Russian mischief making sends Poland into a tizzy over pipeline plan

By bne IntelliNews April 8, 2013

bne -

Confusion abounded in Poland on April 5 as a vague Russian scheme to expand a gas pipeline to Europe that runs through the country appeared to accelerate suddenly, in spite of dismissals of the project from senior figures in Warsaw.

Russian President Vladimir Putin on April 3 ruminated on resurrecting a long-running on-off idea to add a second line to the Yamal-Europe gas pipeline, which runs through Belarus, through Poland and on into Germany, and is operated by Europol Gaz - jointly owned by Gazprom and Polish state-controlled PGNiG.

Gazprom CEO Alexei Miller followed up with the claim that the Russian gas company had completed talks with Poland - as well as Hungary and Slovakia to which the route would head - about the possibility of increasing supplies via the so-called Yamal-Europe 2 pipeline. The plan is widely understood to be another shot in Moscow's ongoing spat with Ukraine, which is the largest transporter of Russian gas exports to Europe currently.

However, Putin's words were dismissed in Warsaw the following day, with both Treasury Minister Mikolaj Budzanowski and Prime Minister Donald Tusk suggesting there is little demand for more Russian gas in the EU, and angrily pointing out that any new pipeline would depend on a decision from the Polish government, not the Kremlin.

A day later, barely had Tusk finished adding that Poland wants nothing to do with projects with "political contexts" when Gazprom sent Warsaw into a tizzy by announcing it has it had signed an agreement with Europol Gaz on the planned 15bn cubic metre pipeline.

Tusk said he was unaware of the memorandum of understanding, according to Dow Jones. "I don't know anything," Tusk said. "I can't comment on something that I know nothing about... It's not a Polish company."

However, while Gazprom holds a 48% stake in Europol Gaz, so too does PGNiG directly, while the remaining 4% is held by Gas-Trading, which says on its website that its largest shareholder is PGNiG. In turn, the Polish treasury controls PGNiG, and Budzanowski quickly ordered an urgent meeting with its executives to get to the bottom of the mess, which appears, as much as anything, as a bit of mischief making from Moscow.

PGNiG CEO Grazyna Piotrowska-Oliwa, who sits on the Europol Gaz supervisory board, said as much when she suggested Gazprom's announcement of an "agreement" is highly misleading. She echjoed a Europol Gaz statement which declared the MoU "doesn't include a decision to build the pipeline and isn't a legally binding agreement or pledge to conclude any agreements or contracts."

Poland has recently accelerated its efforts to diversify its energy supplies in a bid to reduce dependence on Russia, from where it currently sources around 67% of the gas it consumes. It is pushing to develop what it hopes are significant shale gas deposits, and plans to put an liquified natural gas (LNG) platform into operation before the end of next year.

After finally securing a price discount from Gazprom in late 2012 after a long tussle that saw it take the issue to arbitration, Warsaw clearly feels an aggressive stance towards Moscow is more likely to reap results - at least while the European gas market remains in the doldrums, exerting downwards pressure on Gazprom's high long-term contract pricing.

The Russian gas export monopoly has been forced to lower prices and pay out billions to major customers in recent months, with the EU offering much encouragement by launching an investigation into its European practices.

Plans for building a second Yamal-Europe line from Russia through Belarus and Poland have been discussed on and off for years. Poland previously insisted it should be built instead of the massive Nord Stream pipeline that connects Russia directly with Germany via the Baltic Sea and went into operation last year.

The 63bn cm/y capacity route was a major blow to Ukraine, although it still carries the bulk of Russian gas exports to Europe. Moscow continues to press Kyiv however to hand over control of its transit system, or join the Russian-led Customs Union, and alternative export routes - which would slash Ukrainian revenues - are a major element in a typically long-game from the Kremlin.

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