Lukashenka’s Error in Gas Issue

By bargaining for cheaper gas, the dictator got trapped.

On the eve of the next negotiations with Moscow on energy supplies, President Lukashenka stated that Minsk "is developing alternative ways for oil supplies to its refineries" - through Ukraine, the Baltic States and Poland, not excluding the supply of American oil. Against this background, there are legitimate questions: isn't Belarus also considering the possibility of alternative gas supplies to the country in the future?

This is what economic observer Tatiana Manenok writes in her article on the website "Nashe Mnenie".

Belarus is the largest consumer of natural gas. It imports only Russian natural gas. And if in the early 1990s, the country bought 12 billion cubic meters of gas in Russia, now it's about 20 billion cubic meters. This is a very high consumption and a very high dependence on one supplier.

Russian gas is supplied through Belarus to Kaliningrad Oblast, Lithuania, Ukraine and Poland (hereinafter also to Germany, etc.). Meanwhile, Lithuania and Poland are planning to reduce or even abandon Russian gas in the long run.

Poland may become a gas hub in Europe

Poland consumes about 15 billion cubic meters of gas per year. It extracts a third of this volume and covers the rest through imports. Gazprom is the main supplier of gas to Poland. Under the contract in force until 2023, Poland may annually purchase 10.2 billion cubic meters of gas (but buys less), and the Polish authorities have repeatedly stated that they do not intend to extend it.

This year, on 31 August, Ukraine, Poland and the USA signed a memorandum on trilateral cooperation in the energy sector. At a meeting with US Energy Minister Rick Perry, the Ukrainian delegation discussed how to ensure the country's energy independence through the supply of American liquefied gas through Poland. For this purpose, a special pipeline will be built to connect the gas transportation systems of Poland and Ukraine.

The day before, the Polish oil and gas company PGNiG said that it had started reselling liquefied natural gas (LNG) to Ukraine. After regasification, LNG will be pumped into the Polish transport system from the Świnoujście terminal and then supplied to Ukraine via the border gas pipeline in Germanowiczy.

Poland can now ensure Ukraine with about 1.5 billion cubic meters of gas. The only obstacle to increase exports to Ukraine is the capacity of the Polish gas pipelines towards Silesia-Subcarpathia Province. It is expected that the capacity of these pipelines will be expanded by 2021.

According to Minister Petro Naimsky, the gas agreement is aimed to diversify gas supplies to Ukraine, which is still dependent on Russia.

Such an opportunity will increase after the development of the liquefied natural gas terminal in Świnoujście (the capacity of the gas port in Swinoujscie will increase by 50% to 7.5bn cu.m. in two years) and the construction of the Baltic Pipe gas pipeline, which connects Poland and Norway. It is also planned to build a gas transportation system in Poland.

Meanwhile, Poland has been dynamically increasing LNG imports in recent years. Whereas in 2016 its share in the import was about 8.5%, in 2018 it already exceeded 20%. Since the launch of the terminal in Świnoujście, PGNІG has already received 67 consignments of liquefied gas with a total volume of 7.5 billion cubic meters (after regasification).

In June, Poland submitted a proposal to Ukraine to unite the gas transportation systems (GTS) of the two countries. For this purpose, a specialized interconnector will be built, which connects the two gas transportation systems.

The memorandum signed in Warsaw on trilateral cooperation between Poland, the United States and Ukraine in the field of energy may mean that Poland is becoming a gas hub in Eastern Europe. Gas will flow to neighbouring countries. So far, we are talking about LNG, which Poland receives from the U.S., Norway and Qatar. It is expected that in 2024 a gas pipeline from Norway, Baltic Pipe, with a capacity of about 10 billion cubic meters, will be put into operation.

By this time Poland intends to completely abandon Russian gas. "In five years we will have a functioning gas pipeline from Norway, the terminal in Świnoujście will be expanded by 50%. We will be completely independent of Russian supplies," the Polish government's authorized representative for strategic energy infrastructure, Petro Naimsky said.

According to him, Poland will receive liquefied natural gas from Qatar and the USA, the country will build interconnections with Slovakia and Lithuania and expect to sign an agreement with Ukraine. "Then not only Poland but also Central Europe will be able to say that we have brought it to a normal state of affairs in the field of gas supply," Naimsky said.

In turn, the deputy head of the Polish state company PGNiG Maciej Wożniak said that the American LNG supplied by tankers is 20-30% cheaper than Russian natural gas. (Experts point out that LNG prices in Europe have now decreased due to the Chinese market).

Poland plans to buy large volumes of LNG in the USA. Recently, Polish state-owned oil and gas company PGNiG signed several long-term contracts for LNG supply from the USA. This is a 24-year contract with the American Cheniere Marketing International. According to it, Poland buys about 0.52 million tons of LNG, or about 0.7 billion cubic meters of gas after regasification, in the period 2019-2022, and 1.45 million tons of LNG, or 1.95 billion cubic meters after regasification, from 2023 to 2042.

Another contract was signed with the U.S. Venture Global LNG, which provides for the delivery of 2 million tons of liquefied gas per year to Poland within 20 years, which corresponds to 2.7 billion cubic meters of gas after regasification.

