Development prospects

PGNiG has secured long-term regasification and transmission capacities to cover import requirements of the Polish wholesale market. After the expiry of the Yamal contract at the end of 2022, gas will be imported based on a diversified portfolio of purchase contracts and in cooperation with the PGNiG Group companies active on the European wholesale and LNG markets and strengthening the Group’s position as a gas producer on the Norwegian Continental Shelf.

If an unforeseen increase in demand for gas fuels occurs, PGNiG will purchase natural gas under short-term contracts from the neighbouring countries or on the LNG market. The planned capacities of new cross-border connections (Baltic Pipe, Poland–Lithuania, Poland–Slovakia) to be brought on stream in 2022, and the additional capacity of the LNG terminal in Świnoujście to be put into service in subsequent years, will enable Poland to source higher volumes of grid gas and LNG, and to balance the market in the event of temporary gas shortages or surpluses.

Prospects for wholesale trade abroad

Due to the persistence of the pandemic, PST expects reduced trading activity in the wholesale markets. In addition, in the second half of 2021, the gas market crisis driven by the unprecedented price surge triggered an increase in credit risk, followed by lower liquidity on the OTC market. These factors posed significant liquidity challenges for PST and other energy market players. Consequently, PST is expected to scale down its proprietary trading activities compared with the period before the pandemic and the price crisis affecting gas and electricity markets.

Notwithstanding temporary restrictions caused by the pandemic and the crisis related to energy market prices, PST will continue to develop its business in the company’s key strategic areas, especially LNG trading, procurement of gas from the North Sea and the Norwegian Sea area and gas trading in Central and Eastern European markets.

PST plans to expand its LNG business to include FOB deliveries both on the spot market and under medium-term contracts. The expansion of commercial and logistic capabilities in LNG freight management will allow the Group to further develop its LNG trading business to create opportunities for optimising long-term contracts from 2022 onwards. In order to fulfil the long-term FOB supply contracts, PST has executed contracts to charter five LNG vessels that will be able to receive and transport the contracted LNG volumes. PST has also contracted regasification capacities of the Montoir LNG terminal in France, including 10 cargoes in 2023 and 15 cargoes per year in 2024−2029.

In preparation for the start of gas supplies to Poland via the Baltic Pipe, the company has increased its activity on the Norwegian Continental Shelf (NCS) and the Danish Continental Shelf (DCS). The purpose is to enable natural gas supplies from the NCS and the DCS to Poland. As part of its operations on the NCS, PST has also started to procure and sell natural gas liquids (including propane, butane, paraffin and ethane).

PST is also upscaling its activities in Central and Eastern Europe in order to diversify the sources of gas supply to Poland and to optimise the PGNiG Group’s portfolio in the region. Particularly important for PST is business expansion into and in markets which, thanks to the emerging gas infrastructure, will gain strategic significance for the Polish market directly, i.e. Slovakia, Ukraine and Lithuania, and indirectly, such as Hungary, Latvia and Estonia. Building capabilities and strengthening presence in the region will enable the company to gain an additional market for gas from the northern direction and optimise its gas portfolio using, among other things, the storage systems in Poland, Ukraine and Latvia. In 2021, during the gas crisis in Moldova, the Company carried out the first deliveries of non-Russian gas to that country.

On November 29th 2019, PGNiG signed a five-year exclusive contract for the use of the low-scale LNG collection and handling station in Klaipėda. It is a major step in PGNiG’s efforts to build competence and market position in the markets of Central and Eastern Europe and the Baltic Sea basin. Since the start of operations on April 1st 2020, the Company has delivered ten shipments by sea to Klaipėda, and 758 tanker trucks have left the terminal with a total freight of over 13.7 thousand tonnes of LNG, destined mostly for the Polish market, but also the markets in Lithuania, Latvia and Estonia.

In addition to the transhipment facilities, the terminal also offers bunkering of ships. This allows PGNiG to build competence in this area and in the future to make use of the potential of the Świnoujście terminal, which is being expanded.

