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The PGNiG Group plays a key role on the Polish gas market, being responsible for preserving Poland’s energy security. To this end, it takes measures necessary to satisfy the steadily growing demand for gas fuel.

The PGNiG Group ensures supply diversification by developing domestic deposits and sourcing gas from abroad, as the largest importer and supplier of natural gas in Poland. Gas is transported to Poland via an extensive transmission network, with LNG fed into the network as of 2016. The Company delivers gas to end users through the distribution networks. The national gas system is complete with gas fuel storage facilities, used to cover seasonal and daily shortages of gas fuel. In gas fuel trading itself, the key role is played by the Polish Power Exchange where PGNiG has been the Gas Market Maker since 2013.

Transmission system

Transmission system and reach of the distribution grid in Poland

Management of the transmission network and transport of natural gas via the national transmission network to deliver it to distribution grids and end users connected to the transmission system is the responsibility of GAZ-SYSTEM, a state-owned company. The existing transmission network comprises two operationally interlinked systems, the Transit Gas Pipeline System and the National Transmission System (high-methane gas [E group] and nitrogen-rich gas [Lw subgroup]). As at the end of 2017, the length of Poland’s gas transmission network totalled over 11 thousand km. The volume of gas transmitted through the network amounted to 17.6 bcm in 2017 (excluding gas fuel transmitted in the OTC market and PPX).

In December 2017, the General Meeting of GAZ-SYSTEM approved the National Ten-Year Growth Plan for 2018-2027. The planned infrastructure projects are primarily designed to meet the current and future demand for natural gas from domestic customers while ensuring uninterrupted gas supplies. With this goal in mind, the National Ten-Year Growth Plan defines a new strategic investment programme, with focus on infrastructure projects included in the Northern Gateway. The Northern Gateway programme is designed to connect Norwegian gas deposits via the offshore gas pipeline between Poland and Denmark (the Baltic Pipe project) and expand the regasification capacities of the existing LNG Terminal.

GAZ-SYSTEM’s plans for the coming years also include extending other interconnectors and the national transmission network. These projects will be key to ensuring stable gas supplies to Poland and other CEE countries (export to countries such as Ukraine).

Existing and planned strategically important cross-border entry points into the transmission system

Gas flow

2017 saw growing volumes of gas fuel imported to Poland, which reached 167 TWh (up by 17 TWh, or approximately 11%), with an almost 5% decline in gas imported from east of Poland and a 58% increase in gas imports from the EU year on year. The majority of imported gas (approximately 59% of total flows) originated from countries east of Poland. According to GAZ-SYSTEM, the largest volume of natural gas was transmitted via the Drozdowicze point. As regards imports from the west, the largest flows were recorded at the Mallnow point.

In 2017, deliveries of liquefied natural gas by sea to the LNG Terminal were continued, which resulted in a 66% increase in the volume of gas regasified at the LNG Terminal compared to 2016. Gas exports to Ukraine also increased considerably (up 34% year on year).

Gas flows at Poland’s gas grid entry/exit points

Entry/exit point (in TWh) 2017 2016 Δ r/r
Supplies from EU 42.53 26.94 +58%
including Lasów, Gubin (GCP) 6.08 4.87 +25%
including Cieszyn 1.26 0.06 +1994%
including Mallnow 35.20 22.01 +60%
Supplies from across Poland’s eastern border 106.04 112.11 -5%
including Drozdovitse 49.72 48.12 +3%
including Teterovka 0.88 0.82 +7%
including Kondratki 21.06 28.14 -25%
including Vysokoye 34.37 35.03 -2%
LNG regasification 18.47 11.14 +66%
Exports to Ukraine (mainly Hermanowice) 13.78 10.24 +35%
Total flow 180.82 160.56 +13%

LNG in Poland

Since 2016, Polskie LNG S.A. has been operating in the area of collection and regasification of liquefied natural gas, with the company’s LNG Terminal able to receive 5 bcm of gas per annum (after regasification). Should demand for this type of gas fuel grow, the LNG Terminal’s capacity may be increased even up to 7.5 bcm without expanding the project’s site. The LNG Terminal is able to receive LNG tankers not larger than Q-Flex tankers, whose maximum capacity (depending on specific vessel) ranges from 210 to 218 thousand cubic meters of LNG (approximately 130 mcm of high-methane gas after regasification). The end product of gas regasification is fed into the national transmission grid via the Goleniów gas compression station, located over 80 km away from the LNG Terminal. LNG is also transported by tankers to regasification plants and stations located throughout Poland.

