How Poland's Crusade for Energy Autonomy Affects EU and Russia

  • New government seeks to curb gas and oil dependence on Russia
  • Coal depencence means Poland will oppose EU's emissions curbs

Poland’s new government seeks to shake up the nation’s power, gas and oil industries in the name of boosting energy security, with consequences for both dominant supplier Russia and the country’s partners in the European Union.

While Prime Minister Beata Szydlo vowed last week to exploit coal and lignite deposits in the face of EU attempts to curb carbon emissions, tankers with Saudi and Kurdish crude sailed to Polish refineries reliant on Russian oil. Meanwhile, a Qatari tanker was loading its first liquefied natural gas shipment for a Polish terminal.

Q: Will Poland Switch Russian Oil for Saudi?

No, but the country of 38 million people, which buys about a 10th of Russian crude exports to the EU, can do more to diversify its supplies. Deliveries from the world’s biggest energy exporter account for more than 90 percent of Poland’s annual imports of 23.6 million tons of oil, according to statistical office data.

Late President Lech Kaczynski, the twin brother of party boss Jaroslaw, facilitated state-controlled oil company PKN Orlen SA’s $2.8 billion purchase of Lithuania’s AB Mazeikiu Nafta from Yukos in 2006. He wanted to ensure the Baltic Sea refinery wouldn’t be bought by another Russian entity, which could then use it to sell cheaper fuels in central Europe.

With Law & Justice back in power after eight years in opposition, Orlen is continuing the legacy. The nation’s top refiner, built to process heavier Russian oil, received this month its first test Saudi crude cargo. Both Orlen and peer Grupa Lotos SA are seeking better terms from suppliers as a global glut pushes Middle East producers into the Baltic, a region traditionally supplied by Russian companies.

Q: Will Poland Stop Buying Russian Gas?

Poland uses about 15 billion cubic meters (530 billion cubic feet) of natural gas a year and has contracts with Russia’s OAO Gazprom for about 60 percent of that. From next year, it will be technically possible to replace all supplies from its eastern neighbor thanks to links with Germany, the Czech Republic and a new liquefied natural gas terminal on the Baltic Sea.

With domestic output of about 4.2 billion cubic meters, 5 billion cubic meters from the LNG terminal and at least 7.5 billion of potential imports from other EU states, Poland is able to reject Russian gas. Szydlo seeks to expand the LNG facility and possibly construct a second import terminal on its Baltic coast. The government has also mooted a pipeline to Norway, an idea that has lain dormant since the early 2000s.

The moves will strengthen Poland’s hands in gas talks with Russia for supplies after 2022, when the two nations’ long-term supply contract ends.

Q: How Far Will Poland Go to Save Coal Miners?

Law & Justice has prioritized rescuing coal mines, which fuel almost all of the nation’s power plants and employ about 100,000 people.

Profits/losses, net liabilities and employment at Polish coal mines

Polish Economy Ministry data

The government is seeking to restore profits in an over-sized and under-invested industry, laden with communist-era benefits and hit by record-low coal prices.

The party wants the dirty fuel to remain the main source of Polish electricity for at least 30 years. This comes as the country’s biggest coal producer, Kompania Weglowa SA, is dealing with a “financial collapse,” according to Energy Minister Krzysztof Tchorzewski, after failing to attract investment from power utilities. Kompania, which is also the EU’s biggest coal miner, needs to gain funds to pay workers salaries in December.

Tchorzewski said last week state-controlled utilities should help save mines rather than focus on generating profits, hurting their valuations on the Warsaw Stock Exchange.

Q: What will the EU do?

To keep coal as the pillar of Poland’s energy security and avoid excessive emissions charges on the nation’s power producers, Law & Justice may need to try to negotiate exemptions from EU rules on reducing carbon exhausts. Kaczynski has vowed to reject “de-carbonization” and says Poland should never have agreed to further accelerate the pace of carbon-emission reductions last year, under the EU’s climate and energy pact.

This puts Poland, one of the EU’s biggest per-capita polluters, on a collision course with Brussels as the 28-country bloc seeks to lead the world in combating climate change.

Poland should veto any potential climate deal reached in Paris next month to send a signal that the country needs special status in the EU due to its coal-dependent economy, lawmaker Piotr Naimski, who prepared Law & Justice’s energy policy, said last week.

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