Poland looking to diversify its energy sources

The conservative government in Poland plans to invest well over €1 billion in the energy sector in an attempt to modernize its infrastructure, and perhaps more crucially, reduce its dependence on Russia, its main supplier of oil and gas.

The plans reflect growing fears in Poland that the Russian president, Vladimir Putin, will use his country's energy clout as a political hammer, something he was judged to have done in January when Gazprom, the giant state-owned energy monopoly, cut its gas deliveries to Ukraine in a dispute over gas prices. Ukraine agreed last week to a 36 percent increase in the cost of natural gas supplied by Russia next year.

Warsaw is also concerned that a Russian-German pipeline project in development will result in a loss of gas supplies to Poland.

"We want to diversify because we fear that Russia will use the export of its gas as a political tool," Piotr Naimski, secretary of state in charge of energy security in Poland's Economy Ministry, said in an interview Thursday.

Poland is not alone in Europe in its uneasiness over energy independence and Moscow's ascendant role in the industry, before the Continent's energy market is fully opened to greater competition next year.

Lithuania, for instance, plans to build a nuclear power plant to reduce its dependence on Russia. France is attempting to merge utilities, Suez and Gaz de France, in a bid to maintain a healthy and locally owned energy sector.

Over 70 percent of Polish energy needs consist of imports, of which 95 percent comes from Russia and other countries belonging to the Commonwealth of Independent States. The rest is provided by domestic production, particularly coal.

Naimski said the investments, when complete, would mean that Poland would not have to increase its imports of gas from Russia even as domestic energy consumption increases. "The level of Russian imports would remain stable," Naimski said. His goal is to eventually meet a third of Poland's energy needs outside Russia and the Commonwealth.

One investment is the construction of a large liquefied natural gas terminal to be located in either the ports of Gdansk or Szczecin, both on the Baltic Sea.

"We are in the final preparations for sending out the bids," Naimski said, putting a price of "several hundred million euros" on the project. "The preparations and feasibility studies should be ready by the end of November or early December."

In addition, the Polish Gas and Oil Company is negotiating with Gassco, the state-owned Norwegian gas transport operator, to take a stake in a new off-shore pipeline which could be extended to the Polish coast if Poland commits to buying a certain minimum amount of gas.

Gassco kicked off the process of developing that 7.3 billion Norwegian kroner, or $1.1 billion, pipeline this month, saying it would open negotiations with Norwegian and Swedish companies.

It would run from a point near Stavanger to Norway's Grenland region and then to western Sweden.

Inside Poland, Naimski said the government intended to invest €1 billion, or $1.26 billion, in modernizing the country's transmission and distribution gas networks. The financing, spread over five years, would be made available through the EU's structural funds.

The government plans to complete the LNG terminal by 2010, when the Russian-German Nord Stream pipeline is expected to be finished. The pipeline will run under the Baltic Sea and allow Gazprom for the first time to send gas directly from Russia to northern Germany, where it would become a hub for distributing this gas to other parts of Western Europe.

Gazprom advanced those plans last week, announcing it had bought a disbanded mine in northern Germany which would be converted into a large underground gas storage facility.

Poland is concerned that once the Nord Stream pipeline starts sending gas to Europe, Gazprom may close for repairs part of another pipeline, the Yamal, that runs across Belarus into Poland.

Naimski said that Western Europe would not be affected by such repairs because any shortfall would be met by the Nord Stream's available capacity, but Poland would suffer because the Nord Stream does not reach Poland.

"That is why the need to diversify is so important," he said. "That is why the Nord Stream pipeline is against our interests."
Source: By Judy Dempsey International Herald Tribune