PGNiG considers LNG deliveries as a means to ensure gas supply security and diversification. The company initially reserved some 60% of the terminal’s capacity to receive and regasify approximately 2.5 million tonnes (just over 3 bcm after regasification) of LNG annually. In 2017, PGNiG and Polskie LNG S.A. signed an annex to the contract to increase reservation to 100% of the LNG Terminal’s regasification capacity. The increase is valid until January 1st 2035. This means that as of 2018 the Company is able to import LNG by sea in the amount equal to approximately 5 bcm of natural gas per year after regasification.

In total, PGNiG imported 1.24 million tonnes of LNG via the LNG Terminal in 2017, which corresponds to approximately 18.8 TWh.

Distribution system

Distribution services are provided by one major distribution system operator (PSG) and several dozen smaller local operators, whose networks are connected to the system operated by PSG or GAZ-SYSTEM.

Gas storage

PGNiG owns 9 underground gas storage facilities in Poland. The average daily withdrawal of gas from Polish storage facilities over the withdrawal period amounted to 118.14 GWh in 2017, up 26% on the previous year. In the summer of 2017, gas was injected into storage at an average rate of 131 GWh/day, up 9.35 GWh/day on 2016.

Levels of gas in storage in Poland in 2016–2017 (GWh).

Source: In-house analysis based on Gas Infrastructure Europe and Gas Storage Europe data.

Polish Power Exchange

PGNiG is the leader of gas trading at the PPX. According to PPX data, in 2017 the total gas trading volume was 138.7 TWh, of which 114.7 TWh was traded on the commodity forward instruments market (RTT). This means that almost 83% of gas trades in 2017 were executed under contracts with maturities of a year, season (summer, winter), quarter, month, and week.

Commodity forwards (RTT) trading volume on the PPX in 2016 and 2017 (TWh)

Source: In-house analysis based on PPX data.

The structure of contracts traded on the PPX in 2016 and 2017

Source: In-house analysis based on PPX data.

There was an approximately 28% y-o-y increase in the volumes traded under commodity forwards. As at the end of 2017, there were 108 active participants in natural gas trading, a nearly two-fold increase on 2015, with 200 companies holding licences to trade in gas fuels, 3 more than the year before.

In 2017, the average spot price of gas in Poland was PLN 79.76/MWh, up by 18.5% year on year. PPX gas prices were strongly correlated with gas prices in Germany and other European markets. In 2017, the spread between spot prices on PPX and GASPOOL averaged EUR 1.49/MWh.

Average monthly natural gas spot prices in Poland and Germany

Source: In-house analysis based on PPX data and EEX data.

Spot price of gas at PPX, TTF and NCG in 2017.

Source: In-house analysis based on PPX data and EEX data.

International gas market

2017 saw an increase in natural gas prices on European markets. The average price of a month ahead contract on the Dutch TTF hub was by 22% higher relative to 2016.

The air temperature in winter was often lower than the seasonal standard, which boosted the demand for gas for heating purposes. Failures occurred in the gas fields in Norway and the Netherlands, which temporarily limited gas supplies to Western European countries. In the United Kingdom, decision was made to close the Rough gas storage facility, accounting for 70% of UK’s gas storage capacity. The rising prices of CO2 emission allowances and the lower energy ouput from nuclear power plants in France drove up the manufacturing sector’s demand for gas. The increase in gas prices in Europe was also driven by scheduled repairs of key transmission infrastructure and a gas explosion at the compressor station in Baumgarten, Austria.

