Gas

National natural gas resources, along with supplies through the Baltic Pipe and the President Lech Kaczyński LNG Terminal in Świnoujście, are an important element of the Polish's energy security system. Further discoveries of sources of raw material from domestic deposits will allow the ORLEN Group to maintain its own gas production at a level close to 20% of the annual demand for this fuel in Poland in the coming years. Each cubic meter of natural gas from our own extraction is not only an additional guarantee of safety, but also additional financial revenues for local governments in which we exploit raw materials.

Wholesale business in Poland

The ORLEN Group, through its PGNiG Divisions, is involved in wholesale trade of natural gas, both domestically produced and imported via pipelines and sea routes. Through its specialised wholesale trading unit, ORLEN Oddział Obrotu Hurtowego PGNiG (Wholesale Trading Branch, OOH), the Group trades in natural gas, LNG, crude oil, electricity, CO₂ emission allowances, and property rights. The Wholesale Trading Branch is also responsible for the import policy and diversification of gas fuel supply sources to Poland.

As part of its business, the ORLEN Group holds a licence to trade in gas fuels, trade in natural gas abroad, generate electricity, trade in electricity, liquefy natural gas, and regasify liquefied natural gas at LGN regasification plants.

In 2022, PGNiG purchased natural gas mainly under the long-term agreements and contracts specified below:

• Contract with PAO Gazprom/OOO Gazprom Export, for sale of natural gas to the Republic of Poland, dated September 25th 1996, effective until the end of 2022 (the Yamal contract); On April 27th 2022, deliveries under the contract were discontinued by the supplier;
• Contract with Qatar Liquefied Gas Company Limited for sale of liquefied natural gas, dated June 29th 2009, effective until 2034 (the Qatar contract), and supplementary agreement to the long-term agreement of March 2017 (effective from the beginning of 2018 to 2034);
• Contract with Cheniere Marketing International, LLP for sale of liquefied natural gas, dated November 8th 2018, effective until 2042.
• Deliveries were also made under medium- and short-term grid gas and LNG supply contracts (including a five-year contract for nine shipments of liquefied natural gas from Centrica LNG Company Limited, which began to be performed in 2018).
• In 2022, the gas imports volume was 152.9 TWh. As a consequence of the conflict between Russia and Ukraine in 2022, the ORLEN Group's purchase of gas from the eastern direction decreased by 1.3 TWh (y/y), while LNG supplies rose from 43.2 TWh in 2021 to 66.6 TWh in 2022.

In total, in 2022, the ORLEN Group received a total of 58 LNG shipments, with an aggregate volume of 4.36 million tonnes, i.e. approximately 66.64 TWh of natural gas after regasification, including:

In July 2022, PGNiG and the Azoty Group signed annexes to gas supply contracts thus extending their partnership in natural gas supply until the end of September 2023. The estimated value of gas supplies under the contract extensions was PLN 13.4 billion.

On September 30th 2022, PGNiG also entered into a framework agreement and individual contracts with PGE Polska Grupa Energetyczna for natural gas supplies in the period from October 1st 2022 to December 31st 2025. The value of the agreement and individual contracts was approximately PLN 23 billion. The natural gas contracted under these arrangements is intended to cover the current production needs of the CHP plants owned by PGE Energia Ciepła, PGE Toruń, and the KOGENERACJA Wrocław CHP Complex. The agreement also extends to the provision of natural gas to two new gas-steam units that are being built at the Lower Oder Power Plant by PGE Gryfino 2050.

Other strategic customers in Poland that rely on PGNiG's natural gas include KGHM Polska Miedź S.A., the ArcelorMittal Group, Rafineria Gdańska Sp. z o.o., PGNiG Termika S.A., and Elektrociepłownia Stalowa Wola S.A.

These customers purchase gas fuel at market prices based on the formulas and mechanisms set out in their contracts with PGNiG. Contractual prices are determined on a case-by-case basis using a uniform and objective pricing methodology.

Wholesale business abroad

PGNiG Supply & Trading GmbH, which is part of the ORLEN Group, has been expanding its presence in Europe in three key sectors: international LNG trading, access to the European gas market (including gas from the North Sea Continental Shelf), and wholesale activities on the markets of Central and Eastern Europe.

