Page 11 - GLNG Week 20

GLNG COMMENTARY GLNG
Poland eyes greater role for gas
PKN Orlen has said it will only move forward with the Ostroleka power plant project if it runs on gas, rather than coal
PROJECTS & COMPANIES
WHAT:
PKN Orlen wants what had been expected to be the last coal-fired power plant to be built in Poland to run on gas instead.
WHY:
Coal-fired power plants are struggling with the rising cost of EU carbon permits and competition from gas-based power.
WHAT NEXT:
Poland is developing new import infrastructure that could support an increased share of gas in its energy mix.
Poland is advancing a raft of projects that will enable it to import more LNG and pipeline gas.
POLAND’S PKN Orlen, the developer behind what had been expected to be the last coal-fired power plant to be built in Poland, has said it will only move forward with the project if it runs on gas.
The announcement comes at a time when European gas prices are at an historic low, making it difficult for coal-fired generation capacity to compete in some markets. At the same time, Poland is advancing a raft of pro- jects that will enable it to import more LNG and pipeline gas – ostensibly to replace the Russian gas it receives.
Market conditions could result in Europe’s biggest coal advocate shifting its position.
The long-delayed 1-GW Ostroleka power plant project in Poland’s north-east was revived in 2016. This was a year after the ruling Law and Justice Party took office, on a platform of saving the country’s politically powerful coal industry from collapse.
The project is to be implemented by state- owned power utilities Energa, acquired by Orlen in April, and Enea. It was supposed to use locally dug lignite as its fuel. But Orlen says it will only invest in construction if gas is used.
“We cannot act in isolation from market trendsandEuropeanUnionregulatorypolicies,” Orlen CEO Daneil Obajtek said in a statement. “The investment in Ostroleka will be conducted but it has to be based on gas technology.”
Last month another state firm PGE also ordered two gas turbines from General Electric to install at the Dolna Odra coal-fired station in Poland’s Western Pomerania region. The turbines are due to go live in 2023, boasting a combined capacity of 1.4 GW.
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 its recently restructured domes- tic 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-Sys- tem 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%to7.5bcminthenexttwoyears.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 Lithu- ania. 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.™
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