Market environment

In 2021, natural gas prices in Europe rose on average by 385% year on year (based on prices recorded at TTF, THE/GPL, NBP and POLPX), from EUR 9.5/MWh in 2020 to EUR 46.12/MWh. The highest price hikes were seen in the Netherlands (TTF), averaging 393%, while the lowest were recorded in Poland (about 327%).

In the first quarter and at the beginning of the second quarter of 2021, temperatures fell and remained below the seasonal average in NWE, which drove up gas demand for heating purposes and, consequently, extended the period in which gas was withdrawn from storage facilities, heavily depleted after winter. The period also saw high demand for LNG from Asian markets, which offered higher prices, making the Pacific region more attractive to LNG suppliers than Europe and prompting partial diversion of supplies. In 2021, LNG imports to Europe fell again year on year, by 7.5 bcm (6.4%), while supplies to Asia rose by nearly 30 bcm year on year.

In the second half of 2021, gas stocks in European storage facilities continued at an all-time low, further aggravated by a very narrow winter–summer price spread and lack of Gazprom’s gas injections into storage. Price growth was also supported by declining volumes of gas produced in Europe due to production constraints in Groningen, Europe’s largest field, and primarily due to dwindling supply of Russian gas via pipelines other than Nord Stream. The total volume of gas piped from east of Poland fell 8% year on year. In addition, production constraints in the UK and more numerous than usual overhauls and failures of production assets in Norway increased gas shortage in Europe during summer.

As from the beginning of the winter season, the prices soared again, setting new records to reach an average of EUR 113/MWh in December. During that period, the average price of natural gas at the Dutch TTF hub was six times higher than in the same period of 2020. The price rises were additionally supported by higher electricity generation from gas-fired sources as the weather was not conducive to generating high electricity volumes from renewables.

An unprecedented increase in its prices on the European market toward the year’s end and a decline in demand from Asia led to more LNG shipments entering Europe, as a result of which the supply of regasified LNG began to recover. However, this was accompanied by a shut-off of Russian gas supplies to Germany via the Yamal pipeline, as well as limited gas flows via Ukraine. In the last months of 2021, gas was supplied to Hungary from the Balkans via the South Stream pipeline, rather than via Ukraine as before. As a consequence, a drop in the volume of Russian gas supplies to North-Western Europe (to liquid European hubs) was much higher than a drop in total supplies to Europe.

Source: In-house analysis based on Thomson Reuters data.

The total volume of natural gas imported to Europe in 2021 was 3,901 TWh, of which 34% (1,337 TWh, 120.3 bcm) came from Russia. The volume of pipeline gas imports from Russia (excluding imports to Turkey) in 2021 fell by 10% (from 1,489 TWh, 152.4 bcm in 2020). Norway was the second largest supplier of gas in Europe, with 1,224 TWh (110.2 bcm) or 31% of total gas supply. Imports from North Africa were 413 TWh (37.1 bcm, 11% of total supplies), while LNG deliveries to European terminals were 928 TWh (83.5 bcm, 24% of the imported volume).

Global LNG trade increased by 7.5% year on year, to over 522 bcm of regasified gas. The year-on-year increase of 36 bcm was driven by a sharp rise in gas prices after falling to lows in 2020. The largest increase in exports in 2020–2021 was again in the United States, by 36.4 bcm, while the largest increase in imports in percentage and value terms was in China, by 15.8 bcm (17.2%) compared with 2020. There was also a strong increase in demand for LNG, especially from North and South Americas. The increase was attributable, among other things, to droughts in Brazil, whose energy system relies largely on hydropower plants. Due to water shortages, Brazil had to import large volumes of LNG from the United States.

The growing demand for natural gas in Poland is met by domestic production and imports. Gas is transported to Poland via a transmission network, with LNG-derived gas additionally fed into the national transmission system since 2016. Gas is traded on the Polish Power Exchange, and distributed physically to end users through distribution and transmission networks. The last component of the national gas system is gas storage facilities.

Consumption of high-methane grid gas in Poland in 2021 (excluding gas fuel supplied on the OTC and POLPX markets) was ca. 206.4 TWh. Relative to 2020, the volume increased by 13.3 TWh, or 6.9% year on year.

The increase in gas consumption in 2021 was attributable to higher consumption by customers connected to the distribution network (up 11.4% year on year), driven, among other things, by a rapid increase in the number of new gas service lines built by PSG in previous years, especially in 2021 (more than 119 thousand). Another factor behind the increase was the average air temperature in the first and the fourth quarters of 2021, which was 2.3°C lower than the year before.

In 2021, consumption of gas by customers connected to the transmission network declined by 4.4%, due mainly to lower consumption from the industrial sector in the fourth quarter of 2021 as a result of the continuing record high gas prices in Europe.

