Trade in Poland
The principal activity of the segment is trade in natural gas in Poland. On August 1st, 2014, the structure of the PGNiG Group changed: retail operations were separated from the wholesale gas business, the latter remaining with PGNiG. Retail customer service was transferred to PGNiG OD, a new company.
In 2016, PGNiG bought natural gas mainly under the long-term agreements and contracts as well as short-term gas supply agreements with suppliers specified below:
- Russian OOO Gazprom Export for sale of natural gas to the Republic of Poland, dated September 25th, 1996, effective until 2022 (the Yamal Contract);
- Qatar Liquefied Gas Company Limited (3) for sale of liquefied natural gas, effective until 2034 (the Qatar Contract);
- German VNG-Verbundnetz Gas AG (agreement was valid on October 1st, 2016).
|year||Sources east of Poland||LNG||Sources west of Poland||Sources south of Poland|
In 2016, PGNiG continued its efforts to revise the price terms under the Yamal Contract as part of a procedure formally launched on November 1st, 2014. Having failed to achieve an understanding with the supplier within the time frame provided for in the contract, on May 13th, 2015 PGNiG instigated arbitration proceedings, in accordance with the contract. The subject matter of the dispute is a revision of the price terms under the contract for gas supply to Poland. In the course of the arbitration proceedings, on February 1st, 2016, PGNiG filed with the Arbitration Court a claim against OAO Gazprom and OOO Gazprom Export. The arbitration proceedings are expected to conclude in the third quarter of 2017.
The first LNG supplies necessary in the cool-down and start-up of the LNG Terminal in Świnoujście were delivered in December 2015 and February 2016. In January 2016, PGNiG, Gaz-System and Polskie LNG S.A. began testing the delivery of gas from the President Lech Kaczyński LNG Terminal in Świnoujście into the Polish transmission system. Pursuant to the agreement with Polskie LNG S.A. of December 28th, 2015, PGNiG purchased gas from the start-up process and fed it into the transmission system. In connection with a delay in the launch of the LNG Terminal, on October 21st, 2015 PGNiG and Qatargas signed the Supplemental Agreement to amend the terms of LNG supplies in the first half of 2016. On June 1st, 2016, the LNG Terminal in Świnoujście became operational, enabling commercial deliveries of LNG to Poland, the first of which, under the Qatar Contract, arrived at the terminal on June 17th, 2016. In 2016, PGNiG received a total of seven LNG shipments under the contract. Additionally, PGNiG purchased on the spot market 136,000 cm of LNG, equivalent to 84 mcm of grid gas, from Norway’s Statoil ASA. The LNG shipment arrived in Świnoujście on June 25th, 2016. In 2016, PGNiG imported a total of approximately 1.8 mcm of LNG (i.e. approximately 1.04 bcm of gas after regasification), of which 0.85 bcm was fed into the Polish transmission system. .
From January 1st, 2016 until October 1st, 2016, when the agreement expired, natural gas purchased from VNG-Verbundnetz Gas AG was sold in the German market under an agreement with PGNiG Supply & Trading GmbH.
In Poland in 2016, the largest amounts of natural gas were sold to the PGNiG Group’s industrial customers, accounting for about 31% of the total sales volume. The largest Polish customers in this group include: Grupa Azoty S.A., PKN Orlen S.A., PGE Polska Grupa Energetyczna S.A., KGHM Polska Miedź S.A. and Grupa Lotos S.A.
In 2016, sales on the Polish Power Exchange (PPX) accounted for the largest portion of the PGNiG Group’s total gas sales. The Group sold 114 TWh of the fuel on PPX in 2016, a year-on-year increase of 7%. Significantly higher volumes (up 87%) were sold on the Day-Ahead Market. The table below presents the volumes of gas sold by PGNiG on PPX in 2016 and 2015 on the Commodity Futures Instruments Market, the Day-Ahead Market and on the Intraday Market for natural gas (data by delivery dates):
|Total – Commodity Futures Instruments Market (natural gas)||78.7||79.5|
|Total – Day-Ahead and Intraday Market (natural gas)||19.1||9.3|
|TOTAL – Polish Power Exchange||97.8||88.8|
To meet the obligation to sell 55% of the gas fed into the national transmission system through the exchange market, PGNiG has adopted a pricing policy covering all natural gas-linked instruments on PPX, both on the futures and day-ahead markets, allowing it to offer natural gas to other market participants at prices corresponding with those on deregulated wholesale, exchange and OTC markets in Western and Northern Europe.
In the business customer segment, PGNiG’s main competitors operating directly in Poland include PGE Polska Grupa Energetyczna SA, DUON (Fortum Holdings), Hermes Energy Group S.A., RWE Polska S.A., TAURON Polska Energia S.A. and PKN ORLEN S.A. Competitors step up gas sales by strengthening their sales force, improving on the flexibility of their offering and price hedging mechanisms as well as bundling gas and electricity. In 2016, in response to customer expectations to link the prices of supplied gas with prices on gas exchanges, PGNiG continued its ‘2015/2016 Price Deregulation’ discount scheme. Also, a large number of customers decided to sign new agreements with PGNiG to replace existing ones. Under the new agreements, customers can purchase PGNiG’s products more flexibly and execute procurement contracts for entire corporate groups. PGNiG offers contracts where price-setting mechanisms link gas prices to market indices.
