Piotr Szlagowski-Budacz
Director of Strategy
PGNiG (Polish Oil and Gas Company)

20 May 2020

PGNiG is the leader in Poland for exploration and production of natural gas and crude oil. Through its key companies, PGNiG is also active in the areas of import, storage, sale and distribution of gas and liquid fuels, as well as heat and electricity generation.

The international arbitration court recently ruled in PGNiG’s favor in the dispute against Gazprom. What led to this conflict in the first place?

 

For the past years PGNiG has been bound by a long term contract with Gazprom and two essential issues came out of this experience: one relates to non-market based practices, which have found confirmation in Stockholm arbitration. The other has to do with supply disruptions, which have been experienced and which adversely impact our sense of security with regards to supplies from the East.

 

Our response to these issues was twofold. On one side a motion for arbitration in order to adjust long term contractual rules to changing market conditions. And on the other we  looked to build a different strategic position for PGNiG, in order to depart from a position of the vulnerable partner in this equation. That is why diversification projects, notably the LNG terminal in Świnoujście and the Baltic Pipe, were undertaken and why PGNiG  booked its capacities. The end game is to strategically build up our position for future negotiations with all our partners. 

Who do you expect will be the main partners for gas imports for Poland going forward?

It is too early to say but we will likely seek a diversified portfolio. For LNG for instance we have partners from Qatar and the US, but also European counter parts that we trade with on shorter terms. I can imagine that similar approach will be adopted for pipeline gas imports.

LNG imports have increased noticeably, is this a direction that PGNiG is prioritizing now?

It is not about us prioritizing LNG over pipeline gas, rather LNG market is developing very quickly and its linkage with European trading hubs is ever stronger. This increase has not only happened in Poland, rather it is a general trend visible in Europe. We are, however, indeed substantially benefitting from this market change.

 

Gas is likely to stay with us for another several decades as a transitional fuel. In Poland and elsewhere its role will grow until a certain point, as we are phasing out coal based generation of electricity.

In a longer perspective, however, we will have to find a new way forward. In our view hydrogen and green gases have particularly big potential. 

 

What green technologies are you looking at more specifically?

Wind and PVs are obvious choices. However, where we could have a particular competitive advantage is biogas, biomethane and other green gases, and of course hydrogen.

Technologically these are relatively close to what we have right now, hence we can develop in this direction by building up on our experience. Secondly, these types of gases can capitalize on the infrastructure that we already have in place, especially the distribution network. It is like building a second youth for our operations.

The outbreak of COVID-19 is affecting businesses around the world. Do you already have a sense of how it will affect PGNiG’s business?

 

It is particularly interesting to note that we have two crises unfolding at the same time. One is the price war between oil producers, which drove prices low. Additionally, now we have entered a second crisis on the demand side: due to COVID-19 people are sitting at their homes, not driving cars, planes are not flying etc., hence the demand is experiencing a significant stress.

 

This is particularly problematic for companies which have big exposure to oil price risks but for us, luckily, it has not caused too much disturbance. When you look at our portfolio of assets you will notice that it is well balanced: we have gas distribution and electricity generation which stabilize us during difficult times in the oil market.  Additionally, we have our own domestic and foreign upstream production which benefit greatly when oil & gas prices are high, and we also have a  strong position in trading and retail, which - on the contrary - benefit when the prices are low. These segments are hedging one another. We obviously monitor our assets closely just to prepare for the worst case scenarios, but for he time being we do not see need for investment cuts. 

Have work conditions changed in any way?

We operate critical infrastructure supporting of which is our main task now. It is important to emphasize that this challenge did not catch us unprepared - we have had drills and established procedures in place, now it was just a matter of implementing them.

Additionally, tot the extent possible we have switched to home office mode. I must say that this shift went surprisingly smooth which allows us to believe that the COVID-19 crisis may speed up digitization of our operations. 

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