Polskie LNG: Panel Discussion Held During Economic Forum in Krynica

By virtue of the currently erected LNG Terminal in Świnoujście, Poland will become a new player in the global LNG market, already accounting for over 32% of world gas trade. The LNG market increased as much as 65-fold in the period from 1971 to 2011. It is estimated that by 2030 it will grow by another 200%. Construction of the LNG terminal, which will allow to receive natural gas from any direction in the world, will radically change our reality. At present, Poland’s dependence on imported natural gas reaches 70%. The price of gas bought mostly under long-term contracts is correlated with prices of crude oil and petroleum products in up to 96%. In the EU this price indexation to crude oil equals 79%, whereas in the UK only 32% (where gas prices are largely market-determined).

“The binding long-term contracts for the supply of natural gas to Poland do not reflect the changes that have occurred in our economy. Therefore the shift from existing method of gas valuation towards the valuation based on market mechanisms should be considered. Yesterday’s European Commission’s decision about launching the anti-monopoly investigation against Gazprom confirms the reason of this postulate“, said Mikołaj Budzanowski, the Minister of the Treasury, during a panel discussion organized by Polskie LNG during the XXII Economic Forum in Krynica, on September 5th, 2012.

By establishing an integrated, competitive natural gas market, the European Union is developing new mechanisms of gas valuation, adjusted to the changing macroeconomic environment. The experience of the U.S. and the UK indicate that this method of valuation is the most promising. Indexation of gas prices to the prices of long-term contracts in European hubs is a very real prospect in the coming years.

The increasing diversification of sources of natural gas in the world – owing to the booming supply of LNG and shale revolution in the United States – as well as the growing significance of LNG Terminals to the global gas market bring new opportunities for Poland and the entire region of Central and Eastern Europe. “The LNG market increased as much as 65-fold in the period from 1971 to 2011. Natural gas production has recorded an annual rise by 3.9% during this period, whereas the production annual growth rate of LNG was 14,6%”, said Polskie LNG CEO Rafał Wardziński during the panel. “The LNG terminal being currently erected in Świnoujście will allow to receive natural gas from any direction in the world. Consequently, Poland will become a new player in the global LNG market”, he added.

The starting point for the discussion at the panel hosted by Polskie LNG was a report prepared by Mr. Robert Zajdler, Ph.D., titled “Prospects for the development of pricing formulae in long-term contracts for the supply of natural gas and their significance for the creation of a gas hub in Poland for the countries of Central and Eastern Europe”.

The author of the report, Mr. Robert Zajdler reckoned that Europe is the second-largest market in the world in terms of LNG consumption, following the Asian market. The European share in global LNG imports amounts to 27% and increases annually by 10% on average. The dynamic development of this market raises the question of Poland’s role in this process. “The hub which might be established in Poland could become the center of gas trade in the Central and Eastern Europe, however, the potential competition from the Austrian CEGH and German hubs must be taken into account”, said Robert Zajdler during the panel.

The increasing significance of natural gas trade in European hubs was emphasized by Stephan Lehrke representing Boston Consulting Group. In his analysis, Mr. Lehrke highlighted the fact that European natural gas trade increased by 47% in the period from 2005 to 2010, which may bring about fundamental changes in the form of long-term contracts.

Mikołaj Budzanowski (the Minister of the Treasury), Rafał Wardziński (Chairman of the Board of Polskie LNG SA), Grażyna Piotrowska – Oliwa (CEO and the President of the Management Board of PGNiG SA), Stephan Lehrke (Partner and Managing Director of The Boston Consulting Group), Robert Zajdler (Attorney at Law, Zajdler Energy Lawyers) and Roger Rodiek (Director of Development, Parsons Brinckerhoff) attended the panel organized by Polskie LNG. The debate was chaired by Michał Kobosko, (Editor-in-chief, Wprost).

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LNG World News Staff, September 10, 2012; Image: Polskie LNG