DELIVERY OF STRATEGIC OBJECTIVES IN 2017–2019

In 2019, implementation of the Strategy in the areas of building a base of documented hydrocarbon reserves in Poland, developing the discovered domestic deposits, and producing hydrocarbons from Polish fields proceeded in accordance with the assumptions. PGNiG conducted activities under its exploration and production licences located mainly in the provinces of Szczecin, Poznań, Rzeszów and Kraków. In 2019, drilling was carried out on 35 boreholes with a total depth of 79km. Two new fields, Olchowiec and Gnojnica, as well as 12 new wells in producing fields were tied in.

Given the limited capacity for growth in discoveries of new hydrocarbon reserves and little prospects of finding unconventional reserves in Poland, the Group is also looking for ways to increase its hydrocarbon reserves and step up production abroad. The Group remains committed to carrying out production projects which will yield equity gas on the Norwegian Continental Shelf, in order to directly transport the gas to Poland.

In 2017–2019, in the pursuit of the strategic objective of scaling up hydrocarbon production outside Poland, PGNiG UN took steps to acquire six fields: Ærfugl, Skogul, Fogelberg, Tommeliten Alpha, King Lear and Duva. In addition, steps were taken to acquire seven new licences. As at the end of 2019, PGNiG UN held 26 licences on the Norwegian Continental Shelf.

Following new investments, PGNiG UN’s Norwegian reserves grew significantly, from 141.9 mboe at the beginning of the year to 169.4 mboe at the end of 2019. The change is mainly attributable to the acquisition of interests in the King Lear and Duva fields. This increase does not include the acquisition of a 10% interest in the Duva field from Wellsley Petroleum, which was finalised in 2020.

Wholesale

The PGNiG Group’s operations have been adversely affected by the long-term contract for gas supplies to Poland concluded in the past (the Yamal contract). As it is due to expire in 2022, the Group seeks to ensure real diversification of gas supplies. In this respect, the Group’s key activities include:

• Supporting the construction of the Baltic Pipe – the Group’s strategic objective is to build a mix of gas supply sources that would be available via the Baltic Pipe, to enable gas imports from new directions and at market prices, thus ensuring flexibility of the gas supply portfolio beyond 2022;

• Enhancement of LNG trading and logistic capabilities on the global market – improvement of these capabilities will help the PGNiG Group create a more flexible gas supply portfolio beyond 2022 as it will be able to swiftly balance its gas imports. PGNiG has signed long-term contracts for the supply of liquefied natural gas to Poland which are to be performed after 2022. Looking further ahead, efforts will continue to develop the Group’s capabilities and strengthen its presence on the global LNG market;
• Expanding the resource base in Poland and abroad – by developing and maintaining high gas production levels in Poland and investigating potential for acquiring gas from new directions with a view to strengthening the Company’s competitive position beyond 2022.

In 2019, PGNiG’s sales of natural gas totalled approximately 190 TWh. The Group is aspiring to further increase its natural gas trading volumes in Poland and on international markets. As a matter of strategy and supported by PST’s experience and capabilities, the Group will continue working towards expanding its foothold in other gas and electricity trading markets in Central and Eastern Europe. The Group intends to continue its efforts aimed at strengthening its presence in Ukraine, one of the most promising markets in the region.

Retail

In implementing the Strategy guidelines, a number of initiatives, projects and operational activities are being carried out to support achievement of the strategic objectives in all four defined areas: implementation of a margin defence strategy, optimisation and digitisation of customer service processes, development of product offering, and development of energy consultancy activities.

The initiatives undertaken by PGNiG OD in 2019 and continued in order to achieve the strategic objectives set out in the defined areas, include the following projects and operational activities:

• Central Billing System – following selection of the supplier, the implementation of a new billing system started in 2019 to replace the current distributed environment;
• Development of the LNG offering – addition of the bunkering of LNG based on the truck-to-ship (TTS) technology, which is a novelty on the Polish market;
• Development of the product offering by introducing energy efficiency solutions for PGNIG Group’s customers – implementation of a new service in the PGNiG Group’s cogeneration sales structures.

