Key challenges

The PGNiG Group’s operations strongly depend on external factors which also pose challenges for the Group, including:

(including a sharp rise in oil prices, higher gas prices and expansion of the LNG market)

The second half of 2021 saw unprecedented rises in natural gas prices across the markets. At its peak, the spot price was 18.3x higher than the average price of 2020 and 12.6x higher than the average price of 2019. On December 21st 2021, the price of gas at TTF reached a record high of EUR 180/MWh. Other factors behind the price increases included a decline in gas production from European fields (in the UK, Netherlands and Norway) and strong demand for LNG (especially on the Chinese and Brazilian markets).

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. At the end of the winter season and beginning of the second quarter of 2021, temperatures were below the seasonal average, which drove up gas demand, depleting gas stocks held in storage. At the same time, high demand for LNG on Asian markets caused some supplies to be redirected from Europe to Asia. In the second half of 2021, the level of gas stocks in Europe was still low, which – coupled with a lower gas output (reduced production from the Groningen field) and lower supply of Russian gas to Europe, led to a further increase in gas prices. A dramatic 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.

The global consumption of natural gas in 2021 rose relative to 2020, fuelled by the economic recovery after the pandemic-induced stagnation and by the harsh winter. The supply fell short of demand, which sent the market prices of natural gas soaring.

As in the previous year, LNG infrastructure was expanded globally to increase both export and import capacities. In 2021, the PGNiG Group increased its LNG imports compared with 2020. By participating in the global LNG market, PGNiG is able to optimise its long-term gas portfolio and to cover its requirements in the event of increased demand or reduction of pipeline supplies, such as the one which took place in 2021 when Gazprom, the main supplier of gas from across Poland’s eastern border, cut down the volume of supplies.

In 2021 the average spot price of Brent crude was USD 71/bbl, compared with USD 42/bbl in 2020. The price increases were mainly triggered by the economic recovery following the global coronavirus pandemic. After vaccination campaigns were launched in many regions around the world, pandemic-related restrictions were lifted and mobility returned to near normal levels from before the pandemic. The increase in global demand for crude oil outstripped a short-term spike in production, causing a shrinkage in worldwide oil stocks. Uncertainty over further development of the pandemic was reflected in oil price volatility, especially at the end of 2021.

In January and February 2022, gas prices stabilized below EUR 80/MWh. The aggression of the Russian Federation against Ukraine on February 24, 2022 caused a very rapid increase in prices and significant volatility. On March 7, 2022, prices reached an all-time high of EUR 354/MWh.

The PGNiG Group’s portfolio of gas supply sources is designed to fully cover the gas requirements in Poland both from the Group and the Group’s customers, and comprises mainly long-term import contracts (the Yamal and Qatar contracts).

In 2021, the Group pursued its strategy to diversify import sources, raising the share of gas sourced from suppliers west and south of Poland (based on market prices of gas at relevant hubs) and LNG (spot deliveries and long-term contracts), while reducing the share of gas supplies from east of Poland – in 2021, LNG already accounted for more than 25% of the total gas import portfolio, while imports from Russia fell to some 60%.

In view of the Yamal contract expiring after 2022, it is particularly important for the PGNiG Group’s to develop alternative routes for natural gas supplies to Poland, mainly from the northern direction via the planned Baltic Pipe gas link. It is also the Group’s objective for the period beyond 2022 to optimise the use of the LNG terminal in Świnoujście, and to this end PGNiG Group’s expanded its LNG portfolio through a number agreements with US partners, providing for gas deliveries.

The regulatory environment in which the PGNiG Group’s operates is periodically subject to substantial changes, in particular with respect to taxation of hydrocarbon production, the exchange sale requirement and reduction of CO2 emissions.

The EU climate policy and international commitments to bring down greenhouse gas emissions and ultimately move away from fossil fuels towards zero-carbon technologies in the energy mix are unfavourable to the natural gas sector.

'Fit for 55’, a package of legislative changes announced by the European Commission in mid-July 2021, is intended to reduce carbon emissions from the European economy by at least 55% by 2030. If these proposals are implemented into law in their current form, they will have a number of adverse consequences for the PGNiG Group’s pushing up the cost of fossil fuels.

