Poland defeated Miller at Stockholm Arbitration

State PGNIG expects to recover about $ 1.5 billion from Gazprom.
March 30, the Polish state oil and gas company PGNIG announced the receipt of a final decision of the Stockholm arbitration court in the case against Gazprom on the revision of the terms of the gas supply contract. “The court has changed the price formula for the purchase of gas supplied by Gazprom under the Yamal contract,” PGNIG said in a statement. The price review will be retrospective, specified in the message: the new formula will be applied to gas supplies from November 1, 2014, when PGNiG applied for a review of the contract price. A preliminary estimate of the overpayment compensation that PGNIG expects to receive from Gazprom is about $ 1.5 billion.

Gazprom Export confirmed receipt of the decision of the Arbitration Tribunal, but “to give any estimates to the amounts of possible payments prematurely,” the company emphasized.

The current contract for the supply of gas to Poland would be concluded in 1996. The validity of the agreement, providing for the supply of up to 10.2 billion cubic meters. m annually, expires in 2022. The price formula for this contract was the subject of disagreement in 2014, but they could not be settled out of court. In 2015, a Polish company notified Gazprom Export of the commencement of arbitration proceedings demanding a review of the terms of the contract.

In 2018, the arbitration tribunal recognized the fundamental right of PGNIG to demand a review of the cost of Russian gas, but rejected the pricing formula proposed by the Poles. The arbitrators proposed to determine a fair price formula on the basis of a joint report by economic experts, according to Gazprom. Who participated in the preparation of the report is not specified in the materials. It is emphasized that Gazprom Export did not agree that the tribunal considered it possible to change the price formula at its own discretion, and challenged this decision in a Swedish national court.

How exactly the price formula has changed along with the final decision of the Stockholm arbitration court, PGNIG does not specify. From the message of the Polish company it follows only that it appeared pegged to spot quotes. Whether the price of gas will be tied exclusively to indices (Gazprom currently has about 57% of such contracts. - Vedomosti) or whether the link to the price of the oil basket in the new formula, PGNIG does not specify.

Since the beginning of 2020, the price of gas in the European market has almost halved under the pressure of oversupply, which was further aggravated by expectations of a decrease in demand as a result of the coronavirus epidemic. March 30 at the Dutch TTF (the largest gas hub in Europe. - "Vedomosti") the cost of the April futures for the supply of 1000 cubic meters. m of gas ranged in the range of $ 77–78. With this level of spot quotes, $ 1.5 billion is enough to buy about 19.2 billion cubic meters. m of gas - this is comparable to the amount that PGNIG has the right to receive from Gazprom until the end of the current contract. But analysts assess the likelihood that prices will last long at record low levels. The forward curve of the British NBP hub, for example, suggests that the gas price will begin to rise in August-September and by the end of the year will reach about $ 145 per 1,000 cubic meters. m

After the end of the current contract, PGNIG does not plan to renew it, the head of the Polish company Petr Wozniak said in the fall of 2019. “In the past four years, PGNiG has taken fundamental steps to diversify its natural gas supplies to Poland. The company has entered into long-term LNG supply contracts and is acquiring gas fields on the Norwegian continental shelf, ”he said. According to the top manager, this should be enough to safely abandon gas purchases in Russia.

Poland is the seventh largest consumer of Russian gas and the largest in Central Europe. Demand for gas in this country is growing at an average of 2.9% per year and in 2018 approached 20 billion cubic meters. m. Own production in Poland - about 4 billion cubic meters. m. Gazprom provides more than 60% of the country's needs for gas imports (9.9 billion cubic meters). But PGNiG has repeatedly spoken about the desire to reduce dependence on Russian supplies, arguing this with energy security issues, and in recent years has been looking for alternative sources of gas.