Its trading operations enable the ORLEN Group to trade gas fuels across a wide range of countries, including but not limited to Poland, Germany, the Netherlands, Belgium, Austria, Norway (Gassled System), Denmark, the United Kingdom, France, the Czech Republic, Slovakia, Ukraine, Lithuania, Latvia, Estonia, Hungary, and Italy. The Group is actively involved in trading on organised markets (exchanges) as well as in over-the-counter (OTC) trading. It collaborates with more than 150 counterparties under EFET (master agreements for trading in gas and electricity) or similar standardised contracts. In order to conduct trading activities on the global LNG market, the company has established a branch in London. In 2022, forty-six LNG deliveries were received, including three at the FSRU terminal in Klaipėda, Lithuania. Overall, 39.2 TWh of LNG was delivered to the Świnoujście terminal and 8.0 TWh to the Klaipėda terminal.

In order to be able to start receiving gas from fields on the Norwegian Continental Shelf, PGNiG Supply & Trading was registered with the Norwegian Gassled system operated by Gassco (Shipper Agreement). PST is also registered as a shipper (gas intermediary) and a participant of the gas storage system in Ukraine.

In 2021, in order to expand its presence in Central and Eastern Europe, the company became a member of the CEEGEX Hungarian gas exchange and the GET Baltic exchange for the Lithuanian market. PGNiG Supply & Trading continues to trade in Brent crude oil futures and Henry Hub gas in the U.S. through the ICE Futures Europe and ICE Futures U.S. exchanges, as well as in electricity on the German market through exchange trades (EEX) and the OTC market.

Retail activities

The ORLEN Group operates in the retail gas trading market through PGNiG Obrót Detaliczny (PGNiG OD), a company established in 2014. The company focuses on selling natural gas and providing customer services to retail clients. PGNiG OD focuses on the sale of natural gas (purchased mainly on the POLPX), electricity, compressed natural gas (CNG), and liquefied natural gas (LNG). As part of its business, the company holds a licence to trade in gas fuels and electricity.

The largest share in the global volume of high-methane gas purchases was attributable to transactions on POLPX. In addition to high-methane natural gas, PGNiG OD’s purchase portfolio also includes nitrogen-rich gas and liquefied high-methane natural gas (LNG). Nitrogen-rich gas is purchased under a bilateral contract with ORLEN, while LNG is sourced under bilateral contracts with ORLEN and PGNiG Supply & Trading.

PGNiG OD’s customer base includes consumers and non-consumers (including in particular small and medium-sized companies). Customers are classified into tariff groups based on the following criteria:

• Type of gas fuel received: high-methane gas or nitrogen-rich gas;
• Contracted capacity;
• Annual contracted volume – for customers with contracted capacity of not more than 110 kWh/h;
• Billing system – as per the billing frequency applicable to customers with contracted capacity of not more than 110 kWh/h.

Group 1-4 retail customers purchase gas used mainly for domestic use, as well as in shop-floor processes. Households and other retail customers are eligible for tariff protection, which is provided through gas tariffs approved by the President of URE. In 2022, PGNiG OD applied PGNiG OD Tariff for Trading in Gaseous Fuels No. 11 (Tariff No. 11), approved by a decision of the President of the URE on December 17th 2021. The tariff was effective throughout 2022.

In addition, the President of the ERO, in a decision dated December 17th 2022, approved PGNiG OD Tariff for Trading in Gaseous Fuels No. 12 (Tariff No. 12) for the period until March 31st 2023. For customers eligible for tariff protection, Tariff No. 12, which came into effect on January 1st 2023, will not have any impact on gas prices or subscription rates in 2023.

In accordance with the provisions of the Law of December 15th 2022 on Special Protection of Certain Consumers of Gaseous Fuels in 2023 Due to the Situation in the Gas Market, in the period from January 1st 2023 to December 31st 2023, PGNiG OD will apply a maximum net price of gaseous fuels of PLN 200.17/MWh in settlements with the customers of gaseous fuels entitled to tariff protection (including households) referred to in Article 62b.1.2 of the Energy Law.

In the period of January 1st 2023 to December 31st 2023, PGNiG OD will maintain subscription fee rates at the same level as in settlements with customers eligible for tariff protection in 2022, i.e. subscription fee rates from Tariff No. 11.

Tariff No. 12, approved by the President of URE, serves as the basis for calculating compensation owed to the energy company in the event that gaseous fuels are sold at a price lower than costs of their procurement.

