Poland eyes opportunity to press Russia on gas prices

By bne IntelliNews October 8, 2013

Tim Gosling in Prague -

Poland is pushing for a second gas price discount from Russia's Gazprom in as many years, a senior government official in Warsaw said on October 7. The Central European country claims that its alternative sources of supply of gas should enable it to leverage another discount, while the move also comes as Brussels stands up to Moscow's strong-arm tactics in Emerging Europe.

Polish state-controlled PGNiG said in a statement on October 6 that it would kick off talks with Gazprom on the Yamal-Europe pipeline the following day. The goal of the meeting is also to "discuss conditions of gas deliveries to Poland," it said, according to Dow Jones.

As those talks opened, Deputy Prime Minister Janusz Piechocinski told local press that Poland's recent efforts to diversify supply gives his country a stronger position, and that Gazprom should hand it better prices. Poland has built several links connecting it to neighbouring states' pipeline networks over the past few years. It is also building a liquefied natural gas (LNG) terminal on the Baltic coast, and has been pushing hard to exploit its reserves of shale gas, although commercial flows are yet to emerge.

Poland will have "complete security" of supply in 2018, Piechocinski claimed. At that point, "of course if Russian gas remains the cheapest, we'll keep using it," he added.

There was no little celebration in Warsaw last November when Poland finally secured a retroactive discount of more than 10% from Gazprom after months of talks. The Russian state-controlled giant had already given several discounts to major customers in Western Europe as the Eurozone crisis, the success of US shale, and growing LNG deliveries from the Middle East have depressed prices, but has remained much less willing to bargain in Centra; and Eastern Europe, where it controls far more of the markets.

However, Poland insists it continues to pay a relatively high price, and now senses its leverage is growing. "The time is coming to talk with Gazprom about renegotiating gas prices," Piechocinski said, according to PAP news agency. "The market is slowly becoming the buyer's market, not the supplier's."

Currently, Poland still imports close to 70% of gas, most of it from Gazprom. At the same time, it has Brussels firmly in its corner, and the EU has shown a greater willingness over the past 12 months or so to confront Russia in the region. The European Commission announced on October 3 that it is drawing up a charge sheet against Gazprom resulting from the anti-monopoly investigation it launched a year ago into potential abuse of its market dominance in CEE.

Another potential pressure point for Poland is the Yamal-Europe pipeline, although Warsaw is unlikely to be able to capitalize.

PGNiG and Gazprom share ownership of the Yamal-Europe I pipeline, which carries Russian gas from Belarus, through Poland and on into Germany. However, in April the Russian company sparked a political row in Warsaw when it claimed the pair had signed an agreement to reroute the current stretch of Yamal-Europe II, which runs through Ukraine before heading to Slovakia and ultimately Austria, so that it bypasses Ukraine.

While little more than mischief making by Moscow - the pair had actually only signed a preliminary agreement on a feasibility study - the sensitivity in the EU to Russian pressure on Ukraine was illustrated when the Polish treasury minister and his protege at the head of PGNiG were promptly sacked. Therefore, although a potential bargaining chip for Poland, building a spur to bypass Ukraine is clearly not a topic Warsaw can discuss. Kyiv plans to sign an association and trade pact with Brussels in November, and Poland is at the forefront of states offering Ukraine support as Russia continues to push it to join the Eurasian Union instead.

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