Natural gas prices in 2017

Average monthly spot prices of natural gas at selected European hubs in 2016–2017. GPL and NCG – Germany; NBP – United Kingdom; TTF – the Netherlands.

Source: ICE – Intercontinental Exchange, EEX – European Energy Exchange.

In 2017, the average price of natural gas in Europe increased by 21% compared with 2016. The highest growth rate (24%) was recorded at the German NCG hub and the Dutch TTF. The average price of gas on key European markets was EUR 17.34/MWh, compared with EUR 14.06/MWh a year before.

The first months of 2017 saw a number of disruptions in the supply of gas from the North. Reduced flows were due to unforeseen technical failures in the Kollsness and Troll fields. A failure affected also the Gronningen field in the Netherlands. The price increase at the NBP hub in October 2016–February 2017 was caused by operational problems at the Rough storage facility, which consequently rendered it necessary to shut down the facility permanently. Reversal of the spread between the NBP and the hubs in the continental part of Europe seen in the first half of 2017 was a consequence of maintenance and repair works on the Interconnector pipeline – the only link for transmitting gas from Great Britain to the European continent. Further strengthening of prices resulted from a spike in the price of oil, to which some of the European gas import contracts are still indexed, as well as numerous failures of Norwegian production infrastructure. A growth in gas demand in the French manufacturing sector in the face of limited energy output from nuclear power unist also contributed to the increases. Demand for gas for generation purposes was also driven by the increase in prices of CO2 emission allowances. The increase in gas prices at the end of the year resulted from lower temperatures and the explosion at the compressor station in Baumgarten, Austria.

In terms of daily average volumes of gas flow, over 1,663 TWh (152 bcm), representing 56% of last year’s European imports via gas pipelines, originated from Russia. The share of Russian imports increased 2 percentage points year on year. Norway emerged as the second largest supplier of gas to Europe, providing 888 TWh (81 bcm), or 30% of total imports. The share of gas imports from Norwegian deposits dipped 1 pp relative to 2016. Exports from North Africa amounted to 410 TWh (37 bcm).

Sources of fuel imports to Europe

Source: Thomson Reuters.

One of the main drivers of fluctuations in the volume of gas imports from the eastern direction in a given period is the price of oil. The flexible structure of purchase contracts linked to crude oil prices allowed European importers to increase imports from the East during the slump on the crude oil market and scale back purchases from other directions (depending on the type of contract and price formula).

Gas inventory levels

At the end of 2017, volumes of gas stored in Polish gas storage facilities amounted to approximately 78% of the capacity and were 1 percentage point higher than at the end of 2016.

Gas storage capacity utilisation as at December 31st 2017

Gas in storage
Austria 58,346 47%
Belgium 3,784 42%
Bulgaria 4,248 68%
Croatia 4,227 75%
Czech Republic 25,258 73%
Denmark 8,887 82%
France 69,444 52%
Germany 154,536 66%
Hungary 37,694 56%
Italy 142,314 74%
The Netherlands 83,861 65%
Poland 25,820 78%
Portugal 1,842 52%
Romania 17,014 50%
Slovakia 25,126 66%
Spain 22,098 70%
United Kingdom 6,988 77%
Ukraine 157,728 47%
Total EUROPE* 691,494 65%
source: GIE – Gas Infrastructure Europe
*Excluding gas storage capacity utilisations for Belarus, Ireland, Latvia and Serbia.

Progress in implementing infrastructural projects on the European gas market

The Baltic Pipe project is a strategic infrastructure project aimed at creating a new gas supply corridor on the European market. It is to enable the transmission of gas directly from deposits located in Norway to markets in Denmark and Poland, as well as to consumers in the neighbouring countries. In 2016, GAZ-SYSTEM and the Danish transmission system operator Energinet developed a feasibility study for establishing a new interconnector between two national markets in the form of a two-way offshore pipeline and expanding national transmission networks. Based on the positive results of the study, the annual transmission capacity of the Baltic Pipe was determined at up to 10 bcm to Poland and up to 3 bcm to Denmark and Sweden.

