Natural gas to gain market share in Poland

Poland hopes to ensure its security of energy supplies in the coming decades by continuing its reliance on coal, but natural gas will play a growing role in its expanding economy.

Polish gas demand is expected to rise to 22-27 billion cu m/year by 2010 from current consumption of 11 billion cu m/year. Electricity consumption will increase 40%.

There are plans to increase gas supplies through exploration and imports from western Europe and from Russia through the Yamal pipeline. Increased gas use would allow an alternative to coal for power generation, but that requires restructuring of the gas sector.

With gas demand expected to double by 2010, state-owned Polish Oil & Gas Co. (POGC) estimates it will cost $57 billion to improve the national supply and storage infrastructure, reduce exploration costs, and finance restructuring.

The government plans a four-stage process to privatize POGC. Support facilities and exploration companies will be partially privatized and production companies and downstream gas transmission companies will be removed from POGC's control.

An energy law passed in April 1997 opens the way for a free market in the energy and gas sector. It requires the monopoly POGC to open its pipeline network to other companies, decontrols gas prices over the next 2 years, and requires producers and buyers to negotiate gas contracts.

National grid

Poland's gas reserves total 150-160 billion cu m. Gas fields are located in the Carpathian, sub-Carpathian, and lowland regions. In 1995, domestic production was 3.7 billion cu m, including 1.64 billion cu m of high-methane content and 2.83 billion cu m of low-methane content gas.

Consumption in 1995 was almost 11 billion cu m. Domestic production meets 40% of demand. The gas industry supplies 8% of the total primary energy demand.

Through the use of underground gas storage for high-methane gas, production remained at a fairly constant level throughout the year. Four storage sites totaling 620 million cu m of capacity are located in depleted gas fields in southwestern Poland.

The low-methane gas system has no underground storage, and monthly production varies.

The national transmission gas grid supplies 3,000 localities, including 510 cities. The main system is for high-methane gas (13,109 km), with smaller systems for low-methane gas (3,104 km) and coke oven gas (367 km).

The high-methane system moves gas from fields in southeastern Poland and is connected with the transmission system in Belarus and Ukraine for imports from Russia.

The low-methane system moves gas from southwestern and western Poland. The coke oven gas system has been gradually decommissioned.

In 1995, high-methane gas accounted for 79.8% of gas used in Poland, nitrogen-hardened gas 19.2%, and coke oven gas 1%.

The 73,000-km distribution network has been growing 2,000-3,000 km/year. About 200,000 consumers are connected each year, and a total of 60,000 km of distribution lines is planned by 2010.

Gas import capacity is 10-12 billion cu m/year, but imports currently average just 5 billion cu m/year. Imports supply 60% of consumption. Most come from Russia, with a marginal share from Germany and the Czech Republic.

Industry structure

The government-controlled POGC dominates the Polish gas industry from exploration to delivery to distribution.

In 1991, POGC was forced to withdraw from exploration for oil and gas in central and eastern Poland, and some of these areas have been licensed to foreign companies.

The Polish firm Petrobaltic produces oil and gas in the Baltic Sea. There are four gas-producing areas in the Baltic, about 70 km from Rozewie, Poland's northernmost cape. The Baltic Sea gas reserves are estimated at 7 billion cu m.

POGC is involved in about 35 joint ventures, the most important being the Polish portion of the Yamal gas pipeline project.

Using a 1990 World Bank loan of $250 million, POGC has expanded Polish domestic gas production by 35%.

The firm employs 45,000 people, and overstaffing is a problem.

On Sept. 9, 1995, the Polish government approved a POGC restructuring plan to improve efficiency. That plan called for POGC to sell 14 construction, repair, manufacturing, geophysical, and drilling companies and then split into Polish Oil Co. Inc. and Polish Gas Co. Inc.

