United States, EU, Poland, and Ukraine challenge Gazprom's dominant position in eastern Europe

• DOI: http://doi.org/10.1111/oet.12736
• Published date: 01 October 2019
• Date: 01 October 2019

GAS AND POWER

United States, EU, Poland, and Ukraine challenge Gazprom's

dominant position in eastern Europe

A deal between Poland, the United States and Ukraine to

supply liquefied natural gas (LNG) to eastern Europe, com-

bined with a European Court ruling that restricts Gazprom's

use of key European pipelines, should help ease heavy reli-

ance on Russian gas, as well as maintaining use of Polish

and Ukrainian transit routes.

In early September, the United States and Poland signed

a deal with Ukraine to supply it with re-gasified US LNG

via Poland, which is the latest in a series of moves to boost

alternatives to Russian supply in the region.

1

Then, a few

days later, Europe's top court overruled an EU decision all-

owing Russia's Gazprom to ship as much gas as it wished

through the Opal gas pipeline, which links the key Baltic

Nord Stream pipeline to Germany. Before the ruling,

Gazprom had been allowed to bid on the full 36 bcm/year of

OPAL capacity, but the decision halves this.

The case was brought by Poland, whose foreign minister,

Witold Waszczykowski, claimed that the Russians “use their

supplies as an instrument of political influence.”In its

ruling, the ECJ said the EU's 2016 decision to allow

Gazprom full Opal access (at Germany's behest) was “in

breach of the principle of energy solidarity,”because it

failed to properly assess how to balance Germany's interests

against the negative impacts on other EU member states.

Germany is the main European advocate of Nord Stream

2 and unrestricted European pipeline access for Gazprom.

The deputy head of Polish state-owned PGNiG said the

ECJ's decision would prevent Gazprom from completely

halting gas flow through Ukraine, following the end of the

country's 10-year gas-transit contract with Gazprom at the

end of this year. Gas volumes being sent through Ukraine

would increase by at least 12.5 bcm and flows through Nord

Stream and Opal should soon fall by a similar amount, he

said. The decision could also oblige Russia to keep using

Polish transit routes.

1|AN OPENING FOR MORE LNG?

Given that less Russian gas may be easily available, the

ruling should also help further open-up the eastern

European market to LNG from the Atlantic Basin. Poland

has already lined up large LNG volumes as it prepares to

cease buying from Russia after its 10.2 bcm/y deal with

Gazprom runs out in 2022. PGNiG's strategy has been to

buy more LNG than it needs for domestic purposes alone,

so that it can sell on gas to other buyers in central and east-

ern Europe. The company has already sold gas from one

US-sourced LNG cargo to Energy Resources of Ukraine

under the new trilateral deal, with delivery scheduled for

November. A new 110 km interconnector currently being

built will expand the capacity of flows between Poland and

Ukraine to 6bcm/y, up from 1.5 bcm/y now, with comple-

tion expected end-2021.

As well as the trilateral deal, PGNiG has also concluded

long-term deals with US suppliers Cheniere Energy, Venture

Global LNG and Port Arthur LNG, along with Qatargas—

making a total of over 12 bcm/year by 2024. Poland's exis-

ting Swinoujscie LNG terminal will be expanded from

5 bcm/y to 7.5 bcm/y by 2021 to help absorb the growing

import flows, and a second terminal is planned for Gdansk

in 2021. Poland also plans to have a floating LNG import

terminal in place by 2025 with a capacity of up to 8 bcm/y.

2|PIPED GAS FROM NORWAY

As well as the LNG, Poland is planning to bring Norwegian

gas to Poland via Denmark through the 10 bcm/y Baltic

Pipeline. A final investment decision was made on the

$1.5 bn pipeline last November, with ownership shared

equally between Gaz System of Poland and Energinet of

Denmark. Then, in January, the EU decided to back the pro-

ject with a €215 mn subsidy from its Connecting Europe

Facility. The pipeline is due onstream in October 2022, and

will include reverse transmission capacity from Poland to

Denmark and Sweden—which could allow for Russian

exports when conditions are suitable. PGNiG has a signifi-

cant presence in Norway's upstream, from which it plans to

supply a portion of the gas.

Altogether the pipeline flow from Norway and the LNG

deliveries should provide a sizeable alternative to Russian

DOI: 10.1111/oet.12736

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