Poland to Get Baltic LNG Terminal on Time as Costs Increase

Poland’s plan to have a liquefied natural gas terminal ready by mid-2015 to cut its reliance on gas imports from Russia won’t be derailed by a dispute over costs, one of the project’s contractors said.

The terminal at the northwestern port of Swinoujscie, originally scheduled for completion last June, will allow Poland to import as much as 5 billion cubic meters of gas by sea, or about a third of its annual usage. The country now imports about 10 billion cubic meters from Russia. It’s speeding up development of domestic shale gas deposits and expanding links to other neighbors to further diversify supply before its contract with OAO Gazprom (GAZP) expires in 2022.

The project has suffered cost overruns since a group of companies led by Italy’s Saipem SpA (SPM), which also includes Poland’s PBG SA, won the contract in 2010. Poland agreed to pay 13 percent more than originally budgeted last year, bringing the terminal’s cost to 2.37 billion zloty ($762 million).

“The terminal will be ready by mid-2015,” Jacek Balcer, head of corporate communications at PBG, said by phone today. “Changes in the law have increased construction costs and we’re in talks with the investor to resolve the problem.”

‘Earn More’

The Saipem-led consortium wants to “earn more” on the terminal and realizes the government “has its back to the wall” on the high-priority project, Deputy Prime Minister Janusz Piechocinski said on TVN24 BiS television today. The Ukraine crisis shows that Europe must restructure its gas-supply networks to reduce dependency on Russia, according to a May 21 speech in Brussels by Prime Minister Donald Tusk.

PBG has no plans to stop work before the facility is completed, Balcer said. Saipem is “undertaking discussions with our client in a very good climate, as it is in everybody’s interest to complete the terminal within the agreed schedule,” the company’s spokesperson said in an e-mailed response to questions from Bloomberg News.

“One of the issues being addressed is the fact that due to changes in Polish law. the investment will take more time than it was expected at the beginning and because of that we will incur higher costs,” said the spokesperson, who declined to be identified, citing the company’s policy.

‘Rational’ Investment

Polskie Gornictwo Naftowe i Gazownictwo SA, the state-controlled company that imports almost all gas to Poland, has signed a 20-year contract with Qatargas to buy about 1.5 billion cubic meters annually through the terminal, with the first deliveries scheduled for the end of this year. The delay has forced PGNiG to enter negotiations with Qatargas on a new delivery schedule and pricing.

“Completing this investment is rational, but giving in to economic or political blackmail is less so,” Piechocinski said. “We need to be exceptionally tough here, especially because gas from Qatar is more expensive than the gas we buy from different suppliers.”

To contact the reporters on this story: Maciej Martewicz in Warsaw at mmartewicz@bloomberg.net; Piotr Bujnicki in Warsaw at pbujnicki@bloomberg.net

To contact the editors responsible for this story: James M. Gomez at jagomez@bloomberg.net David McQuaid, Michael Winfrey

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