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US, Poland reach energy cooperation pact amid strong global LNG demand

U.S. and Polish officials will meet in Washington early in 2019 for the first round of discussions that are part of a strategic initiative to encourage Europe to further diversify its energy infrastructure by boosting imports of liquefied natural gas, among other things, U.S. Energy Secretary Rick Perry said Nov. 9.

The comments in Warsaw came as officials from both countries signed a memorandum of understanding on the strategic plan.

Poland is looking to reduce its dependence on Russian pipeline gas in part by increasing imports of LNG, and it has increasingly turned to Qatar and the U.S. to provide the supply. In October, Polish Oil and Gas Co. finalized a purchase and sale agreement with Venture Global LNG, which has proposed two LNG export terminals in Louisiana. The state-owned company announced an off-take deal Nov. 8 with Cheniere Energy Inc.

"We look forward to sending many more shipments of LNG here to Poland and supporting your efforts to diversify your LNG supply," Perry said in prepared remarks announcing the strategic dialogue between the two countries.

Perry said the U.S. and Poland would enhance cooperation on energy security; support expanded efforts to enhance energy cooperation and diversification, including nuclear energy; and continue to coordinate efforts to counter energy projects that threaten the countries' mutual security.

"We believe this sends a clear signal … one that emphasizes the importance of diversity in our nations' energy security policies," Perry said. "This means a diversity of supply, a diversity of countries providing that supply, and a diversity of routes for delivering that supply."

The Trump administration has been a vocal critic of Gazprom's Nord Stream II gas pipeline project that would run across the Baltic Sea to connect Russia and Germany. Some countries in the region, including Ukraine, have lobbied hard against the project because it would allow an additional 5.3 Bcf/d of gas flows to bypass them, and they rely on lucrative transit fees to move Russian gas across their borders.

In addition, import prices would likely go up for these countries as the marginal source of gas would have to come from Western European spot markets at higher prices given the greater Russian flexibility to go around them, S&P Global Platts Analytics data showed.

Germany, a key U.S. ally in the region, has supported the project.

In July, Republican U.S. Senator John Barrasso of Wyoming introduced a bill that would impose mandatory sanctions on Nord Stream II and expedite the export of U.S. gas to NATO allies.

Demand for gas in EU countries has increased as the bloc aggressively pursues clean air policies, which means the countries are using less coal for power production. Russia has been a major source of gas supply to the region for decades, though in recent years, some countries have expressed a desire for alternative sources.

The agreement signed by Perry and Poland's strategic energy infrastructure adviser, Piotr Naimski, commits the countries to convene regular working sessions at least two times per year in either country.

At a news conference following the signing, Naimski said the Polish and Danish gas transmission system operators, Gaz-System and Energinet, plan to sign at the turn of November and December a construction agreement for the Baltic Pipe project that would connect the Polish, Danish and Norwegian gas networks and allow Poland to directly import Norwegian gas to replace Russian gas. That agreement does not constitute a final investment decision, but Naimski said everything remains on track to begin construction in 2020 to complete the project by October 2022, when Polish Oil and Gas' long-term contract with Gazprom expires.

Harry Weber is a reporter for S&P Global Platts. S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.