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"The Polish gas subsector – hard choices"

Marzanna Kwiecień


The year 1998 was a crucial time in the gas subsector reform. The regulator started to issue licenses for gas-related activities and the Polish Oil and Gas Company was transformed into a joint stock company fully owned by the State Treasury. As for now the structure of the gas subsector comprises the following kinds of activities:
- exploration ( 91 licenses)
- extraction (212 licenses)
- production (5 licenses)
- transmission and distribution (58 licenses)
- trade (63 licenses)


Problems which cannot be solved?


Although the figures presented above may seem impressive, the market is still a monopoly dominated by one entity - the Polish Oil and Gas Company which directly and through its daughter companies controls about 98% of it.

One of the most important steps in the gas market reform was the separation of the transmission system operator – the Gas System S.A from the structure of the POGC. The duty of the TSO is to perform high – pressure transmission services. 6 distribution companies belonging to the POGC capital group perform distribution services. The separation of distribution activities and trade will take place since July 1st 2007. In addition to the monopolistic structure of the gas market there are other significant barriers, i.e. no practical access to gas outside POGC and unsatisfactory gas infrastructure which requires development of networks and technologically advanced metering. Although further restructuring of the gas monopoly and liquidation of technical constraints are a part of well prepared strategy, the crucial third element of well functioning competitive market - free access to gas – can be difficult to implement.

The governmental decision to leave for 1,5 year domestic gas sources in the hands of the POGC was a step of the former government aimed at improving stock market position of the POGC than developing competition. Also foreign companies exploring potential sources have not been successful.

However negotiations with Russia decreased the quantity of imported gas, a Norwegian undersea pipeline could not be realised, mainly due to high costs and limited possibilities of transmission of big volumes of gas.

It is worth mentioning that the market reforms in the European gas subsector have just started and it is going to be a long and painful process. It will draw from the experiences of similar reforms in the electricity sector. Monopoly structures, long – term take-or-pay contracts and limited possibilities of pipeline network development are the main constraints. There are other alternatives, albeit costly, to overcome these difficulties, for instance the construction of new pipelines transmitting gas from the East or building an LNG terminal.


A must to act


What should be done to facilitate the development of the competitive gas market? First of all:
- to offer access to gas from domestic sources to all customers through the separation of a exploration and extraction company from the POGC structure, although remaining in the POGC capital group,
- to offer possibilities of spot transactions,
- to develop intersystem connections open for all customers,
- to look for alternative sources of gas,
- to release part of gas from the Yamal contract (at least about 15 – 20% of gas covered by this contract would be on the free market),
- to introduce advanced metering and universal standards,
- to elaborate market friendly grid code,
- to eliminate cross subsidies.


The actions directed at the creation of a well functioning competitive gas market would also significantly increase Poland's energy security. A transparent and effective regulatory framework is a prerequisite to safeguard the energy security system of Poland.


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