Qatargas agrees to double LNG supplies to Poland

State-owned Qatargas has agreed to double volumes of liquefied natural gas (LNG) it supplies to Poland’s gas firm PGNiG to 2 million tonnes per year at a price that may have positive impact on PGNiG’s bottom line, the companies said.

The agreement comes as Poland is struggling to reduce its reliance on supplies of Russian gas, while a deepening global gas glut offers opportunities to bring in cheap LNG from Qatar and elsewhere.

For Qatar, which faces competition from Australian and US producers, supply deals into Europe offer a valuable option as Asia’s gas-consuming economies rein in new deals in light of a growing supply overhang.

The deal is a side agreement to a long term-contract PGNiG and Qatargas signed in 2009.

The companies then agreed that Qatargas will deliver to Poland around 1 million tonnes or around 1.5 billion cubic metres (BCM) of gas annually for 20 years starting from 2014. At the time PGNiG estimated the deal’s annual average value at around $550m, based on prevailing oil prices.

The price in the side agreement was not revealed but PGNiG said pricing terms were “satisfactory” and expected to have a “positive impact” on its financial results.

An industry source said Qatargas’s expanded deal with Poland likely came with a price discount – which PGNIG had been in talks to secure for several years after paying at the peak of the market last time around.

“We have conducted the talks for a few months. It was the best offer. (…) This is now the biggest Qatargas contract of this type in Europe,” PGNiG deputy head Maciej Wozniak told a conference on Tuesday, repeating he could not reveal the price.

The new deal will come into effect at the start of 2018 and run until June 2034.

The LNG will be supplied from Qatar Liquefied Gas Co, a joint venture between Qatar Petroleum, ConocoPhillips and Mitsui & Co, and will be delivered by Q-Flex LNG vessels to the LNG terminal in Swinoujscie at the Baltic Sea.

Poland’s first LNG terminal on the Baltic Sea coast started commercial operations in summer last year and has been Poland’s flagship project to reduce the country’s reliance on supplies from Russia’s Gazprom.

PGNiG also plans to build a gas link to Norway to receive up to 10 bcm of gas annually from the North Sea after 2022 when its long-term deal on gas supplies with Gazprom expires.

Poland, which consumes around 16 bcm of gas annually, also wants to buy more gas on the spot market.