Poland, a ‘failed state’ in gas trading Poland’s deliberate obstruction of European traded gas market integration and its misguided quest for diversity hinging on ‘ideological physicality’
by Wolfgang Peters The Gas Value Chain Company GmbH
Executive Summary1 Poland can be regarded as the fiercest opponent of the Nord Stream 2 pipeline project claiming ever increasing dependency on Russia, going as far as depicting Russian pipelines in military ‘pincer movement’ fashion. It also comes forward with headlinegrabbing diversification projects such as the Baltic pipe, claiming the urgent need to mend its lack of supply diversity. A look at the facts provides a different picture. Poland is blessed with a generous diversity of physical supply availabilities, namely 5 ‘distinct sources of origin’. The diversity of respective supply routes is even larger. Moreover, Poland scores well as to ACER’s market health metrics if one ignores the discounts applied to certain supply sources as ACER does. The alleged Russian dependency turns out to be a myth, in that the sum of non-Russian sources comprises 117 % of domestic consumption and almost 260 % of the Russian minimum offtake quantities. There are no obstacles for Poland to become part of the fully integrated, deep, liquid and price-wise closely correlated traded wholesale markets of Northwest-Europe, which notably include the VOB hub of the Czech Republic. The absence of integration is merely the consequence of the barriers to free cross-border trade and free trade at the Polish wholesale market put up by Poland. This has consequences also for the Polish retail market, which must be qualified as the ‘perfect storm’ of a commercial ‘no-go’ area due to ‘margin squeeze’ or ‘predatory pricing’. PGNIG’s 2017 sourcing behavior belies Poland’s alleged lack of diversity and Russian dependency. PGNIG made use of all of its 5 available sources in turn, notably including considerable quantities by virtual reverse flow from the German hub GPL. Russian supplies were taken in excess of minimum offtake quantities, apparently due to an attractive price. Poland’s quest for diversification appears misguided by ‘ideological physicality’, promoting the expensive Baltic pipeline project, thereby ignoring the benefits of entry /exit enabling the transport of Norwegian gas landed at the German beach for a few cents per MWh.
The ‘true story’ of the Polish market situation, as opposed to the ‘alternative facts’ presented by Poland itself, calls into question Poland’s needs for EU funding of various multi-billion diversification projects, e. g. the expansion of its LNG terminal and the Baltic pipe. Poland’s aspiration to become the ‘pivotal hub’ for Central Europe, the Baltic states and possibly Ukraine could mean putting ‘the fox in the henhouse’ if this would enable Poland to charge an ‘above market’ premium to these countries as is its present practice in the Polish market. The pending proceedings instigated by the EC against Poland because of the so-called storage obligation are only scratching the tip of an iceberg. In order to finally enable free cross-border as as well as free trade at the Polish hub and also liberalize the retail market effectively, a whole suite of aspects and measures is offered for consideration.
I am indebted to Prof. Jonathan Stern, from The Oxford Institute for Energy Studies (‘OIES’), Dr. Harald Hecking, from the ewi.Energy Research & Scenarios gGmbH (ewi ER&S) and Tomas Marzec-Manser, from ICIS Heren, for their invaluable help.
Poland, a ‘failed state’ in gas trading | The Gas Value Chain Company GmbH
Contents Executive Summary
Contents 3 1. Introduction
2. Northwest-European hubs comprise a ‘fully integrated trans-national market behaving like a single price area’ – but Poland is not part of it
3. Benefits of full traded market integration through the