalf despite the fact that the company was engaged in the project in Sakhalin.

Americans want to stop Nord Stream 2 and to that end they are organizing an alliance across the political aisle, which goes back to Ronald Reagan’s foreign and security policy, whose goal was to limit Russian influence over Europe, also by taking action in the energy sector. The European Commission is acting in a principled way and in line with its own interpretation of the letter of the law, believing that what Americans are doing is an example of unilateralism that goes against the international law. Brussels’s position is winning more support among the proponents of NS2, who in turn are getting more support across Europe, which is increasingly disappointed in Donald Trump who based his policy on giving instructions to Europeans. Perhaps a policy more akin to Barack Obama’s coordinated efforts would be more understandable on the Old Continent, but – and it is worth stressing – it could make it impossible to introduce such radical solutions, as the current widening of sanctions, which could block NS2.

This means the policy of the European Commission fails at delivering the results expected by those opponents of the pipeline, who are seeking to block the project. Whereas, the decisions made by Washington make it possible, but at the same time because of the US President’s clumsy diplomacy, they fuel anti-American sentiment in Europe, giving more support to the proponents of the contentious investment. A coordinated, transatlantic policy against NS2 would be less radical, but more legitimate on the continent. Perhaps this would make it impossible for Russia to play off Europe against the US. However, as the case may be it would not undermine the project itself. A unilateral policy pursued by the US could stop NS2, but it creates a growing chasm between Brussels and Washington. When the West coordinates its sanctions against Russia in the energy sector, it is bad (ineffective). Yet, things may be even worse when done separately, as it may deepen the transatlantic disputes with the entire administration, which are visible in a number of subjects over which Donald Trump was successful at antagonizing Europe.

Germany’s true schizophrenia

eThis is a contribution to a reflection on the most schizophrenic policy on Nord Stream 2, which is pursued by Germany. On the one hand, Berlin wants to maintain gas transit via Ukraine; but on the other, it wants to continue doing business with Russians. This is because of its unilateral economic policy, that goes against the principles of supply security and diversification professed by the European Commission. We should continue talking about Trump’s policies, but we cannot overlook Germany’s. If Germany recognized the EC’s position that Nord Stream 2 goes against European interests, Berlin could stop the pipe’s construction overnight by withdrawing its support for the project. Instead, Germany prefers to coordinate its policies on this issue with Russia.

A hydrogen ready Poland, or how to pursue a strategy without a strategy

The Polish hydrogen strategy and Poland’s 2040 Energy Policy are being drafted by the Ministry of Climate. The second document will determine the shape of the energy industry in the future and the dominant hydrogen generation technology. Irregardless, gas infrastructure for transporting this fuel can be prepared today.

Preparation is prevention

Poland’s Energy Policy by 2040 is being updated and it still has not been adopted by the government. Thus, there are no fundamental decisions on the fate of Poland’s energy sector including the kind of decarbonization path the country wants to choose. The conflicts within the government over nuclear and renewable energy undermine the trust in declarations made to the public opinion. It has been announced that a government reshuffle will take place in the fall. Because of that, it will be necessary to wait for a new division of duties, which may include the shutting down of ministries and establishing news ones, as well as transferring responsibilities between existing ministries. However, the Polish energy sector cannot wait and has to make strategic decisions. The German administration is a model of decisive action. It has already adopted a hydrogen strategy that puts more emphasis on the so-called green hydrogen, which is produced from surplus energy generated by renewable energy sources (RES). Germans can afford to take such resolute steps, because their commission on coal drafted a decarbonization plan for the energy sector. Moreover, for years they have been developing RES, which gives hopes that significant amounts of hydrogen will be produced from it. However, this doesn’t mean Poles should copy German solutions. It is worth following the pace with which Germany is moving, but Poland’s specific characteristics should be taken into consideration.

