Saturday 14 February 2015

Renegotiation of Yamal gas supply contract

PGNiG ( Polska Grupa Naftowa I Energetyczna; English: Polish Oil and Gas Group) has been pursuing dialogue with Gazprom on the Yamal gas contract renegotiation. According to experts, the chances of success of the negotiations are slim. Experts draw attention to the situation on the international oil and gas market, current political situation, as well as the conditions that Russia can currently export the resources.

Yamal gas pipeline is the pipeline connecting natural gas deposits in the northern Russia to the customers in Western Europe. The pipeline runs through Russia, Belarus and Poland to Germany. In Poland, the owner of the pipeline is EuRoPol GAZ (PGNiG, Gazprom, Gas Trading), the operator: Gaz-System. The pipeline has length of approx. 680 kilometers on Polish territory.

The possibility of entering into the dialogue was due to, so-called, “negotiation window”, which has been opened in November last year. The date has been agreed two years ago, when the PGNiG and Gazprom concluded an annex to the Yamal contract. The window is open for half a year ( finishes May 2015), when the companies should settle upon an agreement of the new contract.

Yamal pipeline

As it has been pointed out by the journalists of Onet.pl in the conversation with mr Kasprzak, current situation is "rather difficult to expect that PGNiG will manage to renegotiate the price of gas with Gazprom". He suggest that, most likely, the case will be continued to the arbitration procedure.

Arbitration worked during the renegotiation of the contract with the Russian supplier in February 2012, when the Polish company filed a lawsuit to the Court of Arbitration against Gazprom Export. Its purpose was, among others, to change pricing conditions in long-term contract for the supply of gas, which originally were dated back to September 1996. When Gazprom agreed to change the conditions in November 2012, PGNiG withdrew the lawsuit.

Polish company was not the only customer of the Russian company, which decided to arbitration - similar decisions were made by German giants : E.ON and RWE.

This time it might be not easy to use arbitration, as Gazprom is pretty focused on the possible profits. Company has financial problems, mainly due to loosening of restrictions and global oil markets – to loose any income would mean even harder working conditions. At the end of January 2015, Russian giant announced that its profits after three quarters of previous year (2014) decreased by 37 percent in comparison to 2013.

"From the point of view of Gazprom, in these parameters we have today, any changes in the contracts, which would render those prices fall yet, look like suicide for a company. I do not think that Gazprom was willing to reduce the price, and that there is a chance for repetition of the event from 2012. Now we are dealing with a completely different political context and market " – commented Flawiusz Pawluk, PKO BP analyst, in the conversation with Onet.pl.

Renegotiation of Yamal contract includes the supply of gas until 2022, in an amount of 10.2 billion cubic meters per year. Gazprom remains the most important gas supplier of PGNiG, while this Polish company is one of the largest consumers of gas supplied by Gazprom in the European Union.