Prospects for retail trade in Poland

Price trends on the gas market and the related risk of the company’s failing to achieve its objectives as well as the seeking of effective methods to stabilise its performance remain critical in setting short- and medium-term priorities for action.

The key driver of the company’s performance is the grid gas market, which saw unprecedented price hikes in late 2021 and early 2022 due to a number of geopolitical and macroeconomic factors. The nature of those factors and scale of their impact are beyond the company’s control. Remedial actions, either planned or already being implemented, include a number of changes in the regulatory framework (in the global, national and industry dimension) that impose new reporting, accounting and operating requirements on the company. In particular, they are and will continue to be focused on protecting the company’s key customer groups against adverse effects of price rises and inflation, which in the long term will allow the company to maintain a stable customer base and continue to compete effectively on the retail market.

Those adverse developments had additional bearing on the company’s operations. The company had to adapt to the challenges posed by sharp increases in wholesale prices on the main markets, regulatory changes and the introduction of preferential terms for technologies alternative to fossil fuels. An overview of the key challenges and risks for PGNiG OD:

  • A sharp increase in/volatility of natural gas prices – both in terms of direct impact on the company’s financial performance and volumes (customers’ purchase and investment decisions, which are adversely affected by price rises eroding the competitiveness of gas vs other energy carriers) and in terms of public relations and communication (including threats to the effects of campaigns promoting gas fuel and to the effectiveness of support mechanisms for air quality improvement initiatives).
  • The progressing energy transition driven both by the EU’s climate policy and market expectations, and the associated competitive, technological and investment challenges.
  • The risk of replacing gas fuel by customers from tariff groups 1–4 with alternative solutions for central heating and domestic hot water.
  • The risk of substituting gas-based solutions with zero-carbon solutions in the business sector.
  • A potential entry of strong international competitors into the Polish gas market, which may pose a particular challenge for the company following the expected deregulation of gas prices for households starting from 2024.

Concurrently, changes in the company’s environment provide a number of opportunities the company has leveraged or intends to leverage. These mainly include:

  • Making natural gas a transition fuel in the coming decades in view of the objectives of the climate neutrality policy until 2050, inclusion of natural gas in the EU taxonomy.
  • Leveraging industrial and power projects in Poland to ramp up gas sales.
  • Further exploiting the sales potential in the existing B2C customer base by launching more add-on products.
  • Digitalisation and exploiting the potential of the existing sales channels and customer service – developing multi-channel services based on the nationwide Customer Service Office network with an increasing role of electronic customer service channels, including mobile applications.
  • Growing demand from B2B customers for advanced gas products (including LNG) and electricity as well as related services and products, including consultancy and other solutions enabling cost optimisation.
  • Expanding the offering of hybrid solutions and new models to meet energy needs, also using RES solutions, in response to evolving customer expectations and project co-financing options.
  • Development of fuel demand for low-emission land and marine transport.
  • Steps taken by local governments to reduce low-stack emissions and growing awareness of potential customers in this respect, planned and existing programmes and mechanisms to co-finance smog prevention.

Development prospects and challenges for the future

In accordance with the schedule for the ‘Kosakowo CUGSF – Construction of Five Chambers, Cluster B’ project, in 2021 the construction of the K-7 and K-10 chambers at the Kosakowo CUGSF was completed to expand the storage capacities. After completing the construction of those chambers, 10 storage chambers with a working capacity of 299.7 mcm are operated at the Kosakowo CUGSF.

GSP also plans to expand its storage business, in particular storage of energy (in the form of hydrogen), hydrogen, biomethane, compressed air and liquid fuels, in order to broaden its customer base and secure new revenue streams. The offered services will include preparation, execution and supervision of underground energy and fuels storage projects and subsequent offering of the storage capacities.

In accordance with PGNiG S.A.’s preliminary directional decision, in 2022 GSP will continue working on hydrogen, biomethane, compressed air and LPG storage projects. Plans for 2022 include work in the administrative, legal and environmental areas and preparation for appropriate geological surveys at selected locations. As part of non-regulated activities, a new service will be continued in 2022 relating to the operation of a gas drying system in Mikanowo.

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