Page 7 - Euroil Week 20 2020

EurOil COMMENTARY EurOil
Map showing route of the Baltic Pipe project. Source: baltic-pipe.eu
Coal struggles
Poland currently generates 80% of its power from lignite and hard coal and under its latest energy strategy, it still sees coal accounting for 50-60% of power generation in 2030. The gov- ernment is reluctant to scale back coal-fired power too quickly, because of the impact this would have on recently restructured domestic coal mines.
However, coal plants are finding it increas- ingly difficult to compete with other sources of energy. Wholesale gas futures on the Neth- erlands’ TTF have been declining for most of the last year, against a backdrop of rising LNG imports into Europe. They have shed around 60% of their value since the start of the year, as coronavirus (COVID-19) lockdowns and economic weakness have weighed down on demand.
At the same time, the margins of Poland’s coal plants have grown steadily weaker as a result of the EU’s carbon permit scheme. The cost of EU Allowances (EUAs), which they must buy to cover their emissions in a given year, spiked at almost €30 ($33) per tonne of CO2 last year. While the permits fell to almost half this amount when COVID-19 lockdowns in Europe in full force, they are expected to recover quickly as restrictions are eased.
Poland is also constructing more gas import infrastructure, which it says will enable it to cease all purchases from Russia once its current supply contract expires at the end of 2022.
Its gas transmission system operator
Gaz-System reported earlier this month it had secured the last approvals for the construction of Baltic Pipe, a 275-km pipeline that will pump up to 10bn cubic metres of Norwegian gas to Poland via Norway starting in October 2022.
Meanwhile, Poland plans to raise the capacity of its Swinoujscie LNG import terminal, which it uses to import gas from Qatar and the US, by 50% to 7.5 bcm in the next two years. Contracts for the expansion have already been awarded. By 2025 it also wants to build a second, 4 bcm per year terminal in Gdansk.
At the same time, Poland is strengthening connectivity with its neighbours, with a gas link due on stream in late 2021 that will carry up to 1.9 bcm per year of supplies from Lithuania. This provides it with access to Lithuania’s Klaipeda LNG terminal. It is building another pipeline connecting it with Ukraine.
State gas firm PGNiG is also targeting higher domestic production, aiming to raise supply to 4 bcm next year.
Ostensibly, the main aim of these projects is to enable Poland to end Russian gas imports, which currently cover around two-thirds of the country’s 17 bcm annual demand. But if they are all realised, Poland would have supply spare to resell to its neighbours and use as fuel for more gas-based power plants.
In its energy strategy, Poland aims to expand gas-fired capacity to 12.4 GW by 2040, up from a mere 1 GW in 2016. Having a range of import options for gas will ensure stable and affordable gas supply to implement this plan.™
Week 20 21•May•2020 w w w . N E W S B A S E . c o m P7