Monday, November 30, 2020
Home Oil & Gas Gazprom loses court case to Poland’s PGNiG over gas pricing

Gazprom loses court case to Poland’s PGNiG over gas pricing

The Arbitral Tribunal in Stockholm has ruled in favour of Polish state-controlled oil and gas company, PGNiG, ending a five-year-long dispute between the Polish company and Russian-based Gazprom concerning the price of gas.

The new price formula is directly tied to the market price level in Western Europe. According to preliminary estimates of PGNiG Gazprom will be required to refund approximately 1.5 billion US dollars as a result of the award being issued.

The Tribunal confirmed that the price of gas in the Yamal Contract was overstated and failed to reflect the price level on the market. The take-or-pay clause of the Yamal Contract concluded in 1996 sets out that PGNiG has to pay for a minimum of 8.7 billion cubic meters (bcm) of gas per year until the end of 2022 when the contract expires. Each of the parties may submit a price review request every three years if it considers that the current price does not reflect the market price level. PGNiG availed itself of that possibility in November 2014. In February 2016, the company filed a statement of claim against Gazprom with the Arbitral Tribunal in Stockholm.

The Tribunal’s ruling applies from 1 November 2014, the date on which PGNiG sent its contract price review request to Gazprom. This means that the Russian company will be required to pay back an estimated 1.5 billion US dollars (about 1.4 billion euros) to PGNiG, which is the difference between the price calculated based on the new formula and the amounts paid by PGNiG since 1 November 2014 until 29 February 2020.

Last year PGNiG has submitted a declaration of intent to terminate the purchase of gas from Gazprom after the expiration of the contract in 2022. The company has taken steps to reduce its reliance on Russian gas in line with the Polish government’s energy strategy to diversify supply routes. PGNiG’s stance sends the message that Warsaw does not intend to sign a new deal with Gazprom at all costs and is now in the position to reject unfavourable offers.

“Diversification of gas supplies remains our constant priority, therefore we plan to use the funds we will recover from Gazprom to purchase new hydrocarbons deposits”, commented Jerzy Kwieciński, President of the Management Board of PGNiG. “We will also invest in new business areas related to the integration of the domestic heat market and the development of a zero-emission energy source system.”

Poland consumes around 18 bcm of gas annually, with almost half of this imported from Russia through the Yamal gas pipeline. Local production satisfies only 4 bcm of gas per year, the rest comes mainly from the President Lech Kaczynski Terminal in Świnoujście, where liquid natural gas (LNG) is shipped primarily from the United States, Qatar and Norway. In the past couple of years, the share of natural gas purchased from Gazprom in the overall gas import of Poland fell from 87 per cent in 2015 to 60 per cent in 2019. Meanwhile, the volume of imported LNG has been rising progressively.

PGNiG clearly saw the potential for LNG as a viable competitor to pipeline gas. In 2018 and 2019, the company signed long-term contracts for the purchase of LNG from the United States, with 9.3 bcm of regasified fuel annually. PGNiG expects the volume of imported LNG to rise significantly from 2023 onwards and to reach approximately 12 bcm annually starting from 2024.

Poland’s other flagship project, the Baltic Pipe is expected to further strengthen the country’s strategic goal of supply diversification by granting access to the deposits on the Norwegian Continental Shelf via Denmark. The launch of this project is planned for 2022 enabling the import of approximately 10 bcm gas annually.

Most Popular

V4 countries must seize the opportunity of green recovery

An analysis of Cambridge Econometrics argues that a green recovery in the Visegrad Group countries is not only important for climate goals but also could provide an important push towards pre-Covid levels of employment and economic activity.

Russia and Belarus to discuss the conditions of gas supplies for 2021

Gazprom announced that the issue of repaying the debt owed by Belarusian consumers for Russian gas supplies had been completely settled. Therefore, negotiations can be launched to discuss the conditions of gas supplies for 2021.

On the road to making Europe climate neutral – interview with European Commissioner for Energy Kadri Simson

European Commissioner for Energy Kadri Simson speaks about the strategies adopted by the EU and the role played by alternative fuels and renewables to increase countries’ energy diversification while decreasing their energy dependence.

Sustainable hospitality: eco-friendly designs from the Nordics to Central Eruope

It might sound futuristic, but the Svart Hotel will be not just an attractive destination because of its magnificent environment, but it will exceed the highest standards of sustainability. The concept of sustainable hospitality is spreading to the CEE region as well.