Poland appears ready to go to nearly any length - and expense - to diversify their energy supplies and reduce their dependence on Russia.
Polish policymakers only have to look north to the Baltic Sea, to be reminded of the Russian energy threat up close.
The Nord Stream pipeline, which is to cross the Baltic from Russia to Germany, bypasses Poland by express design, according to Polish policymakers.
Diversity of supply is important, but the cheapest source of energy for Poland is still Russia.
Poland's determination to cut its dependance on Russia to the absolute minimum was underlined when at a meeting with Germany's Chancellor Angela Merkel, October 30, Polish Prime Minister Jaroslaw Kaczynski rebuffed her offer to arrange for an offshoot of the Blue Stream pipeline from the German coastal city of Greifswald to northern Poland, to be used in case supplies are ever cut off through the Yamal-Europe pipeline that currently brings Russian gas through Belarus and Poland to Germany.
This is not a solution, said Kaczynski. "We would become even more dependent on Gazprom than before," he told a news conference.
Instead, Merkel vowed that Berlin would use its stint in the EU presidency next year to push for the creation of a "collective energy market" within the EU, hooking up Poland and the Baltic states - which will also be bypassed by Nord Stream - to EU electricity and gas grids.
This Kaczynski accepted as a move that would help prevent Russia being able to use "energy as a weapon".
In the case of gas, said Kaczynski, Poland sees Norway as a possible source of secure supply.
Indeed, the country's deputy economy minister Piotr Naimski said in June that Poland aims in the long term to source one third of its gas from Russia, one third through domestic production, and one third through a new pipeline from Norway.
Poland has managed to get Norway back to the negotiating table on the possible extension of a pipeline project from Stavenger to western Sweden, but Poland will have act fast to sign a take-or-pay contract Norway's gas transport firm Gassco if it wants the extension to be built.
Poland also plans an LNG terminal on its Baltic coast, most likely in either Gdansk or Szczecin. The terminal would need to be complete, say Polish policymakers, by the time the Nord Stream pipeline is on stream, since the pipeline will give Russia the opportunity to close Yamal - for example for "repairs".
Poland is also very active in attempting to diversify oil resources, a task easier done for northern Poland's Grupa Lotos. Lotos received one million barrels of Kuwaiti crude by sea on October 23, its first such shipment.
Another will arrive in November, and Lotos is in talks with Kuwaiti suppliers regarding long-term contracts beginning in 2007.
Bringing crude in by sea from Kuwait rather than by pipeline from Russia is more expensive, but market players believe Lotos is to receive considerations from the Polish government that will make it worth the while - such as a greater ownership stake in its offshore exploration subsidiary Petrobaltic, access to new exploration concessions, and approval by its state owner for refinery upgrades.
Diversifying supplies for the Plock-based PKN Orlen, Poland's largest refiner, is a longer term goal, but Poland is working overtime to ensure that the long-envisioned reversal of the Odessa-Brody pipeline in Ukraine becomes a reality.
It is an uphill battle, and a costly one. The pipeline now carries Lukoil crude from the Druzhba pipeline system to the Black Sea port of Odessa for export.
Poland aims to reverse the flow to deliver Kazakhstan or Azerbaijani oil from the Black Sea and through an extension to Odessa-Brody that Poland would have built to the Orlen refinery.
Including all transportation and loading costs, the crude would likely be significantly more expensive than the Druzhba crude that now arrives at Plock. But, and this is the important thing for Poland, it will not be Russian.
"I understand historically why they are afraid of Russia. The question is what would be the cost of this diversification, and also whether the actual contracts signed in fact serve the goal of achieving diversity," said Tamas Pletser, an analyst with Erste Bank.
Diversity of supply is important, but the cheapest source of energy for Poland is still Russia. "Any other source is currently more expensive, although this may change in the future," Pletser said. "The problem is they are just putting money in other people's pocket - they aren't hurting Russia, which can sell its energy elsewhere."
Lotos aims for 30% of its crude from non-Russian sources, Pletser said, adding that the company has assured markets that the difference in refining margins won't be significant. "Maybe $1-2 per barrel," he said.
Meanwhile, the additional costs from an LNG terminal could put gas monopoly PGNiG under pressure, said energy analyst Olena Kyrylenko of KBC Securities.
"PGNiG's margins are already suffering from high prices for gas imports, because sales prices are not rising in line with import prices," she said. As far as the government's aim to use Odessa-Brody as a supply route for Orlen, Kyrylenko says there is "no economic or physical potential now".
Not only is reversing the pipeline difficult, filling it could also be a challenge. "Kazakhstan hasn't decided on whether to export to the EU or China," she said. "So there's not enough oil to fill the pipeline, and there have been no economic decisions, only political statements."
Updated on: November 14, 2006
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