Strategic Analysis: Russian Business Activity in Poland (Abstract)

Like Lithuania, Poland has a well-honed sensitivity to Russian investment in its economy, most notably in its critical sectors. There has been a relative lack of major strategic investment penetrating Poland by Russian entities in recent years. Over the past twenty-five years, Poland has received roughly 600 billion in foreign direct investment (FDI) and, of that amount, only 2 billion has come from Russia a relatively small amount, given the proximity of these two countries. That said, Russia is reportedly Polands fifth largest export market and the second largest source of imports. Bilateral trade is approximately $37.9 billion and, until recently, has been rising. Despite these numbers, Poland has a number of characteristics that mitigate much of its risk exposure, especially as compared to other countries in the region.

Poland is a net power exporter, deriving 92% of its power from domestic coal, and is pursuing infrastructure that will help the country send some of this capacity into the Baltics, for example, via the Lit-Pol project connecting its power grid to that of Lithuania. Poland is, on the other hand, dependent on Russia for its oil supplies, providing 94% of its imports via the Druzhba pipeline (although only 25% of its refined products). Oil, however, comprises just 26% of the countrys primary energy supply.

Like its Baltic state neighbors, Poland has also been dependent on Russian-supplied natural gas, with imports from Gazprom comprising some 59% of the countrys total. Projects like the Swinoujscie LNG terminal, however, are being pursued with an eye toward relieving the country more completely of its vulnerabilities to Russian supply shocks (and the well-documented diplomatic leverage that Moscow derives from these levels of dependency).

The bullet points below summarize the countrys exposure or lack of exposure to the types of economic and financial Russian leverage that effects other countries in the region.

  • Poland is better connected with the rest of Europes energy infrastructure and is therefore better able to make use of interconnectors as a risk management strategy, should Russian resources become unavailable for whatever reason.
  • The country is able to tap into alternative sources of supply (such as the North Sea) and is closer to natural gas trading hubs that are putting pressure on the price of natural gas by introducing spot market prices into the countrys negotiations.
  • The country expects an LNG terminal at Swinoujscie to become operational in 2015, which will be a major boost to the countrys energy security, due to the availability of alternative sources of natural gas supply similar to the arrival of the floating Independence LNG terminal at Klaipda, Lithuania.
  • The country also has some potential for shale gas and political support for developing it, although technical and geologic difficulties have interfered with its advancement (including the departure of several western companies due to unsatisfactory test-drilling results). Otherwise, reports indicate that over 100 concessions have been issued, including to companies, such as ExxonMobil, Chevron Corp., ConocoPhillips and Marathon. Preliminary estimates have put the Polish shale gas reserves at some 1.4 to 1.5 tcm, although these assets are turning out to be in challenging geologic locations.
  • Independent of this industry, however, the country also produces considerable natural gas of its own, enough to satisfy 37% of the countrys total demand. Moreover, natural gas makes up just 15% of the countrys primary energy supply and only 3% of the countrys electricity generation. Nearly all of the countrys natural gas imports, however, come from Russia, with the amount being received expected to grow.
  • The countrys natural gas industry is nearly completely controlled by PGNiG, a state-controlled entity, which, according to Stratfor, is responsible for 98% of the countrys domestic natural gas production, is the countrys only natural gas importer, only operator of underground natural gas storage facilities and controller of the wholesale natural gas market.
  • PGNiG signed a ten-year contract with Gazprom in October 2010 to import 11 bcm starting in 2012 in a deal that made another state-owned Polish company, Gaz-System, operator and owner of the Yamal pipeline in Poland.
  • Poland is also a major coal producer, which commands a sizeable share of the countrys energy mix. Coal makes up 55% of the countrys primary energy supply and powers some 85% of the countrys electricity generation. That said, Warsaw is seeking to diversify away from coal for a number of reasons, including environmental goals related to bringing the country into compliance with EU standards.


Excerpted Deals and Transactions:

  • The primary pipeline carrying Russian natural gas to Poland is the Yamal-Europe pipeline. The Polish section of this pipeline is run by a company, EuRoPol Gaz, which is a joint venture between Russia and Poland (each holding 48% of the company and with 4% controlled by Polish company, Gas-Trading S.A.) The precise breakdown in ownership between these companies, incorporating the indirect ownership percentages of each in Gas-Trading S.A., is Polands state-owned PGNiG controlling 49.7% of the company and Gazprom some 48.6%.
  • Russia has five companies listed among Polands largest foreign investors: Gazprom, co-owner of EuroPolGaz; Lukoil, with 115 gas stations in the country; Ekoton, a producer of waste water treatment equipment; Kaspersky Lab, a leading producer of anti-virus software; and Russian Standard Holding, owner of Zubrowka, Absolwent and Soplica liquor brands.