RPT-Poland's energy security strategy comes at high cost
By Oleg Vukmanovic and Agnieszka Barteczko
LONDON/WARSAW, Sept 9 (Reuters) - Poland's deal to import liquefied natural gas (LNG) from Qatar could saddle eastern Europe's biggest economy with some of the highest prices in the world, a steep bill for a country seeking to wean itself off Russian supplies and restart growth.
Based on current prices, the Qatari imports scheduled to start in 2015 would cost at least a third more than what Russia charges for deliveries to Europe, also creating a potential wild card for a government expected to face new elections.
"Poland will have to live with it and get prepared for minimizing losses," said Andrzej Szczesniak, an independent oil and gas analyst. "It could resell the gas it receives from Qatar on the market, but probably at a lower price."
Szczesniak estimated the Qatari price to be 40-50 percent higher than that charged by Russian gas producer Gazprom . A senior energy executive in Poland suggested the premium was even higher.
Poland and other central and southeastern European countries receive the bulk of their gas from Russia and are eager to reduce dependence on their former Soviet master.
The winter 2009 dispute between Russia and Ukraine that shuttered a major pipeline serving the region underlined the risk of relying on Russian deliveries and pushed governments to redouble efforts to find new suppliers.
"The geopolitical, non-economic reason is to release Poland from dependency on a single supplier that is unfriendly," said Aviezer Tucker, who specialises in central and eastern European issues at the Energy Institute of the University of Texas.
"Unlike with piped natural gas, there is a global market for LNG."
One new proposal is a pipeline system to transport gas from Poland's new LNG terminal on the Baltic Sea and from another planned facility on Croatia's northern Adriatic island of Krk.
The 2.1 billion zloty ($645 million) terminal under construction in the Baltic port of Swinoujscie is expected to be finished in the second half of 2014 with Qatari deliveries beginning in 2015.
Under an agreement signed in 2009, Poland's gas monopoly PGNiG will buy 1 million tonnes of LNG annually for 20 years at a price closely correlated to crude oil.
The deal calls on Poland to pay a rate of 16 percent or above of crude oil prices, plus a fixed component of around 50 U.S. cents per million British thermal units (mmBtu), trade sources familiar with the agreement said.
At today's prices, that equates to around $20.50/mmBtu, compared with the cost of Russian long-term supplies to Europe of $13.50/mmBtu, data from Thomson Reuters Point Carbon shows.
That means Poland could pay an extra $325 million annually for the Qatari supplies, which will cover about a tenth of all demand in the country of some 39 million people.
Spot LNG on the global market fetches around $15.25/mmBtu, while current European pipeline gas prices trade at $10/mmBtu.
So far, the only cargoes currently secured for the terminal are Qatari term volumes, which are well above other long-term LNG contracts.
Since high LNG prices will be passed on to final consumers, this could turn into a sticky political issue for the centre-right government in 2015, when Poland is scheduled to hold parliamentary elections.
"Aside from this deal, which may be considered symbolic given the relatively low volumes on offer, Poland could eventually be an outlet for U.S. LNG once exports start," a separate industry source said.
TAKE OR PAY
The gas for the new terminal will likely come from the third production plant, or train, at Qatargas, the world's biggest LNG exporter.
It is expected that shale gas and regasified LNG will be more expensive than pipeline imports from Russia, which rose in 2010 to 10.2 billion cubic metres per year, until 2037.
Another issue for Poland is the "take-or-pay contract" requiring PGNiG to begin paying for LNG whether the terminal is ready or not. The Polish treasury minister said earlier in September that Poland is unlikely to pay for supplies if the LNG terminal is delayed.
Sources also told Reuters that PGNiG has set up a committee to look into renegotiating its Qatari deal, while a former Polish treasury minister has hinted that taking a second look at the agreement is on the table.
"I know there were such plans," an industry source in Poland familiar with the case said. PGNiG and the treasury ministry declined to comment, saying the contract was confidential.
Even so, new talks with Qatar have little chance of success as the LNG supplier would be reluctant to give a discount due to firm prices worldwide, market sources said.
"Such contracts can usually be renegotiated every third year after being implemented but I do not think the Qatari deal could be renegotiated before it starts, especially as there will be no place to unload the gas," analyst Szczesniak said.
Instead, Poland may have to offer substantial assets - such as power plants or real estate - to convince the Qataris to lower the price, the industry source said.
"This is only about Qatari goodwill", he said.
- Tesla says in talks with BMW over car batteries, parts
- Exclusive: China ready to cut rates again on fears of deflation - sources
- Actor Dwight Henry eyed in New Orleans killing after arrest for theft
- Iran atom talks set to resume next month after missing deadline
- Obama to Republican critics on immigration: 'Pass a bill'
We are living longer but not creating financial plans to keep pace. Advisers give tips on how to make sure you don’t outlive your money. Video