The ORLEN Group’s activities also include:

• CNG sales at the existing CNG refuelling stations, based on non-cash refuelling contracts and separate bilateral agreements with entities that operate fleets of CNG-fuelled vehicles;
• Sale of CNG along with infrastructure – a comprehensive service offered by PGNiG OD to transport companies, where gas fuel is delivered along with the necessary infrastructure;
• Sale of LNG fuel – to end users with own infrastructure for receipt of LNG deliveries (transport or manufacturing); Purchase of LNG and its transport to designated locations;
• Sale of LNG along with infrastructure – irrespective of how LNG is used by the end customer (transport or industry), a comprehensive service is offered where gas fuel is delivered along with the necessary infrastructure;
• LNG bunkering – LNG sales for shipping purposes, including truck-to-ship bunkering services, carried out in Polish ports.

Storage

The ORLEN Group, through Gas Storage Poland (GSP), is engaged in the business of storing gaseous fuels in the following storage facilities: Husów UGSF, Wierzchowice UGSF, Strachocina UGSF, Swarzów UGSF, Brzeźnica UGSF, Mogilno CUGSF and Kosakowo CUGSF.

Underground gas storage facilities.

Source: In-house analysis based on data from the Geology and Hydrocarbon Production Branch and Gas.

As the storage system operator, Gas Storage Poland provides gas fuel storage services to storage facility users under standardised procedures, on a non-discriminatory, equal-treatment basis, to ensure the most efficient use of the storage capacities. Storage services are provided under standard storage service agreements (SSSA).

As at year-end 2022, under long-term SSSAs, Gas Storage Poland provided a total of 175 thousand long-term storage capacity packages, including 80.4 thousand packages of continuous storage services, and 94.6 thousand packages of intermittent storage services. Under short-term intermittent storage services GSP distributed 1,827 packages of storage capacity as at December 31st 2022. As at December 31st 2022, GSP had a total working storage capacity of 3,230.6 mcm, of which a total of 3,190.3 mcm was made available to third parties on a TPA basis, and to GAZ-SYSTEM, as part of long-term services; 33.3 mcm of working capacity was made available as part of short-term services, on an intermittent basis, due to technical conditions. In addition, GSP has allocated about 7 mcm of active capacity for the own use by the KPMG Mogilno and KMPG Kosakowo units.

The ORLEN Group also offers a ticketing service which allows gas importers and traders to meet their gas-stocking obligations in accordance with the applicable Polish regulations. The Group provided the gas storage service under contracts for the 2021/2022 gas season with nine energy companies, and is currently implementing contracts for the 2022/2023 gas season with five energy companies.

Distribution

The ORLEN Group's mission is to provide gas fuel distribution services to all gas fuel consumers and traders through PSG, which operates as the distribution system operator. To ensure equal treatment of all users, the Group follows the provisions of the Energy Law and the Compliance Programme, which outlines rules for ensuring non-discriminatory treatment of distribution system users by PSG. PSG provides distribution services under relevant distribution contracts. At the end of 2022, PSG was distributing gas fuel to 7.5 million customers. In 2022, PSG executed four distribution contracts. In the same period, approximately 14 thousand customers switched gas suppliers.

Municipalities where PSG provides gas fuel distribution services.

Source: In-house analysis based on PSG data.

LNG regasification stations in Poland with licence issued in 2022.

Source: In-house analysis based on PSG data.

Volume of gas transmitted via the distribution system in 2018–2022 (mcm).

Length of own network, including service lines and number of customers¹.

¹ Customer − anyone receiving or drawing gas fuel under contract with a gas supplier.

A significant development that had an impact on the fulfilment of its operator obligations was the execution by PSG, with suppliers of last resort and stand-by suppliers, of comprehensive contracts, including provisions of the stand-by supply contract, in the name and on behalf of end customers for 33,782 exit points, following discontinuation of gas fuel supply by six gas fuel suppliers to customers connected to the distribution network.

Following imposition of sanctions on Novatek Green Energy Sp. z o.o. by the Minister of Internal Affairs and Administration in April 2022, and a subsequent decision by the Prime Minister in the same month, PSG was ordered to provide distribution and regasification services on distribution networks owned by Novatek Green Energy Sp. z o.o. As a result, PSG signed comprehensive contracts including the provisions of the stand-by supply contract with the supplier of last resort to end customers, for 946 exit points connected to the distribution network handed over to PSG by Novatek Green Energy.

