Poland to link LNG hub across region

By bne IntelliNews February 14, 2013

bne -

Pushing to develop itself into a CEE gas hub, Poland is set to invest €1.1bn - around a third of it to come from EU funding - in a gas pipeline network linking its planned LNG terminal on the Baltic coast to neighbouring Czech Republic and Slovakia, and on into Ukraine, it announced on February 13.

"In five years we want to build 940km of natural gas pipelines to transfer gas from Swinoujscie up to the Czech, Slovak and Ukrainian borders," a spokesperson for state-owned pipeline operator Gaz-System said, according to AFP. "The investment is worth PLN4.5bn (€1.1bn)" she added.

"The new north-south network will allow the Czech Republic, Slovakia and Ukraine to use gas delivered to Swinoujscie." European Union funding will co-finance about a third of the project, the spokesperson said.

Gaz-System hopes to launch Poland's first LNG platform at Swinoujscie in summer 2014. It plans to complete a five-year project to build 1,000km of pipelines which will link it to the Czech and German gas transmission systems that same year. Poland is also planning to link the platform to Lithuania, which aims to launch its own LNG platform the same year.

The expanded pipeline plan is part of a growing Polish push to turn itself into a gas hub for the region as an alternative to Russia, which currently dominates supply. Warsaw's enthusiasm to develop the country's shale gas reserves is another part of that scheme.

In November, project company Polskie LNG said it was launching a review of CEE demand with a view to expanding the Swinoujscie facility. "We expect our terminal to play an important role not only on the energy map of Poland but also in the entire region of Central and Eastern Europe, offering the clients a wide range of business opportunities," Polskie LNG CEO Rafal Wardzinski said at the time.

The move to offer Ukraine alternative supply is likely to go down particularly badly in Moscow however. The Kremlin is hardly happy with interference in markets like Lithuania, where it currently supplies 100% of gas. Ukraine - with its mainline gas pipelines towards European markets - is a strategic lynchpin for its entire geo-political outlook however.

Russia is currently leveraging an ongoing gas price dispute with Kyiv to try to force it to join the Customs Union it recently set up alongside Belarus and Kazakhstan. The EU and US meanwhile are still attempting to pull Ukraine into their own orbit.

Following in the footsteps of several other European customers, Poland finally won a gas price discount from Gazprom late last year. Warsaw has since upped its rhetoric in a bid to push home the advantage, as the RUssian state giant is buffeted by the effect of LNG and US shale gas on the one hand, as well as the economic downturn in Europe. The start of operations at the region's first LNG terminal will allow Poland to tap global gas prices, which are significantly lower than those in the long-term oil-linked contracts Gazprom uses in Europe.

Poland currently consumes 14.38bn cm of gas per year, but produces no more than 2.97bn cm/y, a recent study showed. That leaves the country relying on Russian imports for 63% of consumption. Financing for the Swinoujscie terminal was completed in October, when the EBRD committed to lend Gaz-System PLN300m (€75m). The rest of the €660m funding will come from the European Commission via grants, the European Investment Bank and Polskie LNG's own finances.

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