Market environment

In 2020, natural gas prices in Europe fell on average by 34% year on year (based on prices recorded at TTF, GASPOOL, NCG and NBP, and on the Polish Power Exchange), from EUR 14.61/MWh in 2019 to EUR 9.61/MWh. The largest price declines were recorded in Germany (NCG) and the Netherlands (TTF) – on average by more than 31% – and the smallest in Poland (by approximately 26%).

Source: In-house analysis based on ICE data.

In Europe, the air temperatures in winter were on average above the typical range for the season, which depressed the demand for gas used for heating purposes. LNG imports to Europe decreased by 8.1% year on year as a result of very low prices on the European market, which made LNG imports unprofitable for part of the year. LNG exports from the United States to Europe were even below the long-term break-even point. This changed towards the end of the year when prices in Asian markets increased strongly, resulting in most shipments reaching the Asian market. The increase in demand in Europe, which coincided with sharply reduced LNG imports, led to a very high price increase, with the average spot price on the TTF at 4.58 EUR/MWh in May and 15.98 EUR/MWh in December (an increase of 249%).

Gas inventories in European storage declined in the second half of 2020. The low volume of LNG imports, the price of which also began to rise sharply, pushed up prices on the European market, encouraging investors to draw gas from storage.

Q4 saw an increase in gas prices in Europe, resulting in a 15.5% year-on-year increase in the average gas price at the Dutch TTF hub during the period. The price increases were supported by higher electricity generation from gas-fired assets – gas demand from the power segment was 11.3% lower in the corresponding period of 2019.

Source: In-house analysis based on Thomson Reuters data.

The total volume of natural gas imported to Europe in 2020 was 3,900 TWh, of which 38% (1,489 TWh, 152.4 bcm) came from Russia. The share of pipeline gas imports from Russia in 2020 fell by 45% (from 2,065 TWh, 211.4 bcm in 2019). Norway was the second largest supplier of gas in Europe, with 1,156 TWh (118.33 bcm) or 30% of total gas supply. Imports from North Africa were 275 TWh (28.2 bcm, 7% of total supplies), while LNG deliveries to European terminals were 979.7 TWh (100.3 bcm, 25% of the imported volume).

Global LNG trade increased by 0.2% year on year, to over 484 bcm of regasified gas. The low increase relative to 2019 (0.9 bcm) was caused by very low gas prices in the first half of the year. The largest increase in exports in 2019-2020 was in the United States, by 15.7 bcm, while the largest increase in imports in percentage and value terms was in China, by 9.1 bcm (11.1%) compared with 2019.

The growing demand for natural gas in Poland is met by domestic production and imports. Gas is transported to Poland via an extensive transmission network, with LNG -derived gas additionally fed into the network since 2016. Gas is traded on the Polish Power Exchange, and distributed physically to end users through distribution and transmission networks. The last component of the national gas system is gas storage facilities.

Consumption of high-methane grid gas in Poland in 2020 (excluding gas fuel supplied on the OTC and PPX markets) was ca. 193.1 TWh. Compared with 2019, the volume grew by 9.6 TWh, or 5.3% year on year. The increase in consumption was driven by an increase in gas consumption by customers connected to the transmission network (+12.2% y/y), largely driven by increase in take-up of gas by gas-fired generation units. The demand from the distribution network also increased (+2.7% y/y), led in part by the expansion of the gas network.

GAZ-SYSTEM manages the transmission network and supplies gas to distribution networks and end customers connected to the transmission system. The transmission network comprises the Transit Gas Pipeline System and the National Transmission System (high-methane gas [E group] and nitrogen-rich gas [Lw subgroup]).

Source: GAZ-SYSTEM and European Network of Transmission System Operators for Gas (ENTSOG).

The Baltic Pipe is a strategic infrastructure project aimed at creating a new gas supply corridor on the European market. It is to enable the transmission of gas directly from deposits located in Norway to markets in Denmark and Poland, as well as to consumers in the neighbouring countries. The annual transmission capacity of the Baltic Pipe will reach up to 10 bcm to Poland and up to 3 bcm to Denmark and Sweden.

