Poland Plans to Cut Out Gazprom

Once Poland’s current long-term natural gas supply contract with the Russian firm Gazprom expires in 2022, that’s it—Warsaw has no plans on signing a new deal. Reuters reports:

Poland does not plan to renew a long-term gas supply contract with Russia when its current deal with Gazprom expires in 2022, a government official responsible for gas and power infrastructure told Reuters on Monday. Polish state-run gas firm PGNiG buys up to 10.2 bcm of gas a year from Russian gas giant Gazprom, accounting for the bulk of Poland’s annual consumption of nearly 15 bcm. The contract, signed in 1996, expires in 2022.

For years, Gazprom customers have complained about the length of the contracts they’ve been offered by Gazprom, just as they’ve chafed at the fact that gas prices have been linked to oil (less of an issue now that crude prices have plummeted), or that these deals require the customer to pay for a specific amount of gas, regardless of whether or not they actually consumed that amount (a stipulation dubbed take-or-pay). Add to all of these issues the fact that Gazprom has shown a willingness to cut supplies to Europe midwinter during contract disputes, and it’s not hard to see why Poland might want to wean itself off of Russian gas.

But just because a country wants to reduce its dependence on Gazprom doesn’t mean it can. Poland hopes to boost its imports of liquified natural gas (LNG) and to that end has recently constructed its first LNG import terminal. LNG prices have come down considerably over the last year and half after sluggish demand in Asia and surging supplies from Australia, Qatar, and now the United States have made the super-chilled hydrocarbon more economically viable. Warsaw is also working on building a pipeline to Norway, and believes that between that piped natural gas and shipped LNG it can offset the volumes it currently takes in from Gazprom.

This is a shot across Russia’s bow, because although Gazprom expects to ship a record amount of gas westward to Europe this year, leaders across the continent are actively working to secure alternative suppliers. When natural gas had to be transported by pipe, Moscow had an obvious geographical advantage over potential rivals, but LNG is disrupting the security of its European market share.

Gazprom’s deputy CEO Alexander Medvedev tried to downplay the seriousness of the situation, pointing out that “at the moment there are more preferable destinations for U.S. LNG than Europe,” and making the case that “[p]rice will determine the competitiveness of U.S. LNG. I don’t see U.S. LNG flowing to Poland or Portugal.” That may be true—for now—but the fact that Gazprom is having to respond to price pressures, and that its CEO is having to frame his company’s importance to Europe in terms of price, is evidence that American LNG is already having an impact. For our European allies, that’s excellent news for their energy security.

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