Storage business

With a view to securing availability of the target storage capacities, in 2019 GSP worked on the construction of the Kosakowo CGSF, consisting of five chambers in Cluster B, which are to be filled with gas and put into operation by 2021. In 2019, three chambers in Cluster B with a total capacity of 93.9 mcm were placed in service, and the remaining two chambers with a total capacity of 61 mcm will be completed by 2021. GSP monitors the market and analyses gas storage issues, including growth opportunities related to storage infrastructure.

In 2019, GSP was engaged in activities aimed at developing the offering of gas storage services. Work was carried out to adjust the GSP product mix to changing market conditions in order to offer the storage capacities for third-party access and adapt the product mix. In addition, the sales platform was developed to expand the possibility of offering storage services through auction sessions.

Working towards its strategic objectives, PSG continued activities which in 2019 led to the execution of more than 113,000 connection contracts (up 16% year on year) and delivery of 124.3 TWh / 11.53 bcm of natural gas to customers (down 2% year on year).

By the end of 2019, more than 208,000 decisions defining the terms of connection were issued (up 17% year on year) and 81,697 service lines with a total length of 821 km were built.

Furthermore, PSG carried out a number of initiatives to roll out the gas distribution grid in new areas and improve the investment process:

• The ‘Programme for accelerating investment in Poland’s gas network’ announced in 2018 provides that by 2022 around 90% of all Poles will live in municipalities connected to the gas grid. As part of the Programme, 111 municipalities were connected to the grid, which was followed by the launch of the distribution service (in January 2020, PSG launched the distribution service in another 6 municipalities), and an order to launch the distribution service in 12 new municipalities was issued;
• The distribution network was expanded in areas that are not connected to the grid, and gas was delivered
  to customers using the LNG technology, i.e. based on the ‘off-grid roll-out’ model. The LNG technology is used to supply gas in new areas even before a supply pipeline is constructed. By the end of 2019, 25 commissioning certificates were signed for new LNG stations.

In 2019, PSG spent nearly PLN 1.36bn on development of the gas grid and connection of new customers, and PLN approximately 674m (VAT exclusive) on redevelopment and upgrades of the grid, including approximately PLN 214m (VAT exclusive) on replacement and certification of diaphragm gas meters and metering system components.

The strategic vision for PGNiG’s power and heat generation business is to effectively expand the generation capacities and provide district heating distribution services. The PGNiG Group also intends to increase heat sales and distribution volumes by acquiring district heating assets and expanding its generation busiess across Poland. In 2019, the PGNiG Group’s strategy for the power and heat generation area was implemented through:

• A programme to acquire district heating systems

In 2019, the PGNiG TERMIKA Group purchased a district heating system in Dęblin. Similar acquisition processes were also conducted in Przemyśl and Śrem, which will be finalised in early 2020. In line with its strategy, the PGNiG TERMIKA Group actively looks for and remains committed to pursuing acquisition opportunities on the district heating market in Poland.

• Implementation of strategic investment projects at existing locations

In order to meet the stricter industrial emissions standards, the BAT (best available technology) criteria and the climate policy requirements, the PGNiG TERMIKA Group is carrying out projects to upgrade old and environmentally inefficient generation assets, including: construction of a CCGT unit and a gas-fired water boiler house at the Żerań CHP plant, adaptation of the Pruszków CHP plant to operate after 2022, preparation and construction of a multi-fuel generating unit at the Siekierki CHP plant, and construction of a cogeneration unit at the Zofiówka CHP plant.

• Securing regulatory support in the heat and cogeneration sector

The entry into force in 2018–2019 of capacity market regulations and regulations promoting high-efficiency cogeneration will support the development of new electric capacities, in particular high-efficiency gas-fired cogeneration units.

In 2019, 106 proposals to establish cooperation in R&D projects were registered (55 of which were submitted as part of the fifth edition of the Young Innovators for PGNiG competition) and 121 innovative projects were carried out. Capital expenditure on R&D&I activities at the PGNiG Group was ca. PLN 400m in 2019.

Key benefits from innovative projects at the Group companies included: a reduction in expenses achieved by cutting down expenditure on day-to-day operations, acquisition of new customers, improvement of efficiency through standardising, improved efficiency and reduced plant failure rate, and improved employee safety.