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Eastern European coal-to-gas switching enthusiasm builds

Poland and the Czech Republic, long the continent’s coal champions, are having a rethink

Coal-fired power makes sense for Poland and the Czech Republic. As a domestic resource, it contributes positively to energy security, balance of payments, taxable revenue and employment.

In contrast, largely imported gas offers none of these benefits and, in the past, has meant almost total reliance on Russia—Eastern Europe’s historically meddlesome neighbour. But the world is changing, and the environmental benefits of gas—as well as infrastructure developments to mitigate some of the dependence on Russian pipelines—are seeing even coal’s champions begin to embrace a ‘dash for gas’.

Poland’s gas consumption has already grown from c.15bn m³/yr to 20bn m³/yr over the last ten years, according to the latest BP Statistical Review of World Energy. But coal-fired power plants still generate almost 80pc of the country’s electricity.

The planned Ostroleka power station in northeastern Poland offers a good example of how this may change. Refiner PKN Orlen, co-owner of the project, will now proceed with the 1GW plant if it runs on gas, rather than coal as originally planned.

Polish utility PGE also plans to gradually diversify its generation portfolio away from coal towards gas, as well as renewables including offshore wind. The firm will replace the Western Pomerania region’s 1.36GW Dolna Odra coal-fired plant with a 1.4GW combined-cycle gas turbine unit due online in 2024.

Diversifying supply

Geopolitics, as well as emissions, are a factor in Poland’s greater gas enthusiasm. The country now has a 5bn m³/yr LNG import terminal at Swinoujscie, the capacity of which is due to rise to 7.5bn m³/yr by 2023, and plans a 4.5bn m³/yr floating unit offshore Gdansk by 2025.

Incumbent gas firm Pgnig is also accessing Lithuania’s 3.75bn m³/yr Klaipeda terminal via road tankers, ahead of the Gas Interconnector Poland-Lithuania (GIPL), which will have a capacity of 1.9bn m³/yr towards Poland and 2.4bn m³/yr towards Lithuania. The Baltic Pipe, with capacity to deliver 10bn m³/yr of Norwegian gas to Poland from October 2022, is an even more significant new piece of pipeline infrastructure.

“You have to replace coal with something, and the only option is gas” - Blazek, Kinstellar

"Poland is in a position to increase the share of gas in its energy mix thanks to LNG imports and the Baltic Pipe. In the past they were concerned about becoming more dependent on Russian gas," says Vitaly Yermakov, senior research fellow at thinktank the Oxford Institute for Energy Studies.

Poland currently imports around 9bn m³/yr of Russian gas, but its long-term contract with state-controlled gas firm Gazprom expires at the end of 2022. "I do not think Poland and Gazprom will sign a new long-term gas supply contract after 2022. If there is a gap in the gas balance, Poland may import reverse Russian gas from Germany, ironically from Nord Stream 2," says Yermakov.

That irony is, in fact, fairly widespread. There are a number of other plans to improve pipeline connectivity in the region: a new Poland-Slovakia interconnector (5.7bn m³/yr towards Poland and 4.7bn m³/yr towards Slovakia) due in 2022; a 5bn m³/yr bidirectional link with Ukraine, which may also arrive in 2022; the Poland/Czech Republic Stork II upgrade project (6.5bn m³/yr towards Poland and 5bn m³/yr towards the Czech Republic) due in 2023; and the 6bn m³/yr Bidirectional Austrian-Czech Interconnector (Baci), which does not yet have a completion date.

These new capacities will help move more Norwegian gas and Polish and Lithuanian LNG around the region. They will also allow access to new Caspian Sea supply and LNG from new terminals such as Croatia’s 2.6bn m³/yr Krk facility and planned German plants. The flexibility of Ukraine’s vast 32bn m³ of storage capacity will also be more easily used. But, inherently, these new pipelines will still be moving around a majority of molecules that were ultimately produced in Russia.      

80pc – Power from coal in Poland

Going for gas

But the Czech Republic—where domestic brown and hard coal still account for c.40pc of the energy mix and Russian gas makes up the majority of the 9bn m³/yr of imports—is undeterred. ““With a gradual phasing out of coal sources, the use of natural gas, biogas and, prospectively, synthetic methane and hydrogen, will increase in the Czech Republic,” according to the country’s 10-year energy and climate plan submitted to the European Commission.   

"Sooner or, later there will be no lignite left available in the areas permitted for mining. You have to replace coal with something, and the only option is gas,” says Kamil Blazek, a partner at Prague law firm Kinstellar.

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