PGNiG secures extra NCS gas supply to backfill end of Russian contract

LONDON (ICIS)–Polish state-owned oil and gas company PGNiG’s purchase of British INEOS Energy’s Norwegian oil and gas assets was announced by both parties on 25 March.

The deal should leave PGNiG with more comfortable supply margins after the Polish incumbent’s contract with Russian producer Gazprom expires from 2023.

Worth $615m, the transaction includes all INEOS Oil & Gas production, licenses, fields, facilities and pipelines on the Norwegian continental shelf (NCS).

According to INEOS’ release, the company currently produces 4.9mcm/day (30,690boe/day) gas from the fields Ormen Lange, Alve and Marulk in the Norwegian Sea. Just 7% of the production is oil.

POLISH SUPPLY POST-GAZPROM

In a statement on Thursday, PGNiG said it expected the INEOS sale to increase the company’s gas production from the NCS by around 1.5bcm/year.

PGNiG had forecast 0.9bcm gas to be produced from the NCS in 2021.

The company’s 10bcm/year long-term contract with Gazprom will expire at the end of 2022.

As well as several US LNG investments, the company had planned to backfill the end of Russian supply with its own NCS production and Danish supply, both transported to Poland through the Baltic pipe link.

The Baltic pipe project is planned to connect Poland to Norway and Denmark once completed in autumn 2022.

However, delays to US LNG project funding and the restart of Danish gas production raised the question whether PGNiG gas supply would be tight in 2023, leaving the company more exposed to the spot market from 2023 than initially intended.

In 2017, PGNiG booked 8.1bcm/year capacity on the Baltic pipe, enough to replace 80% of volumes currently supplied by Russia.

Thursday’s announcement means PGNiG’s NCS production may increase to around 2.4bcm/year in coming years once it takes control of the assets. When combined with the long-term supply deal with Denmark, this would secure supply to Poland worth around 43% of its reserved Baltic pipe capacity, up from just around a quarter before the INEOS acquirement.

The company has previously confirmed that the entirety of its NCS production will be transported to Poland via the Baltic pipe from 2022 onwards.

The 22 offshore licences included in the INEOS agreement mean PGNIG’s NCS gas output could now reach 4bcm in 2027, according to PGNiG’s statement.

The sale also includes 8% equity in the Nyhamna terminal, processing gas from the Ormen Lange and Aasta Hansteen fields.

The deal is effective backdated to 1 January 2021 and subject to Norwegian governmental approval, expected later in the year.