Polish Oil and Gas Company Joins SKANLED Consortium

Polish Oil and Gas Company

PGNiG SA has acquired a 15% interest in the Consortium led by Gassco, which is developing the SKANLED gas pipeline from Karsto in Norway to Sweden and Denmark.

Following the acquisition of interests in the fields in the Norwegian Continental Shelf and signing the agreement with Energinet.dk concerning the construction of the Baltic Pipe, which is to connect the Polish and Danish gas systems, the participation of PGNiG in the Consortium developing the SKANLED pipeline is another important step on the way to securing natural gas supply from Scandinavia to Poland. This means coming back to the strategic agreement with the Danish and Norwegian partners of 2001 as an element of the strategy for diversification of the gas supply to Poland ¡V said Krzysztof Glogowski and Zenon Kuchciak members of the Management Board of PGNiG after signing the consortium membership agreement.

The business concept currently implemented by PGNiG consists of four elements:

  • Securing gas supply sources on the Norwegianƒ{ Continental Shelf (NCS) both from the fields acquired by PGNiG and contracts for gas purchase from other gas producers on the NCS,
  • Securing gas transportation from the Norwegian transmission system to Denmark through the SKANLED pipeline,
  • Securing the gas transportation through the Danishƒ{ transmission system through cooperation with Energinet.dk,
  • Construction ofƒ{ the Baltic Pipe offshore pipeline in cooperation with Energinet.dk. The implementation of the above concept will lead to diversification of gas supply to Poland and will offer new business opportunities, which will be significant in the context of the European gas market. In addition, it should be emphasized that the Baltic Pipe can serve as an interconnection, which is strongly advocated for by the European Commission.

The terms agreed in the process of negotiations with the consortium members and Gassco include, among other things, the following:

  • The participation of PGNiG in the SKANLED to be connected with the implementation of the Baltic Pipe project
  • The participation of PGNiG in the SKANLED project to be connected with expansion of the capacity of the Danish system ¡V which as a result with enable gas transmission from Norway to Poland
  • Securing of adequate transmission capacity in the Norwegian transmission system to enable gas transmission from, among others, the fields owned by PGNiG through the SKANLED pipeline

With the acquisition of a stake in the Consortium, PGNiG has obtained the right to take part in decisions concerning all its matters, the right to take decisions regarding capacity booking and the access to the entire project documentation.

Before inclusion of PGNiG, the Consortium was formed by 7 energy companies from Norway, Denmark and Sweden, which jointly held 70% of the stakes. Among them there is Energinet.dk, the partner of PGNiG in the Baltic Pipe project. Two other new members who joined the Consortium together with PGNiG are E.ON and Preem Petroleum. Currently, the Consortium operates as a joint venture.

Technical parameters of the SKANLED project

  • The gas pipeline with run from the facility in Karsto(the only entry point), where it will be connected with the Europipe II transmission grid
  • Currently, five exit points are planned: Rafnes (Norway), Lysekil, Vallby Kile, Bua (Sweden), Jutland (Denmark)
  • In addition, transportation of ethane along Karsto¡V Rafnes section is planned.

Financial expenditures of PGNiG in the project

PGNiG as a new member of the Consortium is obliged to participate in the costs of Phase 2, which consists in funding the project study work. The share of PGNiG matches the contributions by each of the remaining members and amounts to approximately PLN 500 thousand.

At this point the project has entered Phase 3, which will last until October 2009, when the final decision to disburse funds will be taken. By that time the environmental consents and building permits will be obtained. The costs to be incurred by PGNiG in Phase 3 of the SKANLED project should not exceed PLN 10 million. This amount will be reimbursed if PGNiG withdraws from the project and the entire project enters the execution phase.

Upon completion of Phase 3, in October 2009, the investment decision is expected. The entry to Phase 4 will depend on the individual decision by each Consortium member. The level of potential obligations of PGNiG resulting from the investment decision is estimated at approx. PLN 500 million.

Main benefits from the participation of PGNiG in the SKANLED Consortium are:

  • prospects for improving the security of supply,
  • elimination of gas supply disruptions,
  • reduced dependency on one supply direction,
  • enabling imports of a more significant gas volume (current entry points are overloaded and the market demand for gas is growing),
  • balanced sources of gas supply to Poland.