June 16, 2017 / 12:53 PM / a month ago

Norway-Poland gas pipeline plan needs demand for 75 pct of capacity

3 Min Read

* Partners launched process to test gas demand

* Pipeline needs demand for at least 7.5 bcm of gas

* Project could also supply gas to Ukraine, others

By Lefteris Karagiannopoulos

OSLO, June 16 (Reuters) - A pipeline to supply Norwegian gas to Poland that will cost an estimated 2 billion euros ($2.23 billion) will only be built if there is demand for at least 75 percent of the gas it can transport, one of the partners in the project told Reuters.

Poland, which consumes about 16 billion cubic metres (bcm) of gas per year, is keen to build the 10-billion-bcm pipeline as it seeks to reduce its dependence on Russian gas. If it goes ahead, the pipeline would deliver first supplies in 2022.

Russia's Gazprom supplied 11 bcm of gas to Poland in 2016, and has a supply contract that runs to 2022.

To go ahead, the new pipeline would need to receive bids for long-term contracts to supply 7.5 billion cubic metres of gas, or 75 percent of the pipeline's capacity, Soeren Juel Hansen, chief consultant at Danish gas system operator Energinet, said.

On June 6, Poland and Denmark, the project's main partners, launched a so-called Open Season, which consists of two bidding phases for gas shippers in order to check market demand. Phase one closes on July 25.

Energinet would proceed with economic tests that could lead to construction agreements "if the bids are sufficient from 7.5 bcm and more" in phase one of that process, he said, adding most bids would have to be for 15-year contracts.

Poland's state-run PGNiG, which has indicated it would book most of the pipeline's capacity, said it would place bids in the next six weeks.

"We expect to be the key shipper in this project," Marek Woszczyk, the head of PGNiG's Norwegian subsidiary, told Reuters, adding the pipeline's transport cost were a key factor.

"The tariffs will define the business case for the shippers," Woszczyk said.

Energinet's Hansen said market participants had indicated in a 2016 study that the tariff levels on offer were attractive. He did not say at what level they would be set.

In addition to Poland, the pipeline could supply Ukraine and other nations, via Poland's onshore gas infrastructure. The estimated 2 billion euro pipeline cost includes enhancing Poland's gas network.

"The current planned reinforcements of the Polish system is sufficient to allow for exports to Ukraine," Hansen said, adding Germany, Sweden and Denmark could also receive gas from the pipeline.

Discussions for the pipeline first began in 2001 and have been held on and off since then. During that period, Poland signed a supply contract with Gazprom.

"This is the first serious attempt (to build such a pipeline) in 15 years and probably a once in a lifetime opportunity," Hansen said.

$1 = 0.8954 euros Editing by Gwladys Fouche and Edmund Blair

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