Poland struggling to prepare for looming LPG shortfall

Warsaw acknowledges the LPG shortage the country faces but has done little to support the domestic sector, writes Waldemar Jaszczyk

The Polish government has woken up to the risks posed by the upcoming EU embargo on Russian LPG, but current measures are falling short of the industry's requests and a significant upcoming shortfall is looking increasingly likely.

Warsaw is attempting to get ahead of the curve by analysing the latest information from the domestic LPG market in weekly crisis reporting. The data show a decline in imports from Russia as a direct result of the industry's preparation for the EU's ban from December, the Polish energy ministry says. This is apparently contradicted by Russia increasing its share of Polish LPG imports to 53pc in the first half of 2024 from 50pc a year earlier, with Russian prices 25pc lower than northwest European equivalents. But deliveries have slumped this summer for various reasons including payment problems.

Still, the Polish government estimates an initial product shortage of 300,000 t/yr given insufficient import and distribution infrastructure, growing consumption and more re-exports to Ukraine. In the worst-case scenario, state-owned refiner Orlen is prepared to cover the most politically sensitive demand sector — residential heating — with its production, its risk management director Jakub Ruszel recently told lawmakers. The company operates Poland's 373,000 b/d Plock and 210,000 b/d Gdansk refineries, in addition to the 190,000 b/d Mazeikiai refinery in Lithuania and the 108,000 b/d Litvinov and 66,000 b/d Kralupy plants in the Czech Republic. Household and commercial heating accounted for around 10pc of the 2.5mn t/yr market in 2023, according to Polish LPG association POGP.

The LPG industry hopes to avoid the logistical issues that haunted the market during the immediate diversification drive in 2022. Coal transportation by rail was given priority over other fuels after Poland's Russian coal imports ban. This time, railway operator PKP PLP has been told to prioritise LPG should bottlenecks emerge. Upgrades to ports that capped rail capacity have also now largely been completed. And although more investment is needed, with only two out of six Polish-German rail crossings electrified, a predicted increase of 1,000 trains arriving from northwest Europe each year can be accommodated, the infrastructure ministry says.

The main logistical problem is likely to be throughput at privately run terminals, according to the government. Most rail terminals are on Poland's eastern border with Belarus, with only two projects planned to raise import capacity in the west. Polish trading firm Barter plans to commission a 400,000 t/yr terminal in Slawkow in December. And Polish oil company Orlen is expanding its Szczecin terminal on the Baltic Sea by 50pc to 400,000 t/yr, but not until mid-2025. These will help, but they fall well short of adding enough capacity to replace lost Russian supply.

Private matters

But although the government is more aware of the coming shortfall, the domestic sector is largely having to fend for itself. Plans for a state-owned seaborne terminal were rejected on the basis the industry has had little state intervention to date, and a request for lower fuel duty for firms that invest in infrastructure was also denied. The 2015 tax was introduced to establish strategic LPG reserves, with the private sector contributing $643mn so far, according to separate LPG association PIGP.

Simplifying environmental permitting procedures has received more consideration from Warsaw. Local authorities are required to process applications within three months, but this often extends to a year or more, according to market participants. The environment ministry started talks with regional administrations in July to improve investment conditions, but progress has been hampered by recent government reshuffles. The responsibility for energy resources has been transferred from the environment to the new industry ministry as of 1 August, temporarily halting engagement with the LPG industry.

Poland sea LPG imports by origin

Poland LPG infrastructure