Poles find it impossible to decide whether and to what degree nuclear energy will complement the existing energy mi, in which coal plays the major role, but where the RES and gas tandem is taking up increasingly more space. They also do not know where they will acquire domestic hydrogen. However, they do know they will need it to fully decarbonize their economy, including heavy industry, which needs this fuel to satisfy its high energy needs. Therefore, one could say that regardless of Poland’s 2040 energy strategy and the strategic choices included in that document, Poland will need infrastructure able to distribute hydrogen. This is why the plan on building transmission networks for this fuel can be actually made today. It should also include the adaptation of the existing gas pipelines and entry points to the gas grid to hydrogen transmission. If a given transmission infrastructure is ready to transmit hydrogen it means it is “hydrogen ready”. According to the declarations made by the operator of the controversial Nord Stream 2 project, the gas pipeline will be able to transmit hydrogen. Hydrogen Europe claims that it is safe to pump up to 10 percent of hydrogen into the existing gas pipelines. Whereas Russians responsible for Nord Stream 2 talk about even 70 percent. Despite the fact that Poles will probably not be interested in importing hydrogen via that route, they still need to own gas pipelines capable of transporting this fuel from various directions: national and foreign sources, irregardless of its color, whether it will be the already mentioned green hydrogen or the blue one (from gas), or turquoise (from nuclear energy). In 2019 GAZ-SYSTEM, Poland’s GTSO, joined Hydrogen Europe, an organization that promotes hydrogen. It is also analyzing whether hydrogen can be pumped into the gas grid as part of the Hyready project, which was mentioned in a 2019 report on GAZ-SYSTEM’s sustainable development. However, these plans are no match for what Poland’s western neighbors are doing and this is another point we should take into consideration when it comes to copying our neighbors. Germany’s Uniper wants to present in 2021 a plan to decarbonize gas grids and gas storage, which will include pumping in hydrogen (as well as other renewable gases that do not emit CO2, such as biogas). Whereas, Siemens decided that Siemens Energy would withdraw from the legacy power sector and completely focus on developing the Power-To-X technology, which allows using electrolizers powered by RES to produce hydrogen.

Poles will follow their 2040 energy plan, which will determine their hydrogen strategy. If they were to be guided by the currently binding project, the capacity at their disposal to produce hydrogen would come from various sources. These don’t have to be renewables only. Already the 2017 Responsible Development Strategy, adopted by the government, proposed investing in high-temperature reactors (HTR), which use pyrolysis to generate hydrogen. If Poles decide to formally introduce nuclear energy, they will be able to use the violet hydrogen. Similarly to blue hydrogen produced from gas, domestic hydrogen will be better than gas from Russia, especially considering Rosatom’s export plans, which follow Gazprom’s footsteps to a hydrogen economy.

To sum up, whatever the future of the two strategic documents – the hydrogen strategy and the energy policy strategy, Polish companies, with GAZ-SYSTEM leading the way, can already create a map of hydrogen ready gas pipes. Perhaps it would be worth taking into consideration plans on hydrogen in the next National Ten Year Development Plans for the Transmission Network, which detail the development of the gas grid of various kinds, but are yet to mention this fuel. On 7 July 2020 GAZ-SYSTEM signed the Climate Ministry’s Polish Hydrogen Memorandum, which is a letter of intent on establishing a partnership to build a hydrogen economy. The agreement’s other signatories are PGNiG, Grupa Azoty, PKN Orlen and Grupa Lotos. They all declared they would cooperate with regard to research and development on hydrogen technologies in Poland.

Poland’s Hydrogen Ready Map

Drafting a map with potential transmission networks for hydrogen, could be a good starting point to prepare a hydrogen strategy, which should also talk about producing this fuel and the kind of technology used for this, depending on the content of the energy strategy. Poland’s gas transmission infrastructure should be as much hydrogen ready as possible for one more reason. This will make it easier to acquire funding for investments, because those where renewable gases are used are treated as “green” by EU and private financial institutions. In this context, it is worth reminding the words of Poland’s ambassador to Denmark, Henryka Mościcka-Dendys, who admitted that in the future Baltic Pipe may transmit hydrogen.