The progress of work on the Baltic Pipe project was as follows:

  • In June 2017, the Polish and Danish prime ministers signed a memorandum concerning the gas pipeline, in which they restated their support for the implementation of this project.
  • In June 2017, Phase 1 of the Open Season Procedure began. Its purpose was to examine the demand for gas pipeline transmission capacity among gas market players, and thus the advisability of the project. As part of this procedure, market players could submit requests for reservation of required capacity on a given gas pipeline.
  • In July 2017, Phase 1 of the Open Season Procedure ended, confirming that the demand for the transmission of natural gas was sufficient to consider the project advisable.
  • In September 2017, the operators GAZ-SYSTEM and Energinet commenced Phase 2 of the Open Season Procedure, under which the market players were expected to declare final volumes of reserved capacity and then sign transmission contracts for up to 15 gas years.
  • On October 27th 2017, Phase 2 of the Open Season Procedures was completed. Under the procedure, PGNiG made a binding offer for capacity reservation in the period from October 1st 2022 to September 30th 2037. The liability was estimated at PLN 8.1bn.
  • In November 2017, both operators obtained positive results of the economic viability test of the project. In the meantime, the Baltic Pipe was included in the third list of Projects of Common Interest (the project was also on the first and second list published in 2013 and 2015, respectively) developed by the European Commission. The inclusion confirmed the importance of construction of this gas pipeline for the EU at large.
  • In January 2018, PGNiG signed transmission agreements with GAZ-SYSTEM and Energinet.

According to the project assumptions, by December 1st 2018 GAZ-SYSTEM and Energinet will have taken final investment decisions whose implementation is a precondition for launching gas transmission services via the Baltic Pipe.

In early September 2015, representatives of Gazprom, E.ON AG and BASF-Wintershall, Royal Dutch Shell, Engie (former GdF Suez) and OMV signed a legally binding shareholders’ agreement to construct the Nord Stream 2 gas pipeline. Pursuant to the agreement, a company will be formed to first build and operate the gas pipeline, with Gazprom as the majority shareholder with a 51% interest and the remaining shareholders holding minority interests adding up to 49%. Next, an application for the registration of the consortium responsible for building the pipeline was submitted with German and Polish antitrust authorities. In mid-August 2016, the Polish Office of Competition and Consumer Protection concluded that concentration of gas supplies through the pipeline would jeopardise competition on the gas markets of Poland and other CEE countries. As a result, the consortium could not be established and Russia was left with a dilemma on how to finance the project.

In November 2017, the European Commission submitted an amendment to the Gas Directive included in the Third Energy Package. In this way, the Nord Stream 2 project would be subject to the provisions of EU law regarding the obligation to provide transmission capacity to not only the enterprises taking part in the project, but also the other market players. In January 2018, Nord Stream 2 announced on its website that it had obtained consent for the construction and operation of the offshore section of the Nord Stream 2 pipeline in the German territorial waters and in the municipality of Lubmin near Greifswald. According to the project’s assumptions, the second line of the gas pipeline connecting Russia with Germany is to be placed in service by the end of 2019.

The Turkish Stream project, suspended at the end of 2015, was resumed on October 10th 2016 by Russia and Turkey, which signed an international agreement to construct two lines of the gas pipeline, to be brought on stream in December 2019. The pipeline’s planned capacity is approximately 28–30 bcm, two times less than originally assumed. After obtaining the required consents, in May 2017, the commencement of practical implementation phase of the Turkish Stream project, i.e. commencement of construction of the offshore section of the pipeline, was announced.

Outlook for gas market

On the last trading day of 2017, natural gas exchanges recorded a drop in spot prices in all observed areas – the price of a spot instrument on GASPOOL was less than 19 EUR/MWh. The prices of all futures contracts in the Netherlands and of most contracts in Germany and the UK were also on a downward trend despite growing prices of contracts for crude oil and coal.

Many analysts are forecasting a further decline of natural gas prices in 2018, not only because of the high crude output levels in the US, but also due to an impressive natural gas production growth across the Atlantic. Based on EIA data, in 2018 alone gas production volumes in the US may grow by nearly 7 bcm.