Last December, PGNiG signed a 20-year contract with Port Arthur LNG for the supply of LNG. According to it, Poland will buy about 2 million tons of LNG per year, or 2.7 billion cubic meters after regasification - only from 2023.

In 2020, Poland expects 39 deliveries of LNG to the terminal in Świnoujście, thus reserving the full capacity of the terminal, which is 5 billion cubic meters per year. For the first time in three years of operation of this LNG terminal, Poland is going to use it at full capacity. It should be noted that it is planned to expand the terminal's capacity up to 7.5 billion cubic meters.

Lost opportunities: Minsk, bargaining for cheaper gas, lost its GTS

Despite a gas hub in Poland shortly, any variants of its use for gas supplies to Belarus look fantastic today.

Gazprom is now a single supplier of gas to Belarus. A simple truth is that there is the only way to fight against the monopolist - to create alternative ways of attracting natural gas. How relevant are these simple truths to Belarus nowadays?

First of all, it should be noted that today Minsk should not complain about the price - in 2019, Belarus is buying gas at a fixed price of USD127 per thousand cubic meters under an agreement with Gazprom (on the border). According to the data, this price is USD130 per thousand cubic meters for Belarus in 2019. - The price is 1.7% lower than in 2018. This is the lowest price not only in Europe but also in other CIS countries and the Eurasian Economic Union. For comparison: the average export price of Gazprom's gas in the second quarter of 2019 was USD208 per thousand cubic meters.

The gas transportation system of Belarus is now owned by the Russian Gazprom. Gazprom's fully-owned subsidiary, Gazprom transgaz Belarus, operates this system. It's worth noting that in no country in the world, Gazprom does not own the entire gas transportation system, except for Belarus.

Thus, two gas pipelines, Yamal-Europe and the former domestic gas transport system, located in Belarus, are fully owned by the Russian Federation.

The designed capacity of Yamal-Europe is fully loaded, which is 33 billion cubic meters of gas per year. The former Belarusian gas transport system transits about 14 billion cubic meters of gas a year. The potential capacity of this "pipe" is much higher. However, this does not mean that Belarus will be able to use the free GTS capacity in the future to organize reverse gas supplies from the Polish gas hub. It is hard to imagine that the Russian Gazprom, the current owner of the Belarusian GTS, will agree to this.

Thus, even if Minsk wants to buy someone else's LNG through the terminal in Świnoujście, it is physically impossible to deliver it to Belarus without the construction of a new gas pipeline. Thus, the fact that Belarus is going to be engaged in such a project in the foreseeable future, today looks like a fantasy.

The official Minsk is hardly thinking about alternative gas supplies at all. So far, the main task is to "bring down" the price of Russian gas as much as possible, using the agreements in the "union state" and the EEU. The Minister of Economic Development of the Russian Federation Maxim Oreshkin has recently said that Russia and Belarus are currently developing a roadmap for a single gas market. "There is an urgent topic of gas. However, we should enter the single gas market. Therefore, all the parameters related to the creation of a single gas market will be mentioned and considered in the relevant road map," he said.

Europe has diversified its gas market

Experts note that Gazprom has already lost its monopoly on the imposition of terms on gas contracts in Europe. To diversify the geography of natural gas supplies, many countries are more actively switching to LNG consumption. This technology makes it possible to transport large volumes of gas by sea and makes it economically viable to supply it from the Middle East with more than 40% of the world's natural gas reserves.

This is why many countries have alternative gas supply options. Now European countries can import natural gas from the USA, Qatar and the Caspian region. China has also built a gas pipeline connecting the country to Central Asia, resulting in the import of gas from Myanmar, as well as American liquefied gas.

In 2019, the cost of gas in Europe fell to a ten-year low and will continue to decline, Bloomberg writes. It is noted that gas is becoming cheaper as supply continues to exceed demand. As of the end of August, reserves in storage facilities in northwestern Europe, Italy and Austria reached 62.3 billion cubic meters. In the Netherlands, the gas price is trying to recover from a summer drop below 10 euros per megawatt-hour. Experts interviewed by the agency assume that the prices in the country may fall by at least 20% in autumn.

As for the Russian Federation, it was the largest producer of natural gas until recently and remains the largest exporter. However, Russia did not recognize the fundamental importance of shale gas and oil production in time and realized the importance of liquefied gas as an export product (now Russia is trying to catch up with the lost and is implementing some projects on LNG).

"Gazprom forecasts a 4.9% decline in gas exports to non-CIS countries in 2019 to 192 billion cubic meters, Mikhail Malgin, deputy head of the Gazprom Export department, said and noted that the fastest drop in gas supplies to Europe. The average export price of Gazprom's gas in the second quarter of 2019 decreased by 12.6% compared to the same period in 2018 to USD208 per thousand cubic meters. In the first quarter of 2019, it was USD 259 per thousand cubic meters. Meanwhile, Elena Burmistrova, the head of Gazprom Export, said earlier that the gas holding company predicted the export price of gas in the range of USD230-250 per thousand cubic meters in 2019.