Key challenges

In 2020, changes in the Polish gas market were accompanied by a decrease in gas prices on European markets (the average gas price was 34% lower on the average price in 2019). Gas prices in Poland were strongly correlated with those in Germany and on the European markets in general.

Despite the spread of the COVID-19 pandemic, the PGNiG Group’s financial and operating performance improved in 2020. Both in Poland and Europe the decline in gas consumption by sectors affected by COVID-related restrictions was offset by increased consumption by the energy sector, which took advantage of the lower gas prices. As a result, demand for gas in Poland and in Europe was higher than in 2019.

LNG infrastructure – both export capacities (liquefaction plants, mainly in North America and Australia) and import capacities – continue to expand rapidly on the global market. Earlier predictions of a significant oversupply of LNG in the market did not materialise. As a participant in the global LNG market, PGNiG will be able to optimise its long-term gas portfolio and secure additional gas supplies to Poland to address spikes in demand or take advantage of price opportunities (optimisation of gas supplies from other directions).

Additionally, the correlation between market prices of gas and oil products has been weakening for several years, and the year-on-year decline in crude oil prices in 2020 was reflected in the PGNiG Group’s financial performance, i.e.: on the one hand, lower cost of gas under long-term contracts made imports of the commodity more attractive, but on the other hand, it adversely affected the economics of foreign upstream projects with a higher share of crude oil in the output (mainly sales of crude oil produced in Norway), which put a negative pressure on the valuation of the foreign Exploration and Production segment.

The price of crude oil was affected, among other things, by declining demand depressed by the COVID-19 pandemic and related restrictions imposed in many countries. Another factor was the price war between Russia and Saudi Arabia, whose aim was to lower oil prices and limit competition. The end of 2020 brought optimism to the markets, with the December average price of a barrel of Brent crude reaching its highest level since February.

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 2020, 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.

In view of the Yamal contract expiring after 2022, it is particularly important for the PGNiG Group to develop alternative routes for natural gas supplies to Poland, mainly from the northern direction via the planned Baltic Pipe gas pipeline. 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.

The higher average monthly temperatures, in particular in the heating season, translate into lower sales and distribution volumes of natural gas and heat for district heating purposes.

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. (Read more here)

The EU’s pro-climate goals strongly support increasing energy efficiency through the implementation of systemic measures, as a result of which it will be possible to achieve tangible benefits in the form of savings in energy consumption in all forms (electricity, gas, heat, cooling, etc.) by comprehensively controlling and optimizing the energy management process. in the enterprise. Innovative technologies are a chance for the effective implementation of these assumptions. (More on this in the report published in 2019 by PGNiG:(„Towards the energy of the future”)

The actions taken by PGNiG TERMIKA Energetyka Przemysłowa SA are an example of the implementation of energy efficiency demands. For many years, the company has been a leader in the field of energy management of methane from demethanation of mines for the production of electricity, heat and cold in cogeneration for the needs of the mines of Jastrzębska Spółka Węglowa and the inhabitants of Jastrzębie-Zdrój and the surrounding area. Annually, the company manages over 70 million m³ of methane from methane drainage from mines. This results in a significant reduction in the amount of methane released into the atmosphere, and thus – a reduction of carbon dioxide emissions at the level of 900 thousand. tons per year.

In turn, the issue of combined heat and power generation, i.e. combined heat and power (CHP), which has been promoted for many years and has been promoted for many years, harmonizes with the problem of the use of waste heat. In electricity generation systems based on the combustion of fuels, heat is nothing more than a by-product of electricity generation. In Poland, activities related to the production of electricity in cogeneration are carried out, among others, by PGNiG TERMIKA SA in Warsaw. The company is investing in modern gas and steam units generating electricity and heat in cogeneration. An example may be the EC Żerań investment