POLAND JOINS SKANLED CONSORTIUM SOLVING GAS PUZZLE

UNCLAS SECTION 01 OF 02 WARSAW 001440 SIPDIS SENSITIVE SIPDIS STATE FOR EUR, EUR/NCE, EUR/ERA, S/P, EEB/ESC EUR FOR JGARBER, MBRYZA EUR/NCE FOR DKOSTELANCIK, BPUTNEY EUR/ERA FOR LCATIPON, DLIPPIATT S/P FOR GMANUEL EEB/ESC FOR RGARVERICK, JLEWANDOWSKI COMMERCE FOR 4232/ITA/MAC/EUR/OECA/MROGERS E.O. 12958: N/A TAGS: ENRG ETRD EINV PREL PO SUBJECT: POLAND JOINS SKANLED CONSORTIUM SOLVING GAS PUZZLE WARSAW 00001440 001.2 OF 002 ¶1. (U) This message is sensitive but unclassified, not for internet distribution ¶2. (U) Being Summary: On June 20, Polish Oil and Gas Company PGNiG joined the Skanled Consortium which is developing the Skanled gas pipeline from Karsto, Norway to Sweden and Denmark. Poland acquired a 15% stake in the consortium in return for agreeing to participate in the Phase 2 feasability study. Poland will participate in Phase 3, starting now, which includes obtaining environmental and construction permits. Phase 4, construction, is expected to begin in October, 2009. Joining Skanled is an important step in achieving energy security for Poland as it will enable Poland to transport gas in its newly acquired deposits in Northern Norway through Skanled to Denmark and into the planned Baltic pipeline between Denmark and Norway. End Summary. How Skanled Fits into PGNiG's Business Plan -------------- ¶3. (U) Krzysztof Glogowski and Zenon Kuchiak, management board members of PGNiG signed a consortium membership agreement on behalf of PGNiG on June 20, formally joining the Skanled gas pipeline project. Skanled will transmit gas from Norway to Denmark. PGNiG's current business plan consists of four goals: -- Securing gas supply sources on the Norwegian continental shelf (NCS) from the fields acquired by PGNiG and contracts for gas purchases from other producers on the NCS; -- Securing gas transportation from the Norwegian transmission system to Denmark through the Skanled pipeline; -- Securing gas transportation through the Danish transmission system through cooperation with Danish company Energinet.dk; -- Construction of the Baltic offshore pipeline in cooperation with Energinet.dk. PGNiG notes that implementation of its business plan will lead to diversification of gas supply for Poland which will be significant for the European gas market. The company emphasizes that the Baltic pipeline can serve as an interconnection, which are strongly encouraged by the EC. Financial Commitments and Timeline -------------- ¶4. (U) According to PGNiG, Phase 2, which consists of a feasability study, has been completed. PGNiG will match the contribution of the original consortium participants to join the group at an estimatated cost of 500,000 zloty ($175,000 - note: yesterday's press incorrectly stated that this cost was 500 million zloty). The project recently entered Phase 3, which includes obtaining environmental and construction permits. PGNiG's estimated costs during Phase 3 are 10 million zloty ($3.3 million). At the end of Phase 3, in October 2009, the consortium will decide whether to commence construction. PGNiG estimates its total cost for its 15% share will be approximately 500 million zloty ($175 million). Both Minister of Economy Wozniak and Deputy Minister Naimski emphasized that Poland's participation in Skanled will depend upon completion of the Baltic pipeline. Special Terms -------------- ¶5. (U) In joining the consortium, PGNiG received a concession that its participation will be linked to connection of the Skanled pipeline to Poland's planned Baltic pipeline. PGNiG's participation is also dependent upon the expansion of capacity of the Danish transmission system allowing addition gas to be transmitted from Norway to Poland. Finally, PGNiG's participation depends upon securing adequate transmission capacity in the Norwegian transmission system to ensure access of gas from its fields in Norway to Skanled. The other consortium members will purchase PGNiG's interest if the company decides to opt-out. Both Minister of Economy Wozniak and Deputy Minister Naimski emphasized that Poland's continuing participation will depend upon completion of the Baltic pipeline. Technical Paramaters -------------- ¶6. (U) PGNiG states that the Skanled gas pipeline will WARSAW 00001440 002.2 OF 002 begin in Karsto, Norway where it will be connected to the Europipe II transmission grid. Under current plans, five exit points are planned in Rafnes, Norway, Lysekil, Vallby Kile, and Bua Sweden and Jutland Denmark. The consortium plans to transport ethanol as well as gas along the Karsto-Rafnes section. Wozniak and Naimski refused to comment on how much gas will eventually reach Poland, noting that the quantity will depend on the size of the Skanled pipe. Consortium Members -------------- ¶7. (U) Prior to PGNiG's entrance into the Consortium, which operates as a joint venture, the group consisted of 7 energy companies from Norway, Denmark, and Sweden, which jointly held 70% of the shares. Energinet.dk, Poland's partner in the Baltic pipeline, is an original member. In addition to PGNiG, E.ON and Preem Petroleum recently joined the consortium. Comment -------------- ¶8. (SBU) Joining Skanled is a major coup for Deputy Minister of Economy Naimski and his team as the GOP continues to pursue its goal of achieving energy independence from Russia. PGNiG's purchase of gas fields in Northern Norway was questioned by some experts at first, but gave the GOP credibility in its negotiations with companies and governments. The agreement to join Skanled gives PGNiG and the GOP access to a continuous transmission conduit from the Norwegian fields assuming Norwegian and Danish domestic capacity can handle the increased load. Krzystof Rogala of Poland's Gas Systems told us that "now the real hard work starts", confirmation that the GOP recognizes that commercial decisions and coordination must occur to ensure Skanled's success and and allow the GOP to reach its ultimate goal of receiving gas from Norway. ASHE