Poland 2015-2019

What kind of gas policy did PiS carry out

Poland 2015-2019 2019-08-26
Over the course of PiS’s rule, Poland's dependence on Russian gas has decreased; the construction of a gas hub has also begun. Market liberalisation has been put on the back burner.

Gas routes in Poland
Gas routes in Poland

Poland 2015-2019

Purchase of Russian gas by PGNiG
Reduced reliance on Russian gas. In May 2016, government Plenipotentiary for Strategic Energy Infrastructure Piotr Naimski announced that Poland would not extend the Yamal contract for gas supplies from Gazprom which expires in 2022. The government decided to replace it with gas from Norway and the US, and Gaz-System began preparations for the building of the Polish-Danish Baltic gas pipeline, Baltic Pipe and the expansion of the LNG terminal in Świnoujście (from 5 to 7.5 billion m3). The investments are to be completed in 2022 and 2023. For its part, PGNiG has concluded four long-term contracts for LNG imports from the US and Qatar, which allowed it to reduce gas imports from Russia from 10.2 billion m3 in 2016 to 9.6 billion m3 in 2017 and 9 billion m3 in 2018. As a result, the share of gas from the east in total imports decreased from 70.9 to 61.4 per cent over this period.*

Construction of a gas hub has begun. Gaz-System has started the expansion of the national transmission network and the construction of interconnectors with Lithuania, the Czech Republic, Slovakia and Ukraine, which are supposed to increase Poland's export capacity by about 20 billion m3 (up from the current level of about 3 billion m3). Most projects are still in the investment phase – they will be finalised within a few years. The government also made the preliminary decision to build a so-called floating LNG terminal (FSRU) with a capacity of about 4 billion m3. According to recent announcements, it will be in place in around 2025. PGNiG will also be able to sell the gas. The free-on-board (FOB) formula in the transmission of gas from the moment of picking up at the US terminal, allowing the firm to deliver the gas to any country it chooses.

Market liberalisation halted. In 2016, the government changed the energy law – from October 1, 2017, gas tariffs for industry were abolished and the freeing of prices for private households was scheduled for 2024. Under PiS, the latter prices have remained at a low level (according to Eurostat data, they fell by 7 per cent in 2015-2018). Price liberalisation was supposed to provide an impulse for market development and increased competitiveness, but this has not come to pass. This was due to the fact that in 2017, the government amended the law on fuel reserves , compeling all gas importers to create reserves. As a result, importing gas from the West only became profitable for PGNiG, and private firms began to withdraw from the market. Whereas the number of firms with a licence to sell gas in Poland increased in 2015-2016 from 172 to 200, and to import it from 65 to 70, by the end of 2018 their number dropped to 197 and 55, respectively. PGNiG's share in the retail market went up in this period from 73.7 to 82 per cent. In the future, PGNiG will probably maintain its leadership position, thanks mainly to guaranteed exclusive use of the LNG terminal in Świnoujście and reserving over 80 per cent of the capacity of the Baltic Pipe.

PGNiG spreads its wings abroad. In March 2017, the management board of state-owned PGNiG published a new strategy for the group for 2017-2022, which assumes increasing activity on the international gas market. At the same time, a PGNiG sales office was established in London, tasked with searching for attractive short- and medium-term contracts for LNG supplies for Poland. The business also increased its involvement in Norway, where it acquired rights to four deposits – it plans to extract approximately 1.42 billion m3 of gas annually. PGNiG also continues operations in Pakistan, where it holds a 25-year licence to exploit the Rehman and Rizq fields. At full development these fields would allow the production of up to 2.5 million m3 of gas per day.

Share of gas in electricity energy production in Poland
Energy sector switching to gas. In 2018, electricity production from gas amounted to 9.59 TWh, that is 33 per cent up on the previous year and almost three times more than in 2014. Because of this, the share of gas in the energy mix last year was 5.8 per cent, as against 4.3 per cent in 2017 and 2 per cent in 2014*. This is the effect of policies of state-owned firms which, given lower maintenance costs, environmental requirements and rising prices of CO2 emission allowances, are more willing to invest in building gas-fired power plants than in coal. In 2015, the total gas capacity in Poland was 0.9 GW, which accounted for 3.8 per cent of the capacity of all power plants in the country, while in 2018 the figures stood at 2.3 GW and 5 per cent, respectively. The number of gas-fired stations will continue to grow due in the main to the new cogeneration support system, in force since 2018, which rewards the construction of gas-fired CHP plants.

the bottom line

PiS's priority in energy policy was to reduce gas dependence on Russia, which has to a large extent been achieved. The government has, however, halted the liberalisation of the domestic market and strengthened PGNiG's position. It has thus kept control over gas imports and prices for households, but at the cost of any strengthening of competition on the market. The final assessment of PiS rule will depend on whether the new gas infrastructure can be completed in time and on the future gas prices for domestic consumers, especially households, following the changes expected in 2024.