PSG’s business is regulated, with licensing of gas fuel distribution and LNG regasification services, and the obligation to have distribution tariffs approved by the President of URE. Tariff No. 10 was applicable throughout 2022, resulting in a 3.57% rise in the average distribution service rate compared to the previous tariff. On September 1st, 2022, the tariff was updated due to an increase in transmission service costs following a tariff change by OGP Gaz-System, resulting in a 2.55% increase in the average distribution service rate compared to Tariff No.10.

The company also implemented the ‘Programme for Accelerating Investment in Poland's Gas Network in 2018-2022.’ According to the programme's assumptions, the gas network was to be extended to 300 more municipalities, bringing the total to 1,782 and achieving a gasification rate of 71.91% among Poland's municipalities. Gas distribution service was expanded to 19 new municipalities throughout 2022, and by the end of the year, the number of newly-gasified municipalities reached 236. In November 2022, a decision was made to terminate the programme.

PSG is actively working on reducing congestion in the distribution system through various projects. In 2022, the company started constructing nine high-pressure gas pipelines to help alleviate congestion in the system. The investments are included in the Świnoujscie LNG Terminal Investment Law (amended on August 9th 2019) and involve the construction of a total of about 590 km of high-pressure gas network. As part of the project, PSG has completed the construction of a gas connection pipeline with a length of approximately 0.4 km to the OGP Gaz-System transmission system in Zambrów.

Another initiative pursued in 2022 was the ‘Energy Transition Programme’, with the primary goal of supporting PSG in:

• Preparing its structure for Poland's energy transition;
• Connecting commercial and industrial sources to the gas grid;
• Acquiring new commercial customers and developing the network to enable distribution of biogas (Spatial Database).

In 2022, PSG also remained committed to advancing its 2016-2022 Strategy in distribution and infrastructure through various projects. They were aimed at implementing technological and organizational solutions in the areas of customer service, metre reading, network asset management, distribution service billing and security, as well as research and development.

Sales volumes in the Gas segment in 2022.

Wholesale abroad

In 2022 , PGNiG Supply & Trading sold 126.5 TWh of pipeline gas ( including 39.1 TWh of gas from PGNiG Upstream Norway and the LOTOS Group), 47.2 TWh of LNG and 0.7 TWh of electricity through energy exchange and over-the-counter transactions. The largest share of the deliveries went to the market in Poland, where 64% of the total volume was sold. The German and Dutch markets accounted for 16% and 10% of the sales, respectively. In 2022, PGNiG received 3.7 TWh of gas as part of the contract signed in 2019 with Exploration Production Norge AS. Starting in October 2022, PGNiG Supply Trading began supplying gas from Denmark to Poland via the Baltic Pipe.

Retail

As at the end of 2022, the ORLEN Group served a total of about 7.25 million natural gas customers in tariff groups 1-4 (both high-methane natural gas and nitroge-rich natural gas) and nearly 34 thousand gas consumption points in tariff groups 5-7. Business customers buy gas both for the purposes of their industrial processes and for heating, and are billed at prices set in the business tariff and in special offers.

LNG terminals

In 2022, ORLEN Group benefited from increased regasification capacity thanks to the contract executed in May 2020 with Polskie LNG (now GAZ- SYSTEM) for the reservation of additional regasification capacities available in the Open Season procedure resulting from the expansion of the LNG Terminal in Świnoujście. Under the contract, PGNiG/ ORLEN has access to reserved capacity of approximately 1.2 bcm of gas per annum in 2022–2023 (transitional service) and approximately 3.3 bcm of gas per annum in 2024–2038 (basic regasification service), which together with the previously reserved capacity of 5 bcm of gas per annum increased the import capacity to 6.2 bcm in 2022, and will further increase the capacity to 8.3 bcm of gas per annum as from 2024.

Storage

The ORLEN Group's storage offering is based on Storage Facilities (SF and Groups of Storage Facilities (GIM), i.e.:

• Kawerna SFG (comprising Mogilno UGSF and Kosakowo UGSF),
• Sanok SFG (comprising Husów UGSF, Strachocina UGSF, Swarzów UGSF and Brzeźnica UGSF),
• And Wierzchowice SF.

ORLEN Group's storage capacities.³

Distribution

The total length of distribution networks used by the ORLEN Group in 2022 was 206.5 thousand km.

Source: In-house analysis.