STRATEGIC CHALLENGES
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A typical feature of the energy sector is its strong reliance on the prices of energy commodities: natural gas and crude oil. Steep declines in crude prices have repeatedly upset the balance across the sector. Moreover, gas prices on European markets have become increasingly detached from prices of oil products in recent years.
In 2019, changes taking place in the Polish gas market were accompanied by price declines elsewhere in Europe. The drop in natural gas prices was reflected in revenue from sales of gas to wholesale customers reported by the Trade and Storage segment.
A year-on-year fall in crude prices in 2019 also had serious implications for the Group. On the one hand, it has translated into lower cost of gas purchased under long-term contracts and increased attractiveness of imports. On the other hand, subdued crude prices adversely affect the economics of foreign upstream projects with a predominant share of oil, which reduces the value of the Exploration and Production segment’s foreign operations.
Moreover, LNG infrastructure – both export capacities (liquefaction plants, mainly in North America and Australia) and import capacities – has been expanding rapidly on the global market in recent years. Earlier predictions of an LNG glut proved wrong as LNG demand saw strong growth in Asia, notably in China. As a global LNG market player, PGNiG will be able to optimise its long-term gas portfolio and secure additional gas supplies to Poland in the short term to address spikes in demand or exploit price opportunities (optimisation of gas supplies from other directions).
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 2019, 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 countries east of Poland.
As the Yamal contract expires after 2022, the PGNiG Group is actively supporting the development of alternative routes for natural gas supplies, mainly from countries north of Poland via the planned Baltic Pipe. 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 expanded its LNG portfolio through a number agreements with US partners, providing for gas deliveries after 2022.
Climate change, including higher temperatures resulting from global warming, drives down gas trading volumes. The higher average monthly temperatures, particularly during the heating season, translate into lower sales and distribution volumes of natural gas and heat for district heating purposes, which has its impact on profit or loss.
The regulatory environment in which the PGNiG Group operates is subject to regular and substantial changes, in particular with respect to taxation of hydrocarbon production and the exchange sale requirement. The announced climate protection changes to EU legislation consistent with the current Climate Policy called the European Green Deal are also relevant. (For more information on climate challenges, go to Outlook)
The EU’s climate policy objectives strongly support efforts seeking to improve energy efficiency through systemic measures that deliver tangible energy savings (electricity, gas, heat, cooling, etc.) thanks to comprehensive monitoring and optimisation of energy management at companies. Those objectives can be successfully achieved with innovative technology (for more information, see W kierunku energii przyszłości [Towards the energy of the future], a report published by PGNiG in 2019, at http://pgnig.pl/raport-innowacje-2019).
An example of energy efficiency improvements in action are measures taken by PGNiG Termika Energetyka Przemysłowa S.A. The company has long been a leader of cogeneration of electricity, heat and cooling from coal mine methane for Jastrzębska Spółka Węglowa’s mines and residents of Jastrzębie-Zdrój and the neighbouring area. The company uses over 70 million cubic metres of coal mine methane every year, significantly reducing the amount of methane released into the air and lowering carbon dioxide emissions by 900,000 tonnes per year.
Combined heat and power generation that has been promoted for many years now provides a response to the issue of waste heat utilisation. In power generating systems based on fuel combustion, heat is simply a by-product of electricity generation. In Poland, one of the companies conducting cogeneration operations is Warsaw-based PGNiG Termika. It invests in state-of-the-art CCGT units producing heat and electricity in cogeneration. One such project is the new CCGT unit constructed at the Żerań CHP Plant.