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TO RUEHC/SECSTATE WASHDC IMMEDIATE 9137
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C O N F I D E N T I A L SECTION 01 OF 02 WARSAW 001122 
 
SIPDIS 
 
STATE FOR EEB/ESC DOUG HENGEL, S/CEE REBECCA NEFF AND 
AMBASSADOR RICHARD MORNINGSTAR 
 
E.O. 12958: DECL: 11/03/2014 
TAGS: ENIV ENRG ETRD PGOV PL
SUBJECT: POLAND TO SIGN LONG-TERM GAS DEAL WITH RUSSIA 
 
REF: WARSAW 1029 
 
Classified By: Econ Tom Palaia for reasons 1.4 (b,d) 
 
¶1.  (SBU) Summary.  Prime Minister Tusk's energy committee is 
expected to approve today, November 4, a new agreement with 
Russia on gas and transit through 2037.  The deal will then 
go to the Council of Ministers for final approval, probably 
on Tuesday, November 10.  The contract includes a reduced 
transit fee for Russian gas destined to Germany and a take or 
pay commitment to supply Poland with eleven billion cubic 
meters (bcm) per year - equivalent to their current imports 
or 2/3 of total consumption.  The deal has been attacked in 
the press as jeopardizing Poland's energy security, but its 
defenders in government and industry do not think it changes 
much for Poland and frees them to focus on other energy 
priorities.  Yet another long-term deal with Gazprom is 
certainly a setback for EU energy market liberalization, but 
it is unlikely to change Poland's energy security priorities 
or the priority the Poles place on blocking Russia's ability 
to use energy as a political tool.  End Summary. 
 
The Details on the Deal 
----------------------- 
 
¶2.  (C) Poland has been negotiating over the last ten months 
to replace lost supplies that had been provided by the now 
defunct middlemen RosUkrEnergo (RUE), marginalized after 
Europe's January gas crisis.  While details have not yet been 
released, officials from the MFA and Poland's state-owned gas 
importer PGNiG, told EconOff that the contract extends 
existing transit and supply terms and levels from 2022 to 
¶2037.  On transit, the 15 year extension allows the 
Polish-Russian consortium that owns the Polish portion of the 
Yamal pipeline to extend the amortization of the pipeline's 
construction costs for the life of the new contract.  This 
extension was reportedly dreamed up by PGNiG, which co-owns 
the consortium with Gazprom and a 4% mixed minority (EuroPol 
Gaz) partner.  The extension allows the consortium to lower 
transit fees on Gazprom supplies (something the Russians 
wanted) while maintaining profit margins for the transit 
company (note: this also protects profits for EuroPol Gaz' 
small private shareholders, primarily Polish billionaire 
Aleksander Gudzowaty). 
 
¶3.  (SBU) On supply, Poland commits to continue to purchase 
11 bcm per year at a price based on the existing nine-month 
oil price lag common in Gazprom's long-term European gas 
deals.  MFA officials privately note that the "no re-export" 
clause of the take or pay commitment is still under 
discussion, but this is largely to calm critics as they do 
not think the clause poses any problems for Poland. 
 
The Critics - Why Trust Gazprom? 
-------------------------------- 
 
¶4.  (SBU) Poland's Deputy Prime Minister/Minister of Economy 
Waldemar Pawlak was immediately criticized in the media for 
the long-term deal he announced last week after leading 
Poland's negotiating team to Moscow.  Opponents charge that 
the long-term take or pay commitment will cost Poland and 
jeopardizes energy security alternatives.  Forced to consume 
11 bcm of Russian gas, Poland - critics claim - will no 
longer be able to justify development of the planned 2.5 
bcm/yr LNG facility, support for the Southern Corridor, or 
other efforts to diversify supply.  Also, at the time of the 
first announcements, agreement on transit pricing and 
replacement gas for RUE had not been reached, causing people 
to worry that Poland had backed away from its consistent 
negotiating position that there would be no deal without a 
comprehensive deal.  But, just a few days later, remaining 
details were apparently ironed out and the deal was presented 
to the PM's office. 
 
Supporters - What Does it All Mean? 
----------------------------------- 
 
¶5.  (SBU) Plenty of Demand Growth Expected: MFA officials 
claim the take or pay commitment is not likely to be a 
problem for Poland despite the complaints of critics.  Eleven 
bcm matches Poland's current imports, which cover about 2/3 
of demand (the remaining 5 bcm is produced domestically). 
Poland is considering a variety of alternatives, including 
nuclear, to wean itself from carbon-intensive coal which 
currently fuels 95% of Poland's aging power sector.  But gas 
is the cheapest and quickest way to replace coal and improve 
Poland's carbon footprint.  Given Poland's lack of hydro 
resources, gas is also an effective way to balance the power 
 
WARSAW 00001122  002 OF 002 
 
 
grid and manage the introduction of renewables such as wind 
(Poland committed to 15% renewables by 2020 in the EU's 2008 
Climate and Energy Package).  Plans are underway to build 
Poland's first pure gas-fired electric generation plants and 
gas demand is likely to exceed the Ministry of Economy's 
current modest projections of 20 bcm by 2030.  If gas demand 
were to falter, there is also no reason Poland could not use 
its planned interconnections to export domestic production, 
even if that production were to benefit from big shale gas 
finds in coming years (REF A).  The first new Polish EU 
interconnection projects (beyond limited existing German 
connections) are planned to be completed with the Czech 
republic before 2012. 
 
¶6.  (C) The PM's energy advisor, Maciej Wozniak, told EconOff 
that prior to finishing the deal they were able to top off 
storage, in part thanks to the economic slowdown.  The deal 
should allow Poland to keep storage full (1.7 bcm) and enter 
this winter with enough to maintain the system through any 
unexpected supply interruptions.  Wozniak, who is a 
consistent skeptic of Russia, assures us that this does not 
change Poland's broader energy security plans.  On the 
contrary, he believes this allows Poland to more effectively 
engage the EU on Caspian outreach, reform in Ukraine, and EU 
gas solidarity as well as their domestic diversification 
priorities including nuclear (planned for 2020) and LNG 
(planned for 2014). 
 
Comment: Probably Not Much New 
------------------------------ 
 
¶7.  (C) Assuming it moves forward, this deal will not likely 
alter Poland's medium to long-term energy security 
priorities, nor will it dampen the Poles' enthusiasm for 
constraining Russia's potential to use energy as a political 
tool.  Russian gas comprises roughly 8% of Poland's total 
energy demand and the Poles will continue to seek to minimize 
that share.  However, the long-term deal is another blow to 
EU energy liberalization efforts and hopes to see increased 
market trading of gas as a commodity.  But Poland - with its 
state-dominated energy sector - has not actively supported EU 
market liberalization anyway.  Despite the criticism, the 
deal should allow PM Tusk to avoid any messy negotiations 
before Presidential elections next year, assuming Gazprom 
holds up its end of the bargain.  However, either the 
Russians or the Poles could still back out of the deal. 
TULLEY