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Cablegate: Poland Joins Skanled Consortium Solving Gas Puzzle

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OO RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHWR #1440/01 1731737
ZNR UUUUU ZZH
O 221737Z JUN 07
FM AMEMBASSY WARSAW
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4620
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEHKW/AMCONSUL KRAKOW PRIORITY 1751
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 WARSAW 001440

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EUR, EUR/NCE, EUR/ERA, S/P, EEB/ESC
EUR FOR JGARBER, MBRYZA
EUR/NCE FOR DKOSTELANCIK, BPUTNEY
EUR/ERA FOR LCATIPON, DLIPPIATT
S/P FOR GMANUEL
EEB/ESC FOR RGARVERICK, JLEWANDOWSKI
COMMERCE FOR 4232/ITA/MAC/EUR/OECA/MROGERS

E.O. 12958: N/A
TAGS: ENRG ETRD EINV PREL PO
SUBJECT: POLAND JOINS SKANLED CONSORTIUM SOLVING GAS PUZZLE


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1. (U) This message is sensitive but unclassified, not for
internet distribution

2. (U) Being Summary: On June 20, Polish Oil and Gas
Company PGNiG joined the Skanled Consortium which is
developing the Skanled gas pipeline from Karsto, Norway to
Sweden and Denmark. Poland acquired a 15% stake in the
consortium in return for agreeing to participate in the Phase
2 feasability study. Poland will participate in Phase 3,
starting now, which includes obtaining environmental and
construction permits. Phase 4, construction, is expected to
begin in October, 2009. Joining Skanled is an important step
in achieving energy security for Poland as it will enable
Poland to transport gas in its newly acquired deposits in
Northern Norway through Skanled to Denmark and into the
planned Baltic pipeline between Denmark and Norway. End
Summary.

How Skanled Fits into PGNiG's Business Plan
-------------------------------------------
3. (U) Krzysztof Glogowski and Zenon Kuchiak, management
board members of PGNiG signed a consortium membership
agreement on behalf of PGNiG on June 20, formally joining the
Skanled gas pipeline project. Skanled will transmit gas from
Norway to Denmark. PGNiG's current business plan consists of
four goals:
-- Securing gas supply sources on the Norwegian continental
shelf (NCS) from the fields acquired by PGNiG and contracts
for gas purchases from other producers on the NCS;
-- Securing gas transportation from the Norwegian
transmission system to Denmark through the Skanled pipeline;
-- Securing gas transportation through the Danish
transmission system through cooperation with Danish company
Energinet.dk;
-- Construction of the Baltic offshore pipeline in
cooperation with Energinet.dk.
PGNiG notes that implementation of its business plan will
lead to diversification of gas supply for Poland which will
be significant for the European gas market. The company
emphasizes that the Baltic pipeline can serve as an
interconnection, which are strongly encouraged by the EC.

Financial Commitments and Timeline
----------------------------------
4. (U) According to PGNiG, Phase 2, which consists of a
feasability study, has been completed. PGNiG will match the
contribution of the original consortium participants to join
the group at an estimatated cost of 500,000 zloty ($175,000 -
note: yesterday's press incorrectly stated that this cost was
500 million zloty). The project recently entered Phase 3,
which includes obtaining environmental and construction
permits. PGNiG's estimated costs during Phase 3 are 10
million zloty ($3.3 million). At the end of Phase 3, in
October 2009, the consortium will decide whether to commence
construction. PGNiG estimates its total cost for its 15%
share will be approximately 500 million zloty ($175 million).
Both Minister of Economy Wozniak and Deputy Minister Naimski
emphasized that Poland's participation in Skanled will depend
upon completion of the Baltic pipeline.

Special Terms
-------------
5. (U) In joining the consortium, PGNiG received a
concession that its participation will be linked to
connection of the Skanled pipeline to Poland's planned Baltic
pipeline. PGNiG's participation is also dependent upon the
expansion of capacity of the Danish transmission system
allowing addition gas to be transmitted from Norway to
Poland. Finally, PGNiG's participation depends upon securing
adequate transmission capacity in the Norwegian transmission
system to ensure access of gas from its fields in Norway to
Skanled. The other consortium members will purchase PGNiG's
interest if the company decides to opt-out. Both Minister of
Economy Wozniak and Deputy Minister Naimski emphasized that
Poland's continuing participation will depend upon completion
of the Baltic pipeline.

Technical Paramaters
--------------------
6. (U) PGNiG states that the Skanled gas pipeline will

WARSAW 00001440 002.2 OF 002


begin in Karsto, Norway where it will be connected to the
Europipe II transmission grid. Under current plans, five
exit points are planned in Rafnes, Norway, Lysekil, Vallby
Kile, and Bua Sweden and Jutland Denmark. The consortium
plans to transport ethanol as well as gas along the
Karsto-Rafnes section. Wozniak and Naimski refused to
comment on how much gas will eventually reach Poland, noting
that the quantity will depend on the size of the Skanled
pipe.

Consortium Members
------------------
7. (U) Prior to PGNiG's entrance into the Consortium, which
operates as a joint venture, the group consisted of 7 energy
companies from Norway, Denmark, and Sweden, which jointly
held 70% of the shares. Energinet.dk, Poland's partner in
the Baltic pipeline, is an original member. In addition to
PGNiG, E.ON and Preem Petroleum recently joined the
consortium.

Comment
-------
8. (SBU) Joining Skanled is a major coup for Deputy
Minister of Economy Naimski and his team as the GOP continues
to pursue its goal of achieving energy independence from
Russia. PGNiG's purchase of gas fields in Northern Norway
was questioned by some experts at first, but gave the GOP
credibility in its negotiations with companies and
governments. The agreement to join Skanled gives PGNiG and
the GOP access to a continuous transmission conduit from the
Norwegian fields assuming Norwegian and Danish domestic
capacity can handle the increased load. Krzystof Rogala of
Poland's Gas Systems told us that "now the real hard work
starts", confirmation that the GOP recognizes that commercial
decisions and coordination must occur to ensure Skanled's
success and and allow the GOP to reach its ultimate goal of
receiving gas from Norway.
ASHE

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