How to keep LNG flowing? Guide for importers with Anna Mikulska

Prices of natural gas have fallen precipitously in recent months as the global COVID-19 pandemic deepened the already existing misalignment between growing supply and relatively sluggish demand. Post-COVID-19 recovery should increase the demand through 2022, but a soft market is expected to continue through 2025. These conditions could provide an unprecedented opportunity for natural gas buyers/importers. However, while enjoying the benefits of a buyer’s market, they should consider the deleterious effects that ultra-low gas prices can have on gas producers/exporters and the natural gas market as a whole.

According to BP, in 2019 global natural gas production grew by 132 bcm (3.4 percent). Of that, the U.S. accounted for 85 bcm, Australia for 23 bcm, China for 16 bcm, and Russia 10 bcm. The U.S. also led in LNG supply growth with 19 bcm of new capacity. Russia followed with an additional 14 bcm and Australia with 13 bcm. Qatar remained the world’s largest LNG exporter with 107.1 bcm of gas exported in 2019.

A higher share of trade in LNG should support the trend that we have seen in the recent years: an increasingly global, flexible, deeper, and more liquid natural gas market that relies more on shorter-term contracts and spot purchases and where pricing is inferred from market conditions (indexed to hub prices) rather than indexed to prices of oil. The trend is most likely to continue as, according to BP, LNG trade should overtake inter-regional pipeline shipments in late 2020s. As per McKinsey, over half of the new LNG capacity is expected to come from the U.S. while according to the recent IEA report, the U.S. could become the largest LNG seller already in 2025, surpassing Qatar. This is significant since U.S. LNG has been the driving force in the increase in flexibility of the current natural market by modeling hub-base, short-term, and flexible contracts.

According to multiple accounts and models (for example hereherehere, and here), the expected growth in gas/LNG production in the next few years would not be immediately met with a demand strong enough to significantly raise the price. In addition, in the next year or so, the effects of the COVID-19 pandemic are likely to weaken global demand for natural gas beyond what has been generally expected. The market should tighten and prices may go up, however, after 2025. In fact, natural gas seems to be the only fossil fuel that would experience significant growth over the next two decades. This growth is expected to come mainly from the developing world, most predominantly from China but also India and other countries in Southeast Asia. We could also see some growth in places such as Eastern Europe where lots of natural gas infrastructure has been recently completed, under construction or planned and where we expect an increase in coal-to-gas switching based on the European Union’s goal to decarbonize.

How can these importing countries make the most of the next five years of relatively cheap and flexible gas supply?

While significant in terms of potential benefits, five years of relatively cheap natural gas is still a short-term focus. And, if not accompanied by a longer-term strategy, the short-term benefits for importers may result in a set of long-term unintended, negative consequences:

1)    Export capacity unable to match growing demand, i.e. if some of the currently planned LNG capacity gets either cancelled or postponed due to short-term factors such as the COVID-19 pandemic, less interest by stretched investors, and/or consecutive warm winters. Meanwhile meeting additional LNG demand in 2027-28 could require more than $400 billions of investment across the LNG value chain, as reported by McKinsey. The mismatch can result in significant price hike affecting growing economies.

2)    Lower than otherwise expected liquidity, flexibility, and diversification of the global natural gas market: Coming into 2020 projects relying on market fundamentals have been expected to deliver over half of the new LNG supply into 2035. The same projects, however, are more likely to be cancelled or delayed based on inauspicious conditions such as those related to the COVID-19 pandemic. Less likely to be affected are projects that are policy/government driven, such as in Qatar or Russia. Hence, not only the next few years may be disproportionately affecting some suppliers but also negative effects are likely to be systematic, i.e. more likely to impact market-oriented additions to LNG export capacity that have provided the most flexible contracting terms such as those offered by the U.S. suppliers.

3)    Lower energy securitya. delayed and/or cancelled infrastructure can render markets less diversified, less interconnected, and less likely to balance supply and demand; b. potential spikes in prices of natural gas in the future can have negative effect on gas-importing economies, especially if they become more reliant on natural gas due to current low pricing; c. in least developed/diversified natural gas markets, dominant suppliers could use their position for economic (high prices) and/or geopolitical ends.

