The impact of the war in Ukraine on energy purchases.

Russia's invasion of Ukraine opens up many questions about the future of the energy market in Europe.

What can we expect? Will the European and Polish economy or ordinary citizens?

These are, of course, rhetorical questions because every war, apart from first and foremost human casualties, has economic consequences. Russia's attack on Ukraine and open war have an evident impact on the energy market. In this case, too, it becomes obvious that the energy alliances in Europe should be thoroughly verified and rebuilt. Especially those with Russia - and this, as we all expect, will have consequences.

Sudden cut-off from Russia. Concerns about shortages of raw materials.

Many companies are asking themselves the question: how much can Poland withstand without gas supplies from Russia and whether their businesses are at risk at the moment. Unfortunately, Russia is the leading exporter of natural gas to Europe. The current division of the market is illustrated in the following infographic:

Source: EIA

It isn't easy to imagine that the gas purchased from Russia could soon be replaced by LNG supplies from other countries in a 1: 1 ratio. Europe already experienced last year what the limited supplies of gas from Russia mean, especially in the winter season. After all, the Yamal gas pipeline has practically not been used for over 2 months, and gas from Russia flows only through the Nord Stream 1 connection and the Brotherhood gas pipeline through Ukraine and Slovakia. The situation is saved mainly by the mild winter and the very unusual, so far, highly abundant supplies of liquefied gas from the USA. However, this is only an easing of the situation - gas prices in Europe have been at historically unprecedented high levels for many months.

In 2020, Poland imported about 9 billion cubic meters of natural gas from Russia, which accounted for nearly half of Poland's demand for this fuel. The primary natural gas consumers in Poland are industry, households, and heating.

Blue – LNG; Orange: West/South direction, Grey: West direction, Navy blue: Country’s production

Natural gas supply sources, bcm. Source: PGNIG.

When it comes to coal imports from Russia, the situation looks a bit better because although most of the coal imported to Poland comes from Russia, Poland imports about 20%, while 80% of coal comes from Polish mines.

Gas storage facilities in Poland, with a capacity of approximately 3 billion cubic meters, If we cut off Russian gas supplies, would be sufficient for around 2 months with average consumption. Of course, in an emergency, Polska Spółka Gazownictwa may introduce restrictions on natural gas consumption by imposing supply levels on consumers to ensure the longest possible availability period for strategic entities and households. Therefore, industrial and large consumers of natural gas will undoubtedly suffer. For some companies, shutting down gas supplies for a more extended period can have very serious consequences.

Currently, gas storage levels in Europe are not at their historical lowest levels. A mild winter, good wind conditions, and LNG gas supplies to Europe improved this situation.

Source: State of natural gas storage facilities in Europe as of 02/27/2022, 6.00 am. GIE

New gas projects: An invaluable opportunity for Poland?

New gas investments may be a chance for Poland to overcome the impasse. At the end of 2022, Poland should start operating a new connection with the Norwegian shelf - the Baltic Pipe gas pipeline (https://www.gaz-system.pl/fileadmin/pliki/przetargi/pl/Strefa_Dostyczki/Projekt_Baltic_Pipe.pdf), which is ultimately to have a throughput of 10 billion cubic meters. In addition, in 2016, an LNG terminal was launched in Świnoujście. It has a 5 billion cubic meters (currently, it is being expanded to 7.5 billion cubic meters). Therefore, it can be easily calculated that, theoretically, Poland should cope with it from the beginning of 2023 and will have an alternative to Russian blue fuel. Of course, the questions remain open - will the Baltic Pipe be considered one of those critical Polish projects completed on time, even ahead of schedule? And how quickly it will be possible to achieve the maximum capacity on this pipeline. PGNiG boasts of its gas deposits in the North Sea. In addition, shorter contracts with producers working on the Norwegian shelf should ensure Poland's stabilization of supplies.

Source: GIE

It's time to bet on LNG!

Following the shale gas boom in the United States from 2016, Europe has gained a critical business partner that has replaced import terminals with coal and export terminals with LNG.

Unfortunately, the direction of LNG supplies depends on the economic calculation. Recently, we had to deal with a situation where gas-filled ships going to Asian ports, already in the Indian Ocean, decided to return to Europe - the selling price of gas on the Old Continent was much higher. However, we must bear in mind that LNG from the USA will not always flow to Europe in this dynamic market.