The Baltic Pipe is a strategic infrastructure project aimed at creating a new gas supply corridor on the European market. It is to enable the transmission of gas directly from deposits located in Norway to the markets of Denmark and Poland. The annual transmission capacity of the Baltic Pipe will reach up to 10 bcm to Poland and up to 3 bcm to Denmark and Sweden.

GAZ-SYSTEM and Energinet, operators of the Polish and Danish transmission systems who are implementing the project, made a final investment decision in 2018. Environmental decisions, planning permits and construction permits for individual elements of the planned infrastructure have been obtained. The construction work is expected to take place between 2020 and 2022. Gas transmission is scheduled to commence on October 1st 2022.

On May 31st 2021, the Danish Environmental and Food Appeals Board repealed the Danish Environmental Protection Agency’s permit of July 12th 2019 to build the Baltic Pipe gas link on land across Denmark. Development work in West Funen, East Jutland and on the power grid feeding the Everdrup compressor station was halted until a new environmental permit is obtained. According to Energinet, the whole project will be completed some three months behind schedule. However, it will be able to provide a part of the agreed transmission capacity starting from October 1st 2022. The full transmission capacity is expected to be made available at the end of 2022.

In May 2020, PGNiG signed a contract with Polskie LNG of the GAZ-SYSTEM group for the reservation of additional regasification capacities under the Open Season procedure in view of the expansion of the President Lech Kaczyński LNG Terminal in Świnoujście. Under the agreement, the Company reserved capacity of approximately 1.2 bcm of gas per annum in 2022–2023 (transitional service) and approximately 3.3 bcm of gas per annum in 2024–2038 (basic regasification service), which together with the previously reserved capacity of 5 bcm of gas per annum will increase the import capacity to 6.2 bcm in 2022 and to 8.3 bcm of gas per annum as from 2024. In addition, PGNiG reserved additional services to be provided in the period specified for the main regasification service.

In 2021, the volume of gas imported to Poland rose by 190.77 TWh year on year (an increase of 5%), with supplies from the eastern direction rising by 11.8%, while supplies from the EU fell by 9.5%. Most of the imports (about 58%) came from the eastern direction.

In 2021, the volume of gas regasified at the LNG terminal in Świnoujście increased slightly compared with 2020.

In 2021, PGNiG received a total of 19 LNG shipments under the long-term contracts with Qatargas. The volume of LNG imports from Qatar amounted to approximately 1.75m tonnes, i.e. approximately 26.58 TWh or 2.42 bcm of natural gas after regasification. In 2021, PGNiG purchased gas under 12 spot contracts, its volume totalling 0.81m tonnes, i.e. ca. 12.36 TWh or 1.13 bcm of natural gas after regasification. In 2021, gas was purchased under spot contracts with the US. The deliveries were made with the support from the London LNG trading office (PST). In 2021, PGNiG also took delivery of LNG shipments under a long-term contract with Cheniere Marketing International and a medium-term contract with Centrica.

In 2021, PGNiG imported 35 shipments of LNG via the LNG terminal in Świnoujście, with a total volume of 2.83m tonnes, i.e. approximately 3.94 bcm of regasified natural gas.

In 2021, the average daily withdrawal of gas from Polish UGSFs over the withdrawal periods (January–March, October–December) was 96 GWh, a decrease of 86 GWh on the previous year. In the summer season (April-September) of 2021, gas was injected into storage at an average rate of 114 GWh/day, that is 8 GWh/day less year on year.

At the end of 2021, Polish gas storage facilities were filled to approximately 84% of capacity, a 10pp increase on year-end 2020. However, other European markets saw much lower gas stocks at storage facilities: in Germany, the storage facilities were filled to a mere 54% of capacity, compared with 73% as at the end of 2020; in the Netherlands – 36% of capacity, 33pp less year on year, and in Austria – 35% of capacity vs 77% the year before.

The reason for the decline was a significant depletion of gas stocks held in storage facilities owned by Gazprom, mainly in Germany and in Central and Eastern Europe. The pattern of injections and withdrawals from those storage facilities in 2021 differed significantly from that seen in previous years.

Source: In-house analysis based on the operators’ data.

Source: In-house analysis based on PPX data.

PGNiG is the leader of gas trading on the POLPX. According to POLPX data, in 2021 the total gas trading volume was 180.8 TWh, of which 152.2 TWh was traded on the commodity futures market (RTT). This means that almost 84% of gas trades in 2021 were executed under contracts with maturities of a year, season (summer, winter), quarter, month, and week.

In 2021, the Polish Power Exchange reported a record-high result in the history of its gas trading, and the total volume of gas trades grew by 19.6% relative to 2020. Record high trading volumes in 2021 were seen both on the Day-Ahead Market and the Intraday Market, at 21.8 TWh (a 9.5% increase year on year) and 6.8 TWh (a 15.2% increase year on year), respectively; the volume on RTT also increased, by 21.4% year on year.

Source: In-house analysis based on PPX data.