Proposed Polish Lithuanian Gas Link a Boon to Eastern Europe

Natural gas system operators in Poland and Lithuania last week announced a joint study examining a proposed linkage between the two countries’ distribution systems. Poland’s Gaz-System and Lithuania’s Lietuvos Dujos said they hoped the planned project would lead to greater energy competition in the region as well as more stability in the supply of natural gas for both countries.  Although unmentioned, leverage over Russian gas giant Gazprom, which has a recent history of unreliability in its flow of gas to Eastern Europe, is a clear goal of the move.

The project, if deemed favorable, will form part of the North-South Energy Corridor in Europe.  First announced in 2011, the corridor would eventually link energy systems – starting with natural gas – in the region bordered by the Baltic, Adriatic, and Black Seas, encompassing European Union Member states Bulgaria, the Czech Republic, Hungary, Poland, Romania, and Slovakia. The planned linkage in the north could eventually extend the network to Lithuania’s Baltic neighbors Latvia and Estonia.

Poland particularly stands to benefit from the proposal.  Currently, Warsaw imports two-thirds of its natural gas, much of it from Russia through the Belarus/Ukraine corridor.  That supply has been increasingly threatened by annual gas price and supply disputes between Gazprom and Ukraine’s system operator, Naftogaz.  This past February, Poland saw the supply of Russian gas drop by ten percent during a historic cold snap.  The cold was blamed for more than 100 deaths in Poland alone and over 650 in Eastern Europe.

Poland’s state-owned gas company, PGNiG, has itself been locked in an arbitration battle with Gazprom over prices recently.  PGNiG currently pays one of the highest rates among any of Gazprom’s European customers, as much as $415 per 1000 cubic meters.  That is about twenty percent higher than Western European countries pay for their Russian supply. Connection to Lithuania and eventually the southern EU countries will almost certainly drive prices of Russian far lower.

Perhaps sensing the tide shifting, Gazprom’s deputy chief executive Alexander Medvedev announced last month that the company expects to finalize negotiations with PNGiG soon.  “I’m sure we’re nearing the end of negotiations and that the price will be corrected lower,” Medvedev said.  Similar reductions could be in store for Lithuania and other Eastern European countries as well.

The increasing cooperation between Poland, Lithuania, and wider Eastern Europe on energy could be one reason why Moscow has been seen recently as trying to drive a wedge between the Baltic neighbors.  Global geopolitical intelligence analyst STRATFOR recently highlighted comments by Lithuanian president Dalia Grybauskaite calling for a “pause” in relations between Vilnius and Warsaw. STRATFOR attributed Grybauskaite’s comment to a softening of Poland’s stance toward its ancient foe to the east.

As STRATFOR notes, this would be a disastrous misreading of Poland’s relationship with Russia, with potential negative outcomes for both countries, but especially for Lithuania.  Perched on the sea between Russia and its increasingly dependent client state Belarus, Lithuania – one-fifth the size of Poland with less than a tenth of the population – needs to maintain good relations with its Western neighbors to counter Moscow’s growing push to reestablish hegemony over the region. 

Poland, under the more moderate leadership of Prime Minister Donald Tusk, may be looking to step back from the hard line taken by previous administrations; but since the fall of the Communists in 1991, successive Polish governments have charted a steadfast course toward integration with the West.  Poland’s desire to open up a channel to its former Eastern Bloc master should not be seen by Vilnius as any kind of slight. Rather, it should be viewed as a concrete sign of Poland’s success in anchoring itself firmly in Europe, an act from relative strength, not weakness.

Fortunately for both countries, Grybauskaite’s concerns have not done anything to derail the proposed gas system linkage.  Poland and Lithuanian should continue to move ahead with all deliberate speed to make the proposal a reality.  Doing so will not only benefit their own citizens, it will serve as an impetus for the North-South Energy Corridor, which will have lasting benefits for the wider region.  Russia has shown no qualms about using its energy stocks as a cudgel to compel dependency among its former satellites in Eastern Europe.  Poland and Lithuania may have found the best method of striking against Moscow’s expansionist intent, through its pocketbook.

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