When the restructuring is complete, POGC would be a holding company responsible for a national hydrocarbon policy, development of a gas system, establishment and maintenance of strategic gas reserves, coordination between the principal oil and gas companies, and management of joint ventures with foreign and domestic firms.

Legal, regulatory structure

The 1994 Geological and Mining Law regulates exploration and development. The government plans to revise it, because it was drafted for mining operations and contains provisions that discourage foreign investments in oil and gas.

The 1997 Energy Law was passed to introduce competition into the gas and electricity industries by opening transmission to third parties. It established the Energy Regulatory Agency to issue licenses for production, transmission, and distribution of electricity, gas, and heat.

The Energy Law contains only the main principles of regulation. Details will be issued partly in secondary legislation (within 12 months) and partly in licenses.

Gazprom deal

In September 1996, POGC signed a deal with Gazprom for supply of 250 billion cu m over the next 25 years.

It will be shipped via the Polish portion of the Yamal pipeline, currently under construction. The first 3 billion cu m was to be delivered in 1997, and imports will increase to 14 billion cu m by 2010.

The Ministry of Industry and Trade said Yamal gas eventually will meet 29-43% of Polish demand.

The 4,000-km Yamal-western Europe pipeline will carry western Siberian gas to Poland, Germany, and elsewhere in western Europe.

Europol Gaz SA, a joint venture of POGC (48%), Gazprom (48%), and the Polish firm Gas Trading SA (4%) manages the $2.5 billion Polish segment, the largest infrastructure investment in the nation to date.

The Polish section will extend from Kondratki, on the border with Belarus, to Gorzyca, on the border with Germany. Two parallel lines of gas pipeline are planned, each 665 km long. The first pipeline will become operational in 1999. The second line will be completed in 2010.

Construction of the first 107 km leg from Gorzyca on the Polish-German border to Lwowek near Poznan was completed in October 1996. Work has started on the second part, from Lwowek to Wloclawek.

In November 1996, Europol announced the tender for construction of the first two of five planned compressor stations.

LPG market

The Polish liquefied petroleum gas market is the fastest-growing in Europe. Over the last 4 years, the market for LPG in Poland grew fourfold and reached 690,000 metric tons in 1996.

Average per capita LPG consumption is about 18 kg/year, compared with 30 kg in West European countries.

The Polish LPG Organization estimates consumption should reach 1.2 million tons in 2000. The number of LPG distribution centers increased from 17 in 1989 to over 250 in 1996.

LPG trade does not require a license, and gas cylinders used by small distributors frequently do not comply with safety standards.

The major distributors, Royal Dutch/Shell unit Shell Gas and Gaspol of Poland have operated the strictly controlled networks in Poland for 2 years.

The major LPG distribution companies in Poland are BP Gas, Baltyk Gaz, Gaspol, Elektrim-Europgaz, Shell Gas, Petroenergogaz, and Topgas.

LPG is used by 4.5 million Polish households, while 6.5 million households use gas. Also, 220,000 autos use LPG, and the total is expected to grow to 350,000 in 2000.

About 80% of Poland's LPG supply is imported, with the balance of 200,000 tons coming from refineries at Plock, Gdansk, and Glimar.

The major suppliers of LPG to Poland are: Russia, with 54% of total imports; Germany 17%; Belarus 6%; Slovakia 5%; and Norway and Lithuania 4% each.

New LPG terminals are proposed at Gdansk, Terespol, Malaszewicze, and Przemysl.

Gas-fired power

Several projects are uner way in Poland to develop gas-fired combined heat-and-power (CHP) plants. This includes a gas-fired cogeneration plant, which the U.S. firms AES Electric and Failure Analysis will build in Zarnowiec at the site of a former nuclear plant.

Several other gas-fired power plants are under development, including the Nowa Sarzyna CHP (Enron Corp.) and the Zamosc CHP (Southern Electric), as well as the modernization of the Gorzow CHP.

POGC estimates the total gas supply consumed by power plants will be 7 billion cu m/year by 2010.