Integrated Annual Report 2015

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Interconnections

In 2015, GAZ-SYSTEM continued its activities aimed at opening Poland to new directions of gas supply and, consequently, ensuring physical diversification of the directions of gas imports.

Infrastructure investments implemented by GAZ-SYSTEM in 2015 are of key importance for the creation of an integrated and competitive natural gas market in Central Europe, as well as for the improvement of security and further diversification of gas supply to Poland.

In 2015, GAZ-SYSTEM continued its activities aimed at the implementation of projects which, based on the decision of the European Commission of 14 October 2013, were granted the PCI (Project of Common Interest) status. On 18 November 2015, the European Commission (EC) published the second European list of projects in the natural gas sector which were granted the PCI status. Once again, strategic investment projects of GAZ-SYSTEM were among the projects of key importance for the energy market integration. The purpose of the list is to support infrastructure projects which are of greatest importance from the point of view of market integration and natural gas supply security in the Member States of the European Union.

Investment projects undertaken by GAZ-SYSTEM were reviewed and evaluated, and then given priority status within the two regional gas initiatives:

  1. North - South Gas Interconnections in Central-Eastern Europe and South-Eastern Europe (NSI East Gas):
    • gas interconnection Poland – Czech Republic;
    • western line of the North-South Corridor in Poland;
    • gas interconnection Poland-Slovakia;
    • eastern line of the North-South Corridor in Poland.
  2. BEMIP Action Plan (Baltic Energy Market Interconnections Plan):
    • gas interconnection Poland – Lithuania;
    • Baltic Pipe;
    • expansion of the LNG Terminal in Świnoujście;

In 2015, GAZ-SYSTEM continued several studies concerning the development of the North-South Corridor, which is an important component of the plan to create a single gas market in Central -Eastern Europe by connecting the transmission networks of the regions countries: Poland, Slovakia, Hungary and the Czech Republic.

The Corridor project aims to:

Thanks to the Corridor, it will be possible to supply gas to Poland from alternative directions. Moreover, the implementation of this project will enable the imports and exports of gas from the LNG Terminal. The implementation of specific projects within the concept will create a connection between the LNG Terminal in Świnoujście with the Czech Republic and Slovakia. This opens up an opportunity for an increase of the regasification capacity of the Polish LNG Terminal from 5 to 7.5 billion m3 /year. It is worth noting that the implementation of the Corridor concept will support the integration of gas markets in the region, which will facilitate free gas trade and, in consequence, the optimisation of market opportunities (convergence of gas prices). In effect, the development of the Polish gas hub will become possible.

Offering a reverse-flow transmission service via the Yamal gas pipeline (Mallnow)

In 2015, GAZ-SYSTEM signed an agreement with GASCADE Gastransport GmbH specifying the conditions for the implementation of an investment project concerning the capacity upgrade in the direction to Poland up to 700,000 m³/h (reverse-flow transmission) through the construction of an additional measurement system at the Mallnow. The completion is planned for September 2016.

Interconnection Poland–Czech Republic

The parties to the project are GAZ-SYSTEM and NET4GAS s.r.o., the Czech transmission system operator.

In 2015, the companies continued pre-investment studies aimed at the determination of legal and regulatory conditions (negotiations started concerning the Connection Agreement), organisational and technical conditions (engineering), expenditures and costs as well as the economic feasibility of the planned interconnection. Work also commenced regarding an agreement concerning the cross-border cost allocation (CBCA Agreement), according to the decision on cross-border allocation of costs issued by the Energy Regulatory Office in 2014.

In May 2015, GAZ-SYSTEM and NET4GAS s.r.o. signed a tripartite agreement with the EU’s Innovation Network Executive Agency – INEA concerning EU’s financial support for the project titled: “Preparatory studies for the Poland – Czech Republic interconnection [Stork II] between Libhošť (CZ) – Hať (CZ-PL) – Kędzierzyn (PL)”. On the basis of the agreement, the project was awarded EU financial support in the amount of EUR 1.5 million, of which EUR 0.93 million was granted to NET4GAS and EUR 0.59 million to GAZ-SYSTEM.

Also in 2015, GAZ-SYSTEM , together with NET4GAS, submitted an application for co-financing of construction works for the Poland-Czech Republic interconnection, as part of CEF grant competition, and the European Commission issued a positive opinion to the application and granted the financing in the amount of EUR 62,659,000 (20% of the costs of construction works). The co-financing agreement is currently being negotiated.

The gas pipeline is currently in the engineering stage, and it was granted the PCI status the European Commission for the second time.

Interconnection Poland-Slovakia

The parties to the project are GAZ-SYSTEM and eustream a.s., the Slovak transmission system operator.

In 2015, the parties continued pre-investment studies to understand the feasibility of this interconnection, including its legal and regulatory conditions, organisational and technology-related aspects, as well as the project's CAPEX, OPEX and economics (Business Plan, CBA and CBCA). The operators also signed an Annex to the Cooperation Agreement concerning joint preparatory studies for the Poland-Slovakia project.