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Dominik Brodacki
Senior Analyst for Energy Sector
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Dominik Brodacki
PI Alert

EU summit: Member States launch discussion on financing joint defence initiatives

State of play

Leaders approved appointments to top posts. At the EU summit that ended on Thursday night, they nominated Ursula von der Leyen for a second term as head of EurCom, former Portuguese Prime Minister António Costa as head of EurCou and Estonian Prime Minister Kaja Kallas as head of EU diplomacy. Italian Prime Minister Giorgia Meloni abstained from voting for von der Leyen and voted against Costa and Kallas. This means that Meloni is preparing for tough negotiations and may demand a high political price in return for his party's support for von der Leyen in her approval in the EurParl. Prime Minister Viktor Orbán voted against von der Leyen and abstained on Kallas.

They adopted the Union's strategic agenda for 2024-2029. Over the next five years, the Union's goals include a successful digital and green transformation by "pragmatically" pursuing the path to climate neutrality by 2050. Another objective is to strengthen the EU's security and defence capabilities.

Von der Leyen spoke of EUR 500 billion for defence over a decade. This was the EurCom estimate of needed EU investment presented by its head at the EurCou meeting. Poland and France were among the countries that expected the EurCom to present possible options for financing defence investments before the summit, such as EU financing of common expenditure from a common borrowing. This idea was strongly opposed by Germany and the Netherlands, among others. In the end, von der Leyen decided to postpone the debate until after the constitution of the new EurCom, i.e. in the autumn. And the summit - after von der Leyen's oral presentation - only launched a preliminary debate on possible joint financing of defence projects.

Poland has submitted two defence projects. These might be co-financed by EU funds. On the eve of the summit, Poland and Greece presented in writing a detailed concept for an air defence system for the Union (Shield and Spear), which Prime Ministers Donald Tusk and Kyriakos Mitostakis had put forward - in a more general form - in May. In addition, Poland, Lithuania, Latvia and Estonia presented the idea of jointly strengthening the defence infrastructure along the EU's borders with Russia and Belarus. Poland is pushing for the EU to go significantly beyond its current plans to support the defence industry with EU funds and agree to spend money on defence projects similar to the two proposals. But EU states are far from a consensus on the issue.

Zelensky signed a security agreement with the Union. The document, signed by President Volodymyr Zelensky in Brussels, commits all member states and the EU as a whole to "help Ukraine defend itself, resist efforts to destabilise it and deter future acts of aggression". The document recalls the EUR 5 billion the EU intends to allocate for military aid and training in 2024 (in addition to bilateral aid from EU countries to Kyiv). It says that "further comparable annual increases could be envisaged until 2027, based on Ukrainian needs" i.e. it could amount to up to EUR 20 billion. Ukraine's agreement with the EU comes on top of the bilateral security "guarantees" Ukraine has already signed with a dozen countries (including the US, UK, Germany, France, Italy). As Prime Minister Donald Tusk confirmed in Brussels, talks are also underway between Ukraine and Poland on the text of mutual commitments on security issues.

PI Alert

KO wins elections to the European Parliament

KO received 38.2 per cent of the vote and PiS 33.9 per cent, according to an exit poll by IPSOS. Konfederacja came in third with 11.9 per cent, followed by Trzecia Droga with 8.2 per cent, Lewica with 6.6 per cent, Bezpartyjni Samorządowcy with 0.8 per cent and Polexit with 0.3 per cent. According to the exit poll, KO gained 21 seats, PiS 19, Konfederacja 6, Trzecia Droga 4 and Lewica gained 3. The turnout was 39.7 per cent.

According to the European Parliament's first projection, the centre-right European People's Party (EPP), which includes, among others, PO and PSL, will remain the largest force with 181 MEPs in the 720-seat Parliament. The centre-left Socialists and Democrats (S&D), whose members include the Polish Lewica, should have 135 seats, whereas the liberal Renew Europe club (including Polska 2050) will have 82 seats. This gives a total of 398 seats to the coalition of these three centrist factions (EPP, S&D and Renew Europe) on which the European Commission under Ursula von der Leyen has relied on so far. The Green faction wins 53 seats according to the same projection, the European Conservatives and Reformists faction (including PiS) 71 seats and the radical right-wing Identity and Democracy 62 seats.