The US and Poland have signed a preliminary cooperation agreement with Ukraine aimed at providing Kiev with additional energy security and sustained gas diversification away from Russia through the supply of regasified US LNG via Poland.
A trilateral memorandum of cooperation was signed in Warsaw on Saturday by US Secretary of Energy Rick Perry, the representative of the Polish government on strategic energy infrastructure, Piotr Naimski, and Oleksandr Danyliuk, the secretary of Ukraine's National Security and Defense Council (NSDC).
"A trilateral memorandum of cooperation with our partners -- the US and Poland -- to diversify sources of gas supply and enhance the energy security of Ukraine has been signed today," the NSDC said in a statement.
The three sides want US LNG to be supplied into Poland from where it can be piped to Ukraine, offering the former Soviet state a sustainable, diversified supply of gas.
Ukraine has historically been dependent on gas imports from Russia, though it suspended direct imports in November2015. It has since imported gas from Europe to meet its domestic needs.
NEW INTERCONNECTOR
Naimski told a news conference in Warsaw that Poland would make "every effort" to diversify Ukraine's gas imports.
According to the memorandum of cooperation, work will continue on a new 110 km interconnector to expand the capacity of flows between Poland and Ukraine.
Naimski said that once the pipeline was completed, Poland would have the capacity to pipe up to 6 Bcm/year of gas to Ukraine, up from 1.5 Bcm/year now.
The pipeline -- which will run from Hermanowice on the Polish side to the Bliche Volytsia underground storage facility on the Ukrainian side -- is expected to be completed by the end of 2021.
"We're counting on the Polish-Ukrainian interconnector project to be able to be carried out in this time period," Naimski said, according to the Polish state news agency PAP.
Ukraine last year imported a total of 10.6 Bcm of gas from Europe, mostly via Slovakia and Hungary, with small volumes imported via Poland.
But the political declaration Saturday aimed at increasing Ukraine's imports of regasified LNG via Poland could see that route more regularly used.
The agreement signed in Warsaw follows a spot gas deal between Poland's PGNiG and its Ukrainian trading partner ERU last week for the supply of regasified US LNG into Ukraine via Poland.
The cargo is expected to arrive in Poland's Swinoujscie terminal at the beginning of November and the regasified volumes will be delivered to Ukraine via the Hermanowice interconnector point on the Ukrainian border before the end of 2019.
LNG EXPANSION
PGNiG has said it wants to become a bigger regional LNG player and has contracted to buy more LNG than it needs tobe able to sell on gas to Central and Eastern Europe.
It has concluded long-term deals with US suppliers Cheniere Energy, Venture Global LNG and Port Arthur LNG.
Those deals will allow PGNiG to expand its LNG portfolio, which already includes a long-term deal with Qatargas, to about 12 Bcm/year by 2024.
Naimski said the capacity of Poland's Swinoujscie LNG terminal would be expanded from 5 Bcm/year to 7.5 Bcm/year by 2021 to help absorb its growing import portfolio.
"This will allow for increased LNG supplies from the US -- whether they are purchased by Ukraine or whether Ukraine buys this gas from PGNiG," he said.
As well as the expanded Swinoujscie terminal, Poland also plans to have a floating LNG import terminal in place by2025 with a capacity of up to 8 Bcm/year.
According to S&P Global Platts Analytics, the trilateral agreement is a further step forward in Poland's strategy of regional diversification away from Russia, though its impact will be limited when compared with Gazprom's continued dominance in the wider region.
"Poland's increased capacity to Ukraine will help Central and Eastern Europe (CEE) as a whole diversify away from Russian gas, but the volumes are small relative to the CEE balance, and Russia will maintain a large market share," Platts Analytics' James Huckstepp said.
He added that plans to increase the capacity of the Poland-Ukraine route were already established and the increasein LNG imports into Poland already expected.
In the near term, meanwhile, Ukraine is buying regasified US LNG to help it build additional gas stocks ahead of the upcoming winter season due to concerns of disruption to Russian transit volumes.
The 10-year gas supply and transit agreement between Russia's Gazprom and Ukraine's Naftogaz signed in 2009 expires on December 31, 2019, and there has been no sign to date of the two sides being able to agree new arrangements covering transit from 2020.