In 2016, PGNiG engaged in wholesale trading in electricity and related products in Poland and Germany. In Poland, the Company traded on the OTC market and on PPX. PGNiG also provided services to PGNiG OD and PGNiG TERMIKA under a commercial balancing agreement as the entity responsible for balancing, working directly with the power transmission system operator. Apart from electricity, the trade portfolio includes related products, such as property rights and carbon emission allowances. PGNiG’s Wholesale Trading Division is responsible for optimising the prices of electricity procured for customers and for own needs as well as for sales of electricity from PGNiG’s own generating units. Total trading volume in 2016 was more than 5.8 TWh.
The focus of PGNiG OD’s business is on the sale of natural gas (high-methane and nitrogen-rich gas), electricity, compressed natural gas (CNG) and liquefied natural gas (LNG).
High-methane gas is procured from three main sources:
- PGNiG, under an OTC agreement providing for delivery to a virtual trading point in the transmission network operated by Gaz-System (agreement for the balancing of supplies);
- PGNiG, under an OTC agreement providing for delivery to a physical trading point in Słubice.
The largest share in the total volume of purchased high-methane gas was attributable to transactions on PPX. Moreover, in 2016 the company reached an operational capacity allowing it to enter into transactions on the OTC market via the brokerage platform operated by InfoEngine S.A., to be launched in early 2017. Nitrogen-rich gas and LNG are purchased under a bilateral agreement with PGNiG. Given the rapid changes on the retail gas market, PGNiG OD structures its gas supply portfolio by signing contracts on an ongoing basis. Thanks to such fuel procurement policy, the company has a competitive and flexible product offering.
PGNiG OD’s business customers (contracted capacity above 110 kWh/h) include entities which require process gas and businesses buying gas for heating. The largest group of customers by number are businesses operating in the retail and services segment, whereas industrial customers lead in terms of gas volumes received. As at the end of December 2016, PGNiG OD provided its services to 25.8 thousand customers (gas meter points), from tariff groups with contracted capacity above 110 kWh/h. Gas consumption in that customer group reached 30.9 TWh, including 28.5 TWh of high-methane gas and 2.3 TWh of nitrogen-rich gas, representing 94% and 6%, respectively, of the total volume. Customers consuming lower volumes of gas (tariff groups 1−4) purchase gas used mainly for cooking, water and space heating and − to a lesser extent − in manufacturing. As at the end of December 2016, the company supplied gas to 6.79 million group 1−4 customers, who over the entire year consumed 46.35 TWh of gas, including 43.61 TWh of high-methane gas and 2.74 TWh of nitrogen-rich gas.
|Year||Customers changing their gas supplier|
In 2016, PGNiG OD saw intensified competitor activity in gas sales. According to URE’s data, licences to trade in gas fuels were held by 191 entities. These include both strong companies with a European reach (using the financial potential and know-how of their head offices) as well as local players. Local sellers include both companies specialised in the sale of energy products and businesses (for instance telecoms operators) whose core product range is supplemented by gas. Aggressive pricing policy, especially in the business customer segment, was the main competition tool in 2016. Attractive product bundles (mainly gas and electricity deals) were also commonly used.
2016 was marked by aggressive customer acquisition efforts by competitors and, on the other hand, growing market awareness among customers. In response to competitive pressures, PGNiG OD pursued an active pricing policy aimed at offering competitive prices and analysing contracts on a case-by-case basis. The company markedly expanded its product mix. It continued to run its promotional schemes (‘Flexible Price’ and ‘Constant Savings for Business’), while larger customers were offered new products − priced based on individual consumptions profiles. In the third quarter of 2016, the company launched a range of products for the most demanding customers, with gas prices linked to prices on energy exchanges. Additionally was implemented of Biznes24, a modern online platform designed to facilitate customers’ access to information on payments and their past gas and electricity consumption volumes. The platform also serves as an effective channel for communicating with customers, which attractively presents the company’s promotional offers. The effects of its marketing policy in 2016 included the execution of a record contract with Ceramika Paradyż, under which 1.3 TWh of gas is to be supplied from October 2016 to September 30th, 2018. Another major contract was concluded with Philips Lighting, which is to receive 260 GWh in the period from October 2016 to September 2017.
in March and April 2016 PGNiG OD launched a discount scheme ‘Savings for you and your business W4’ dedicated to the W-4 tariff group customers. The scheme was available to both existing and new gas fuel buyers. Under a twelve-month forward contract, customers were offered an attractive price and a fixed price guarantee until contract expiry. Benefits for the company included stable revenue and more effective gas contracting on the PPX. In 2016, PGNiG OD stepped up its work on the development of e-channels (e-customer service, e-invoice), but also − catering for the needs of customers who prefer more traditional forms of communication − opened five Premium customer service offices at shopping centres in Kraków, Katowice and Poznań and at two locations in Warsaw.
On September 1st, 2016, PGNiG OD launched a comprehensive dual-fuel plan for households and small businesses − the ‘PiG Package’ (electricity and gas package). The deal is particularly attractive to customers with active gas supply contracts, as they pay no subscription fees and their bills are reduced. In addition to the non-subscription fees they receive a lower sales price (guaranteed for 12 months) and no penalties for early contract termination. In 2016, PGNiG OD continued to supply electricity to business customers. The main product is based on a fixed price mechanism, while larger customers are also offered individual pricing terms. In Q4 2016, the company launched innovative electricity schemes for its most demanding customers providing for tranche- or index-based purchases. According to URE, in 2016 more than 86 thousand customers (consumers and entities not classified as consumers).