The gas pipeline is currently in the engineering stage. In May 2015, the GAZ-SYSTEM and eustream a.s. signed a tripartite agreement with the EU’s Innovation Network Executive Agency – INEA concerning EU’s financial support for the project titled: “Preparatory studies and engineering works for the gas interconnection Poland – Slovakia”. On the basis of the agreement, the project was awarded EU financial support in the amount of EUR 4.6 million, under the Connecting Europe Facility (CEF).

From the total amount, eustream a.s. was granted EUR 2.33 million, whereas GAZ-SYSTEM will receive EUR 2.26 million.

In October 2015, both companies applied for the financing of construction works within the second round of the grant competition of CEF. The Poland-Slovakia interconnection project was granted the PCI status again.

Interconnection Poland-Lithuania

The parties to the project are GAZ-SYSTEM and AB Amber Grid, the Lithuanian transmission system operator.

The project of a gas interconnection between Poland and Lithuania envisages the construction of a new cross-border gas pipeline that will connect the natural gas transmission systems of Poland and Lithuania.

The Poland-Lithuania interconnection will allow full integration of the Baltic countries with the EU gas market by giving them access to a range of gas supply options available from the developed gas markets of Western Europe. The connection will also provide the Baltic States with access to the global LNG market via the LNG Terminal in Świnoujście.

In 2015, the parties continued pre-investment studies to understand the feasibility of the Gas Interconnection Poland-Lithuania, including its legal and regulatory conditions, organisational and technology-related aspects, as well as the project's CAPEX, OPEX and economics. The gas pipeline is currently in the engineering stage.

In May 2015, GAZ-SYSTEM and AB Amber Grid signed a tripartite agreement with the EU’s Innovation Network Executive Agency – INEA concerning EU’s financial support for the project titled: “Preparatory works for the Gas Interconnection Poland-Lithuania up to building permission(s) obtainment”. On the basis of the agreement, the project was awarded EU financial support in the amount of EUR 10.6 million, under the Connecting Europe Facility (CEF). From the total amount, AB Amber Grid will receive EUR 2.5 million, whereas GAZ-SYSTEM will be granted co-financing in the amount of EUR 8.1 million.

The agreement for co-financing of the construction works from the CEF financing instrument was signed in October 2015. From the total amount, EUR 55 million will go to AB Amber Grid, whereas GAZ-SYSTEM will receive up to EUR 240.3 million. The Gas Interconnection Poland-Lithuania was granted again the PCI status.

In 2015, works were also undertaken on the Agreement concerning the Decision on cross-border cost allocation (CBCA Decision/Inter-TSOs Agreement, fourpartite agreement planned to be concluded between the transmission system operators from Poland, Lithuania, Latvia and Estonia), as well as the Connection Agreement (agreement on technical arrangements concerning project implementation, including the investment decision).

Interconnection Poland-Ukraine

The parties to the project are GAZ-SYSTEM and PJSC Ukrtransgaz, the Ukrainian transmission system operator.

In 2015, the companies continued their cooperation concerning the assessment of the actual potential interest in gas transmission services from Poland and the expansion and modernisation needs of both transmission system operators. Work was completed on the Feasibility Study of the Poland-Ukraine interconnection and the necessary scope of the investment was agreed upon, along with the plan of further actions.

Interconnection Poland-Denmark

The parties to the project are GAZ-SYSTEM and the Danish transmission system operator, energinet.dk.

The Poland–Denmark interconnection (Baltic Pipe) provides for the construction of a new gas pipeline which will connect the natural gas transmission systems of Poland and Denmark. The interconnection is an element of the infrastructure development concept to enable the transmission of gas from Norwegian shelf (NCS) to the countries of the Central and Eastern European region (CEE), including Poland, and to the Baltic region.

In 2015, GAZ-SYSTEM continued pre-investment studies to understand the feasibility of the gas interconnection Poland-Denmark, including specifically its legal and regulatory conditions, organisation and technology-related aspects, as well as the project's CAPEX, OPEX and economics, and carried out studies with a view to defining recommendations regarding the optimum option for the development of the Baltic Pipe project as part of the Baltic Energy Market Interconnections Plan (BEMIP).

In April 2015, the companies submitted an application for co-financing of study works (Poland-Denmark Feasibility Study) under the “Connecting Europe Facility” (CEF) programme, which was given a positive opinion. In July 2015, the European Commission granted the entire requested co-financing amount to the project, i.e. EUR 400,000 (50% co-financing level).

In November 2015, GAZ-SYSTEM and energinet.dk signed a Cooperation Agreement concerning the construction of the Baltic Pipe, covering the construction of the gas pipeline under the sea to connect the natural gas transmission systems of Poland and Denmark.

The Poland-Denmark interconnection project was entered in the list of projects with the PCI status again.