Poland worries Russian oil will no longer flow down "Friendly" pipeline
By Jan Cienski in Warsaw 
 
  
Polish governments have long been concerned about over-reliance on energy
imports from Russia, but -- except for a few alarming hiccups -- the
Russians have generally been reliable gas and oil exporters. That may be
changing with increasing signs the Russians are looking for ways to ship
energy to Western Europe without crossing Poland. 

Lech Kaczynski, Poland's president, recently said the Druzhba (meaning
"friendship" in Russian) pipeline carrying oil from Russia to Germany
could be shut down, and Russia's energy ministry said it indeed plans to
reduce pipeline exports. On Monday, July 2, Russia announced that oil
exports to non-CIS countries in June via this Druzhba pipeline fell to
5.06m tonnes compared with 5.56m tonnes in May. 

 
 
Russia is focusing on reducing the number of transit countries it has to
cross with its oil and gas, instead building undersea pipelines and
expanding ports to handle more tanker traffic. 

If such a shutdown of the Druzhba pipe happened, Poland's two main
refineries in Gdansk and Plock could still be supplied by the crude
terminal on the Baltic that has a capacity of 34m tonnes a year, twice
Poland's crude needs. Currently, the port works mainly by selling surplus
Russian crude, about 10m tonnes a year, but it could just as easily be
used to import oil. In October and December, the terminal was visited by
tankers carrying Kuwaiti crude in a test to see if Polish refineries could
economically handle oil from Kuwait, which is heavier and has a higher
sulphur content than the Urals crude imported from Russia. 

Polish oil firm PKN Orlen has already experienced the havoc caused by a
disruption in Russian oil supplies. PKN last year won a tender to buy the
Lithuanian refinery Mazeikiu Nafta, much to the annoyance of the Russians,
who wanted one of their oil firms to snag the only refinery in the
Baltics. Perhaps not coincidentally, the Russians then halted pipeline
deliveries to Mazeikiu Nafta, blaming an oil spill on the spur from the
Druzhba pipeline that feeds the refinery. However, despite being repaired,
the pipeline has not reopened and there are indications it may never do
so, forcing PKN to import oil by sea to Mazeikiu, which makes its
Lithuanian investment less profitable. 

Hosting the Druzhba oil pipeline has also made Poland more secure, because
the pipelines themselves contain enormous amounts of crude that can be
used as a strategic reserve in case the Russians turn off the tap, says
Rafal Kasprow with MDI Strategic Solutions, a Warsaw-based consultancy.
"For now, Poland's energy security is not in danger," Kasprow says. "But
the government is going to have to start making plans if that is to be the
case in the future." 

Preparations 

PKN has contracts valid until 2011 signed with Russian oil suppliers, so
the prospects of a Russian energy cut-off are still fairly far in the
future. 

Poland is also committed with Ukraine to extending the Odessa-Brody
pipeline, which runs from the Black Sea to western Ukraine, to PKN's
refinery in central Poland. Currently, the pipeline works in reverse,
sending Russian crude down to the Black Sea, but there have could be used
to ship Caspian crude to Central Europe, cutting out Russian suppliers. At
the GUAM summit in Baku, plans to supply the Odessa-Brody-Gdansk oil
pipeline with Caspian oil resurfaced again. At the opening address of the
GUAM (Georgia, Ukraine, Azerbaijan and Moldova) conference in Baku on June
19, Azerbaijani President Ilham Aliyev offered a much-needed boost to the
stalled project to reverse the flow of the pipeline by saying that his
country had sufficient oil deposits to fill it and pledged to raise the
country's oil production to 50m tonnes a year (t/y) in 2008 and 65m t/y by
2010. 

While Poland has easy access to the outside world through its crude
terminal, it has many fewer options in natural gas, where Russia supplies
about two-thirds of Poland's needs through the Yamal pipeline. 

Russia has made it clear it wants to cut out politically inconvenient
middle men like Poland and Ukraine, one of the main reasons it has
embarked on the €5bn project of building a gas pipeline running from
Russia under the Baltic directly to Germany. The project, called the Nord
Stream pipeline, will pipe 55bn cubic metres a year of gas directly into
Western Europe. 

Russian President Vladimir Putin also recently announced plans for a €10bn
gas pipeline running through Southeast Europe to Italy, cutting out Turkey
as a transit country. 

Poland has loudly protested against Nord Stream, but hasn't been able to
stop the project. It has also done little to prepare for life as a pure
consumer with no transit bargaining power. Projects to build gas
interconnectors with Western Europe have come to naught, and plans to
build a €500m LNG terminal in Szczecin on the Baltic are still at a fairly
early stage. 

"If Poland could build the terminal, it would create real competition for
Russian supplies, which would enhance Poland's energy security," says
Kasprow. 
 


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