Gdansk, Poland – Poland has long been seeking to diversify gas supplies as its long-term contract with Russian state giant Gazprom is scheduled to expire at the end of 2022.
But as the energy crisis in Europe deepens and the Russian-Ukrainian war rages just across its border, Poland faces galloping commodity prices directly impacting households and businesses still reeling from two years of pandemic.
Why there is an energy crisis in Europe?
Europe has been at the centre of a gas supply and demand crisis since last year. The EU heavily relies on the import of natural gas for heating households and generating electricity. In the first half of 2021, as much as 47% of gas imports came from Russia followed by Norway with 20.5%, according to Eurostat.
When countries started reopening their economies after lockdowns, demand for gas expectedly jumped. Europe entered the winter season with low reserves, which, along with the risks of harsh weather, caused additional concerns among market observers. At the beginning of February, natural gas storage fell to around 37% compared to around 50% a year ago, Gas Infrastructure Europe data showed.
The continent turned to liquified natural gas (LNG) to compensate, but had to compete with the likes of China, Japan, and South Korea, reportedly ready to pay heftier prices than European counterparts.
A spike in prices raised concerns among EU consumers. In Poland, where the gas market is controlled by state monopoly PGNiG, businesses and households were justifiably dismayed when they received their energy bills.
“Of course, we are feeling the burden of high gas prices, there have been plenty of stories of people, at the beginning of the year, that saw bills rise by 500-800%,” Daniel Czyżewski an energy analyst from Energetyka24.com, told Kafkadesk.
The Polish government and opposition parties quickly started pointing the finger at each other.
Opposition leader and former European Council President Donald Tusk demanded an explanation for the skyrocketing gas prices in Poland, which, he said, were among the highest in Europe. Poland’s Prime Minister Mateusz Morawiecki, in turn, criticised Tusk’s passivity and role in pushing the EU’s climate policies which, according to the ruling party, are the main culprit for rising costs.
What are the alternatives to Russian gas?
The European gas prices hit new records after Russia invaded Ukraine, prompting fears of supply disruptions. Already suffering from sky-high prices, Europe now faces the risk that Ukraine’s pipeline infrastructure could be exposed as a result of the conflict.
Polish deputy Prime Minister Jacek Sasin assured that Poland is better prepared than most for the possibility of Russia cutting off gas supplies, saying that gas storage facilities in Poland are 80-90% full. Furthermore, gas accounts for less than 10% of electricity generation in Poland (compared to more than 70% from coal and lignite) and Russian gas represents about half of the 20 billion cubic metres of gas consumed annually in the country.
Poland has for years been working on developing alternative corridors with neighboring countries, including the Baltic Pipe. The pipeline, supposed to deliver Norwegian gas to Denmark, Poland, and other countries, will have a capacity of about 10 billion cubic metres per year, comparable to the volumes Poland gets from Russia. Baltic Pipe operators plan to start the commercial gas transmissions in October, just before the country’s long-term contract with Russian energy giant Gazprom expires.
Poland has additionally built the Swinoujscie LNG terminal on the Baltic Sea, near the German border. Inaugurated in 2016, the facility has helped reduce gas imports from Russia by nearly one-third.
“From next year, after the end of the long-term contract with Gazprom, we will be able to satisfy Polish needs without purchasing [gas] from Russia,” Piotr Naimski, the government official responsible for energy infrastructure, said in an interview with Gazeta Polska.
Poland’s energy sector finds itself at a crossroads, experts note. “For the Polish energy sector, largely dependent on coal, the only way to make it cleaner seems to be replacing it with renewable and nuclear energy,” analyst Daniel Czyżewski tells Kafkadesk.
“If we replace part of coal power with gas it’s only a half-measure,” he adds. “We probably cannot eliminate the gas we use now, but what we can do is replace coal with other sources than natural gas.”
For the EU, however, reducing reliance on Russian gas will be an uphill battle as it accounts for about 40% of total gas consumption. Following Germany’s move to freeze the certification of the controversial Nord Stream 2 pipeline – a decision welcomed by Poland – former Russian Prime Minister Dmitry Medvedev threatened Europe with sky-high prices. “Well. Welcome to the new world, where Europeans will soon pay €2,000 for a thousand cubic meters of gas!” Medvedev wrote on Twitter.
Earlier this month, the International Energy Agency revealed plans to cut dependence on Russian gas by maximising supplies from other sources, accelerating the use of solar and wind energy and other low emissions energy sources. Within a year, the EU could reduce its imports of Russian natural gas by more than 50 billion cubic metres, or over one-third, it estimated.
“Road to nowhere”
As the bloc pushes for a transition towards alternative sources of energy, Polish state energy firms blame the EU climate policy for high energy prices. All over the country, new billboards were installed claiming that the European Union’s climate fee accounts for as much as 60% of the costs of producing energy. “EU climate policy = expensive energy, high prices,” the campaign says.
Industry experts, however, criticize the campaign as misleading, pushing consumers to believe that the cost of buying allowances amounts to 60% of the end users’ electricity bill. But this is not the case, highlights think-tank Forum Energii, reminding that energy production costs are only part of consumers’ bills. Once other factors, such as tax and distribution fees, are added up, the share of EU emission allowances falls to 23% of the total bill, it calculated.
“Rather than planning to modernize the sector, the discussion focuses on “whom to blame” and how to get out of the CO2 emissions trading system. This is the road that goes nowhere,” Forum Energii said.
The think-tank urges policymakers to prepare a strategy limiting the role of gas in key sectors of the Polish economy and push for alternative energy sources. “No matter what, we are facing many months – if not years – of very high commodity prices,” it warned.
By Anna Rzhevkina
A former Reuters reporter, Anna is a freelance journalist based in Gdansk, Poland, with a strong focus on corporate and business news. She is a regular contributor to other media outlets, including Notes from Poland and the Warsaw Business Journal.