GAZ-SYSTEM and Energinet, operators of the Polish and Danish transmission systems who are implementing the project, made a final investment decision in 2018. Preparatory work for the construction continued in 2020. Environmental decisions, planning permits and construction permits for individual elements of the planned infrastructure have been obtained. The construction work is expected to take place between 2020 and 2022. Gas transmission is scheduled to commence on October 1st 2022.

In May 2020, PGNiG signed a contract with Polskie LNG of the GAZ-SYSTEM group for the reservation of additional regasification capacities under the Open Season procedure in view of the expansion of the President Lech Kaczyński LNG Terminal in Świnoujście. Under the agreement, the Company reserved additional capacity of approximately 1.2 bcm of gas per annum in 2022-2023 (transitional service) and approximately 3.3 bcm of gas per annum in 2024-2038 (basic regasification service), which together with the previously reserved capacity will increase the import capacity to 6.2 bcm and then to 8.3 bcm of gas per annum. In addition, PGNiG reserved additional services to be provided in the period specified for the main regasification service.

In 2020, the volume of imported gas fuel to Poland fell by 181.8 TWh year on year (a decrease of about 1.9 TWh, or about 1.1%), with supplies from the east rising by 1%, while supplies from the EU fell by almost 13.1%. Most of the imports (about 55%) came from the eastern direction.

In 2020, the volume of gas regasified at the LNG terminal in Świnoujście increased by 9.5% on 2019 as a result of spot purchases and deliveries under a long-term contract with Cheniere.

In 2020, PGNiG received a total of 18 LNG shipments under the long-term contracts with Qatargas. The volume of LNG imports from Qatar amounted to 1.64m tonnes, i.e. approximately 25.01 TWh or 2.28 bcm of natural gas after regasification. In 2020, PGNiG purchased gas under 13 spot contracts; its volume totalled 0.80m tonnes, i.e. ca. 12.18 TWh or 1.11 bcm of natural gas after regasification. The sources of spot supplies were Norway (4 deliveries), the US (7 deliveries), Trinidad and Tobago and Nigeria (1 delivery each). The deliveries were made with the support from the London LNG trading office (PST). In 2020, PGNiG also took delivery of LNG shipments under a long-term contract with Cheniere Marketing International and a medium-term contract with Centrica.

Throughout the year, PGNiG imported 35 shipments of LNG via the LNG terminal, with a total volume of 2.70m tonnes, i.e. approximately 3.76 bcm of regasified natural gas.

In 2020, the average daily withdrawal of gas from Polish storage over the withdrawal periods (January-March, November-December) was 182 GWh, representing increase of 89% on the previous year. In the summer season (April-September) of 2020, gas was injected into storage at an average rate of 122 GWh/day, that is 12 GWh/day less year on year.

At the end of 2020, Polish gas storage facilities were filled to approximately 74% of capacity, an 18 p.p. decrease on year-end 2019. Other European markets also saw lower inventory levels at storage facilities: in Germany, the storage facilities were filled to 73.1% of capacity, compared with 97% as at the end of 2019.

Source: In-house analysis based on Gas Infrastructure Europe and Gas Storage Europe data.

Contracts traded on the PPX in 2019 and 2020

Source: In-house analysis based on PPX data.

PGNiG is the leader of gas trading on the PPX. According to PPX data, in 2020 the total gas trading volume was 151.1 TWh, of which 125.3 TWh was traded on the commodity futures market (RTT). This means that almost 83% of gas trades in 2020 were executed under contracts with maturities of a year, season (summer, winter), quarter, month, and week.

In 2020, the Polish Power Exchange reported a record-high result in the history of its gas trading, and the total volume of gas trades grew by 3.4% relative to 2019. Record high trading volumes in 2020 were seen both on the Day-Ahead Market and the Intraday Market, at 19.9 TWh (a 17.6% increase y/y) and 5.9 TWh (a 3.3% increase y/y), respectively; the volume on RTT also increased, by 1.5% y/y.

Source: In-house analysis based on PPX data.