Baltic Pipe to Cut Poland’s Gas Dependence on Russia
Publication: Eurasia Daily Monitor Volume: 16 Issue: 69
April 2019 saw a flurry of activity around the Baltic Pipe infrastructure project set to connect Poland and Denmark. The pipeline, which will carry around 10 billion cubic meters (bcm) of natural gas from the North Sea to Poland and further to the Baltic States, is planned to be fully operational by 2022 (Baltic-pipe.eu, April 15). Moreover, concrete steps were taken to expand Poland’s liquefied natural gas (LNG) terminal in Świnoujście, located in northwestern Poland. On April 25, Poland signed an agreement to receive subsidies from the European Union’s Operational Program for Infrastructure and Environment. These funds will allow Poland to expand the Świnoujście terminal’s capacity from 5 to 7.5 bcm annually (Rynekinfrastruktury.pl, April 25). Indeed, the Świnoujście LNG terminal and Baltic Pipe are key energy infrastructure projects that will allow Poland to diversify its gas supplies away from Russia and break Gazprom’s gas monopoly on Central and Eastern European energy markets.
Recently, Poland undertook important technical and legal steps to ensure that Baltic Pipe will remain on schedule. Sticking to the construction schedule is particularly important because Poland’s long-term agreement for gas supplies with Gazprom ends in 2022. The Polish government wants to let this agreement run out and, if necessary, buy Russian gas under different conditions (Rzeczpospolita, May 31, 2016) or completely replace it with imports from other suppliers. The estimated 10 bcm of gas shipped to Poland through Baltic Pipe from Norway will replace the exact amount Gazprom currently supplies. The rest of the 17 bcm of natural gas Poland consumes annually will be met with LNG imports and domestic sources. Polish LNG imports will come from Qatar, Norway and increasingly the United States, which, thanks to its shale gas boom is gearing up to challenge Russia’s domination of the European market.
In October last year, Polish state-owned energy company Polskie Górnictwo Naftowe i Gazownictwo (PGNiG) signed two long-term agreements with US energy firms Venture Global Calcasieu Pass and Venture Global Plaquemines LNG. According to the terms of the agreements, both US exporters will supply a combined total of 1.35 bcm of LNG per year for 20 years (Inzynieria.com, October 17, 2018). Poland increasingly looks at US LNG imports as a more commercially competitive substitute for Russian gas. Analysts have calculated that, in 2017, Warsaw paid a spot price of about $150 per thousand cubic meters of gas from the US LNG exporter Chenier. And even once additional liquidation/re-gasification, maritime transport and tariff fees were included, the total was still presumably comparable with average Russian prices to Europe of $180-190 (Energetyka24.com, November 29, 2017).
On April 8, 2019, Polish President Andrzej Duda signed into law the Polish-Danish Agreement on Baltic Pipe (Gazownictwo.wnp.pl, April 8). And that month, Baltic Pipe received a €215 million ($241 million) grant from the European Union’s Innovation and Network Executive Agency under the Connecting Europe Facility (CEF) program. EU funds will cover construction of the offshore pipeline that will link Poland’s and Denmark’s gas transmission systems as well as modernize and expand Polish gas infrastructure (Ec.europa.eu, April 15; Forsal.pl, April 25). Furthermore, on April 26, Norway and Denmark signed an agreement to better connect their gas transmission systems to facilitate the shipment of gas supplies to Poland (Biznesalert.pl, April 26).
The strategic shift of gas suppliers is of key importance to Poland because Russia habitually uses this energy source as political leverage, particularly against vulnerable countries in the post-Soviet space. The major driving force behind Poland’s plans to diversify away from Russia is uncertainty of gas supplies and asymmetric pricing. In 2009, Poland was adversely affected when Gazprom decided to cut off gas flows through Ukraine following a politically motivated bilateral pricing dispute. Soon after, in 2010, Warsaw was pressured to sign the controversial Yamal agreement with Gazprom, which contains a number of unfavorable conditions such as a minimum mandatory volume (“take or pay”) clause and the indexation of gas prices to the price of crude oil. At the time, the gas price offered by Gazprom to Poland was one of the highest in Europe (Deon.pl, October 29, 2010; Gazeta Wyborcza, June 19, 2012). Since then, Warsaw has taken several steps to minimize its gas dependence on Russia such as completing the LNG terminal in Świnoujście or buying gas, via reverse flows, from the West. This process significantly accelerated after 2015, when the new conservative Law and Justice (PiS) government decided to give renewed impetus to the abandoned Baltic Pipe project and expand the Świnoujście terminal.
However, Poland has not solved all its energy dilemmas. The Nord Stream Two pipeline, a largely Russian-German gas infrastructure project, which will run along the Baltic Sea bed, mostly parallel to Nord Stream One, is the latest bone of contention between Poland, Russia and Germany. Poland, Slovakia, the Baltic States and Ukraine strongly oppose Nord Stream Two, fearing that it will strengthen Russia’s gas chokehold on Central and Eastern Europe and further drive a wedge between the region and much of Western Europe. Many Western European countries consider this pipeline beneficial as it will severely lower the cost of Russian gas for their consumers. Critics assert, however, that Nord Stream Two will be used by Russia as a pretext to eliminate Ukraine as a gas transit country to Europe, which will have serious financial and security implications for Kyiv (Biznesalert.com, February 6, 2019).
Apart from political gas projects, Russia also uses its soft power to discourage Poles from diversifying away from Gazprom. Russian propaganda outlets such as Sputnik News and RT continually try to convince their readers that Baltic Pipe is a financial burden and a political project without economic significance (Sputnik News, February 19, 2018; RT, January 19, 2019). They also argue that the price of US gas for Poland is higher than that offered by Gazprom (Sputnik News, October 24, 2018). Similar baseless opinions and disinformation are being disseminated by anonymous users on Polish social media and in comment sections of Polish web journals.
With the progress on Baltic Pipe and increased LNG imports, Poland is on track to soon end its uneasy dependence on Russian gas as well as become an energy hub for the rest of Central and Eastern Europe. Furthermore, regional gas cooperation promises to bolster the integration of the countries located within the so-called “Intermarium” area between the Adriatic, Baltic and Black Seas. As such, the various regional gas cooperation projects that encompass existing and planned interconnector pipelines as well as LNG terminals in Poland, Lithuania and Croatia, will considerably improve regional and EU-wide energy security.