Current low natural gas prices can and should encourage countries to consider natural gas as part of their energy portfolio. This includes in particular coal-to-gas switching as a strategy to support emission reductions and climate goals. However, such decisions need to be strategic so they can support those countries’ goals and economies further into the future than the next five years of what looks like a buyer-friendly natural gas market. While enjoying low spot pricing and even lower contract prices (as these are related to hub and, currently very low-priced oil) importing countries should think long-term. One way to do so, is to commit to future long-term contracts that consider current and future market conditions (e.g., global balance of export and import capacity). Given the difficult situation many LNG exporters are currently in, such commitment could not only be welcomed but also provide very beneficial contract terms long into the future. From a market perspective, it could also help with:

–       Preserving competition: with contract commitments, new and planned infrastructure is more likely to attract investment and getting financed. This is particularly important for market-driven projects like those in the U.S. or Australia.

–       Moderating the long-term pricing: as more projects from variety of competing producers can be completed on time to balance expected demand growth and ensure less volatile price environment.

Surely, change in economic conditions and growth in natural gas demand should see another investment rush as higher prices will likely encourage expansion of LNG capacity. However, such expansion will not be immediate and may take five years or more to come online. And for importing economies, that would mean several years of expensive gas that could negatively impact their growth trajectory.

 

Źródło: Forbes

The oil agreement is turning into a zombie

Tankowiec Sirius Star. Fot. Wikimedia Commons
Tankowiec Sirius Star. Fot. Wikimedia Commons

Three OPEC+ countries have announced additional production cuts to the tune of over 1 m b/d until oil prices drop. The coronavirus did kill the oil deal, but it’s not done yet. Further cuts will be determined by the market, not political declarations – writes Wojciech Jakóbik, editor in chief at BiznesAlert.pl.
Czytaj dalej„The oil agreement is turning into a zombie”

Will Nord Stream 2 succumb to the coronavirus?

Nord Stream. Grafika: Gazprom

The German daily Handelsblatt has published bombshell news that may decide about the future of Nord Steam 2. If it is confirmed, the gas pipeline will be in even more trouble than that caused by the coronavirus pandemic, which has already undermined its profitability – writes Wojciech Jakóbik, editor in chief at BiznesAlert.pl. Czytaj dalej„Will Nord Stream 2 succumb to the coronavirus?”

Eсли „Газпром” выплатит задолженности Польше, арест его активов не потребуется. For TASS

Для ареста активов должен быть запущен судебный процесс, направленный на получение задолженностей, отметил главный редактор портала BiznesAlert.pl Войчех Якубик. Czytaj dalej„Eсли „Газпром” выплатит задолженности Польше, арест его активов не потребуется. For TASS”

Hydrogen alliance could help rebuild European unity. For Euractiv.com

The European Commission’s Clean Hydrogen Alliance, promoted by Poland and Germany, could be one of the ways to preserve European unity in the face of the looming economic crisis caused by the coronavirus pandemic, writes Wojciech Jakóbik. Czytaj dalej„Hydrogen alliance could help rebuild European unity. For Euractiv.com”

The market will manage without the oil agreement, but petrostates may not. The oil deal is again waiting for an OPEC+ meeting

Wydobycie ropy. Fot. Wikimedia Commons
Wydobycie ropy. Fot. Wikimedia Commons

The oil deal is again waiting for an OPEC+ meeting with the possible participation of the United States. However, cuts as deep as 10 million barrels per day may not be enough. Oil production will continue to drop because of the coronavirus pandemic, regardless of what happens with the deal. Independent producers will handle the situation as they have in the past, whereas petrostates need to choose between stability and reforms – writes Wojciech Jakóbik, editor in chief at BiznesAlert.pl. Czytaj dalej„The market will manage without the oil agreement, but petrostates may not. The oil deal is again waiting for an OPEC+ meeting”