The proposed gas package, intended to accelerate decarbonisation of the gas sector, would bring about major changes with respect to fossil gas, which would be ultimately replaced with renewable counterparts, such as hydrogen and biomethane, initially blended with natural gas and then in pure form.

In mid-December 2021, the European Commission presented a legislative package aimed to decarbonise the gas sector by facilitating the use of RES and low-carbon gases. The role of natural gas in the energy transition will largely depend on how the sector responds to the new gas package and changing market reality.

Strategic sustainable approach to challenges

In 2017, the PGNiG Group developed and approved the PGNiG Group Strategy for 2017−2022 with an outlook until 2026 along with the complementary PGNiG Group Sustainable Development Strategy (CSR) for 2017–2022.

The pursuit of sustainable development as the Group’s priority will be driven by parallel investments in riskier business areas yielding relatively high rates of return (upstream) and in regulated areas offering considerable safety of the investments (gas distribution, power and heat generation).

Sustainable development values are part of every single aspect of the Group’s business activity. Awareness of the Group’s responsibility for national energy security and its environmental impact calls for the creation of synergies between key business areas, taking into account stakeholders’ expectations. Therefore, the PGNiG Group is committed to meeting the highest ethical standards in terms of transparent organisational culture, relations with employees and customers, corporate citizenship, and environmental and climate initiatives.

The pursuit of goals set for the Group is underpinned by the values laid down in its Code of Ethics. Responsibility, credibility, partnership and quality are the four primary values from which all the other values, including transparency, are derived. PGNiG’s ethical mindset built by employees for decades is in itself a great value shaping the Group’s organisational culture. The professional ethics of mining and gas industry workers represents common values that distinguish the industry and allow to better and more effectively pursue shared goals.

The PGNiG Group has embarked on an ambitious capital investment programme that lays the foundation for long-term and stable value growth.

By growing its business and value, the Group contributes to the achievement of Poland’s and EU’s objectives. Programmes to expand the distribution infrastructure and diversify gas supply sources improve access to natural gas and help eliminate ‘gas exclusion’. They lay groundwork for Poland to tackle current climate challenges and support the growth of RES with natural gas as a stable and lowemission energy source. By advancing innovation, the PGNiG Group also contributes, both directly and indirectly, to the development of new, clean energy solutions, such as biomethane and hydrogen. These strategic initiatives draw on and implement in practice the United Nations 2030 Agenda for Sustainable Development.

The PGNiG Group ESG Policy was developed in 2021 and adopted by the PGNiG Management Board at the end of the year. The Policy is a response to the global challenges posed by the needs of sustainability, climate change prevention, rational resource management and respect for the environment. The ongoing climate change has created a new paradigm, significantly affecting the fuel and energy sectors.

Mission and vision

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Mission statement Trustworthy – customers can depend on the premium quality and reliability of our services

Energy supplier – our customers are offered a full range of energy products (gas + electricity + heat + other/services)

Households and businesses – we care for and value all our customers: households, businesses, and institutions

We are a trustworthy supplier of energy for households and businesses
Vision Responsible – we act in a transparent and socially responsible manner

Efficient – we have implemented process and cost optimisation measures

Innovative solutions – we are an innovation leader in the energy sector

We are a responsible and efficient provider of innovative energy
Primary objective Value growth – our primary ambition is to create added value for our shareholders and customers

Financial stability – we seek to secure long-term financial stability and creditworthiness

PGNiG’s mission statement underscores the Company’s responsibility for ensuring Poland’s energy security and focus on both retail and corporate customers with their different needs.

The awareness of our environmental impact and responsibility for energy security are the cornerstone of the Group’s activities. Considering energy security-related issues and innovation, the PGNiG Group members, striving to live up to the expectations of their stakeholders, commit themselves to meeting the highest standards in organisational culture, relations with employees and customers, corporate citizenship, and pro-environmental initiatives.

The PGNiG Group’s key values are instrumental in the pursuit of its mission, vision and overriding objectives. Responsibility, credibility, partnership and quality are articulated in the Statement of Values, which forms part of the PGNiG Group’s Code of Ethics. They are the lodestar that guides the Group in its strategic initiatives.

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