In the words of prominent Polish politician Piotr Naimski, currently serving as the European country’s plenipotentiary for strategic energy infrastructure, Polish national sovereignty is strongly correlated with the ability to assure independence from Russian energy resources and pipeline infrastructure. Although the above mentioned can be traced back to 2006-2007, diversifying Poland’s energy supplies away from Russia remains a fully consolidated mantra of the Polish political class. Cognizant of the remarkably strained history between Poland and Russia, the political spectrum of their relationship is well-known and should not surprise anyone. The genuine question that has haunted Poland’s energy policy ever since the diversification drive was pronounced as its main tenet remains the same: is the diversification really worth it? Leaving aside the usual squabbles surrounding gas supplies, let’s focus on one of the rather underreported trends in Poland’s supply security – namely, the progress Warsaw pulled off with its crude deliveries. Historically, Poland has relied on pipeline imports from Russia via the northern branch of the Druzhba pipeline. Druzhba arrives to Poland from Belarus, wielding a 1mbpd capacity, and reaches the 325kbpd Plock Refinery which up to the present day is running on Urals (or REBCO in the local denomination). From Plock the pipeline bifurcates into a 0.5mbpd capacity branch towards Germany and the 0.6mbpd bidirectional Pomeranian pipeline that connects the 210kbpd Gdansk Refinery to Poland’s main system of trunk pipelines. Primarily because of its immediate connection to the Baltic Sea, Gdansk has become the harbinger of diversification for Poland.
Graph 1. Polish Imports of Russian Crude in 2017-2021 (‘000 barrels per day).
Looking at the monthly volume split of Russian pipeline exports to Poland, one can notice that the decrease is certainly there, however it can hardly be called drastic – compared to 312kbpd in 2017, the annual average last year stood at 285kbpd. In between those years quite a lot happened, among others the 2019 organic chloride contamination story that has blocked all transportation on the northern section of the Druzhba for a couple of months, as well as the 2020 OPEC+ revamp that has seen Urals surge to historically unprecedented premia. The most recent development, however, is the tangible drop in imported volumes starting from January 2021 – at the time of Urals getting really cheap on the back of a gradual OPEC+ quota alleviation for Russia. The root cause of this tumble lies in the termination of PKN Orlen’s main pipeline supply contract with Rosneft, the Russian NOC that has become Poland’s prime Urals supplier over the course of past years (see Graph 2).
Graph 2. Rosneft’s Share of Polish Crude Imports in 2017-2021 (%).
As soon as the Rosneft-PKN deal ran out, the Russian firm halted its supplies towards Poland. The other contract supplying Polish companies PKN and Lotos the one with regional producer Tatneft, remained in vigor (its PKN part runs out in late 2021, whilst the Lotos part ends in December 2023), though its allocation of 2.4mtpa is less than half of Rosneft’s. It was rumoured that Rosneft was seeking lower discounts to Urals NWE, reportedly down to 50 cents per barrel instead of the previously existing 0.9-1.0 USD per barrel discounts. Resolving the conflict, PKN Orlen and Rosneft have signed a two-year supply continuation deal this mid-March 2021, settling for a significantly lower volume. This has become the second consecutive decrease in annual delivered volumes, after much of the 2010s remained relatively stable:
- February 2013 – January 2016: 6.0-8.4mtpa
- February 2016 – January 2019: 6.0-8.4mtpa
- February 2019 – January 2021: 5.4-6.6mtpa
Graph 3. Polish Seaborne Imports in 2017-2021 (‘000 barrels per day).
It needs to be noted that Poland’s seaborne crude imports have plummeted 30% year-on-year in 2020 (187kbpd in 2020 against 269kbpd in 2019). In periods when the first and second COVID waves were pummelling internal fuel demand and consequently Russian pipeline imports were at their lowest in quite some time, seaborne arrivals simultaneously hit multi-year lows. Even though January 2021 has witnessed a palpable rise in Poland’s seaborne crude intake (caused by the Rosneft contract’s ending), moving above 300kbpd for the first time since the organic chloride crisis of 2019, the subsequent months have dropped back to usual territory. With Urals pipeline contractual obligations revamped and a nationwide lockdown extended into late April in Poland, it is difficult to see what would or should change the declining seaborne trend during the upcoming months.
Even before signing the Rosneft contract, PKN Orlen has signed a one-year contract with ExxonMobil on the purchase of WTI crude. The deal stipulates that the Polish firm can buy up to 1 million tons of WTI, roughly equivalent to one Aframax cargo per month (80-100kt). PKN Orlen’s opting for West Texas Intermediate is quite interesting. Although there have been sporadic deliveries to Gdansk in 2018-2019, there was none in 2020-2021. Hence, the signing of the WTI deal is a largely symbolic act to show that Poland’s geographic coverage of its diversification drive is wide enough to include both Saudi Arabia and the United States. On the other hand, Lithuania and Czech Republic, whose refiners are controlled by Poland’s NOC, might be very keen to utilize the opportunities offered by ExxonMobil – the former’s Mazeikiai Refinery saw two WTI cargoes arrive as recently as January 2021.
Finding the right balance amidst megalomaniac-looking ambitions might be the hardest part for the Polish energy community. Although PKN Orlen’s takeover of Lotos (both are owned by the state to varying degrees – 32.4% for PKN and 53.2% for Lotos) was already cleared by the European Commission subject to several conditions in July 2020, doubts about the commercial benefit of creating a national oil champion still linger on. Whilst the Lotos takeover still needs to step into effect, Poland’s consolidation of assets is poised to go even further as PKN Orlen now wants to buy the Polish state’s 71.9% stake in the country’s main gas producer and distributor PGNiG. Considering how politically susceptible PKN Orlen’s decision-making and personnel nominations have been in the past years, the idea of creating a national megacompany seems really half-baked.