US and Poland sign 20-Year LNG gas deal

Warsaw’s incentive to reduce dependence on Russian pipeline gas has prompted Poland to sign a 20-year deal with a US LNG producer. It remains unclear whether the new deal obliging the Eastern European state to buy 2 million tons of super-chilled fuel per year will prove profitable for Warsaw.

Polish state-run gas company PGNiG announced on October 17 that it had finalized a 20-year deal with the US-based Venture Global LNG producer to import up to 2 million tons of LNG — or 2.7 billion cubic meters after re-gasification — annually.

However, although PGNiG’s CEO Piotr Wozniak claims that US LNG will cost about 20-25 percent less than the Russian pipeline gas for Poland, the much celebrated deal appears to be fraught with risks.
Under the contract, the Polish company is obligated to buy US LNG from two of Venture Global’s subsidiaries on a free on board (FOB) from 2022, when the Venture Global Calcasieu Pass LNG export facility is expected to become operational. The agreement struck by the former government of Waldemar Pawlak with Moscow on the supplies of Russian natural gas will expire the same year.

Currently, Poland imports almost two thirds of its gas from Russia and is struggling to reduce “energy dependency” on Moscow. Commenting on the US-Polish gas agreement, Polish Energy Minister Krzysztof Tchorzewski stressed that “in the Polish context, this gas is a civilizational good.”

On the other hand, according to Wozniak, Poland will be able to re-sell the acquired LNG worldwide. It is probable that while striking the deal, Polish exporters had China’s rapidly growing energy market in mind. Indeed, it is expected that the People’s Republic of China’s gas demand will grow by 60 percent between 2017 and 2023, reaching 376 billion cubic meters (bcm).

One can’t rule out that Warsaw wants to capitalize on the US-China energy spat that erupted after Donald Trump announced a third round of tariffs against Beijing. The People’s Republic has dramatically decreased purchases of US LNG and oil and eventually stopped them. Under these circumstances, Poland may play the role of an intermediary between the two rivals.

And as frosting on the cake, the Polish state-owned company can possibly use the contract with Venture Global as a lever to exert pressure on Gazprom post-2022.

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