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Poland Wants Gazprom to Get Nervous

The provocative rhetoric of Polish Oil and Gas Company should be seen in the context of future negotiations with Gazprom.

Poland reduced the purchase of Russian gas by 28%.

The company announced plans to dramatically increase the purchase of liquefied natural gas from the United States in 2023 after the contract with Gazprom expires.

Moreover, PGNiG states that it may not extend the contract at all.

The current contract with Gazprom involves the purchase by Poland of 10 billion cubic meters of gas per year, which is about 53% of Poland’s total gas demand.

According to the contracts, already signed by Poland, within 24 years it will be buying about a quarter of its demand in the USA. Another 15% Poland intends to purchase in Qatar.

In addition to LNG purchases, Poland plans to build a Baltic Pipe gas pipeline from Norway with a capacity of 8 billion cubic meters.

Warsaw claims that American liquefied gas is 20-30% cheaper than Gazprom’s pipeline gas.

Indeed, Russian gas is expensive for Poland. This is due to the fact that the price formula is tied to oil. At the same time, since the beginning of the year, the price of oil has fluctuated in the range of $60–70 per barrel, while the spot prices for gas in Western Europe have fallen by almost half, to $120 per 1,000 cubic meters.

Last time the price formula for Poland was revised in 2012, then Gazprom gave PGNiG a 10% discount.

Since then, most Gazprom customers in Western and Central Europe have revised the price formulas in their contracts at least twice, increasing the share of spot indexing.

PGNiG did not manage to do this since it got dragged into a prolonged arbitration with Gazprom, which is not completed yet.

These statements by the Polish oil and gas company seem to be an attempt to put pressure on Gazprom in anticipation of negotiations to extend the contract.

It is difficult to imagine a situation in which American LNG canl be cheaper than Russian pipeline gas. The economic component of the Baltic Pipe also raises many questions.

Published: August 26, 2019