Natural gas too expensive for industry? And it will get even more expensive, or about the new fee

The Polish industrial sector using natural gas has been struggling with high prices of this raw material for two years. It is widely used both for energy purposes, to obtain electricity or heat for industrial processes, and as a raw material necessary for the production of, among others, artificial fertilizers. As indicated by Eurostat data, the final price of natural gas in Poland, including taxes and fees, is one of the highest in the entire European Union.

The data leaves no illusions - for the largest domestic recipients of the blue fuel, i.e. companies consuming over 4,000,000 GJ (105 million m3) of natural gas per year, its costs are significantly higher than in Germany, France, Spain, the Netherlands or Italy, among others.

On June 24, the Sejm Committee for Energy, Climate and State Assets will deal with a project important from the point of view of the natural gas market and the domestic industrial sector. Despite the already high (higher than in other EU countries) prices of natural gas for industrial recipients in Poland, at the initiative of the Ministry of Industry, a government draft Act amending the Act on reserves of crude oil, petroleum products and natural gas and the principles of conduct in situations of threat to the fuel security of the country and disruptions on the oil market and certain other acts was submitted to the Sejm of the Republic of Poland (parliamentary paper no. 1239). This draft proposes the introduction of an additional fee that will burden industrial recipients - a "gas fee".

Currently, energy companies conducting business activities in the field of natural gas trade with foreign countries and entities importing it to Poland are obliged to maintain mandatory reserves of natural gas.

After the changes are introduced, this obligation will be transferred to the Government Agency for Strategic Reserves (RARS), which will finance the purchase of the blue fuel in order to maintain its strategic reserves from the gas fee to be paid by end users.

The amount of this fee is to be set by the minister responsible for the management of energy resources (currently the minister of industry). However, unlike previous versions of the project, the current one does not specify an upper limit for the fee. Previous versions of the project assumed that it could not exceed PLN 100/MWh of natural gas received.

The only limitation on the amount of the gas fee is to ensure the proper implementation of RARS tasks related to the creation and maintenance of emergency stocks.

But what will the gas fee mean in practice? The largest consumers of natural gas, i.e. large industrial plants, will pay the most. For example, with the fee at PLN 10/MWh, a large industrial customer consuming 105 million m3 of natural gas annually will incur an additional cost of over PLN 11 million.

However, a similar level of fees for the largest industrial gas recipients (chemical industry) means an increase in the cost of this fuel to PLN 180 million per year.

In the Regulatory Impact Assessment, the Ministry of Industry indicates that the proposed project is to increase competition on the natural gas market, and thus reduce its price. This goal undoubtedly guides the planned changes on the horizon, but due to numerous shortcomings and potential problems, in the assessment of energy-intensive sectors of Polish industry, it will not contribute to reducing prices, but to their increase, especially in the short term. There are also a number of problems that raise doubts as to the positive impact of introducing a gas fee on the competitiveness of the domestic industry.

First, although industry will bear a significant burden related to the gas fee, it has not been classified as a "protected recipient" for whom the continuity of natural gas supplies is to be ensured by financing strategic reserves. Paradoxically, it is large industrial plants that will have to introduce restrictions on the supply of this raw material first, an example of which is the gas crisis of 2009, when the largest industrial recipients were affected by administratively enforced restrictions on the supply of this fuel.

Thus, the industry will finance the maintenance of reserves that it will not use itself .

Secondly, currently, professional business entities that have been operating on the market for years are required to maintain gas reserves in Poland. There is a doubt as to whether, after the introduction of the changes proposed in the act, a state agency such as RARS will be able to carry out its tasks as effectively, and whether it will be interested in minimizing costs, especially when they are only transferred to end users.

Third, the draft bill assumes that the gas fee will include the costs of insuring strategic reserves of natural gas. The purpose of insurance is to achieve optimal risk allocation by transferring it from the insured to the insurer, for a fee. However, insurance only makes sense if the insurer is able to absorb the risk. However, in the case of strategic reserves, this is not the case. The circle of entities that will bear the costs of strategic reserves is so large that their ability to absorb risk is no less than that of any insurer.

Fourth, the Polish gas fee mechanism is largely modelled on the German fee (Gasspeicherumlage). However, the new coalition government of CDU, CSU and SPD in its coalition agreement this year has committed to abolishing it. This decision is motivated by the properly understood need to improve the competitiveness of industrial recipients, who in Germany, similarly to Poland, have strongly opposed its introduction, treating it rightly primarily as an additional burden limiting the competence of German industrial producers using natural gas.

Fifth, unlike many other mechanisms causing an increase in energy costs for industry, the proposed solutions do not contain any protective instruments. For comparison, in the case of electricity, energy-intensive industrial recipients have the possibility of reducing additional cost components imposed by climate and energy policy, such as: capacity fee, RES fee, cogeneration fee or the obligation to redeem RES certificates. Similarly, in the case of the obligation to have greenhouse gas emission allowances, energy-intensive sectors can count on their free allocation.

All these protective instruments are intended to protect energy-intensive sectors of European industry from losing their global competitiveness and from so-called carbon leakage, i.e. the phenomenon of relocating industrial production from EU countries to third countries where the costs of climate protection are lower.

Sixthly, the arguments and reservations of the European Commission, referred to by the Ministry of Economy, regarding the need to change Polish regulations due to their inconsistency with EU law, do not refer to the entire mechanism for maintaining natural gas reserves, but only to its fragment concerning maintaining mandatory reserves in natural gas storage facilities located outside the territory of Poland.

Therefore, EU law does not require the introduction of a gas fee, let alone an increase in the cost of natural gas for industrial customers in Poland.

As Henryk Kaliś, president of the Electricity and Gas Recipients Forum, notes,

Natural gas prices play a key role for many sectors of Polish industry, determining their ability to compete, not only on global markets, but also on the EU internal market. The introduction of additional fees, to the already extensive costs of climate and energy policy, is another factor worsening this competitiveness in a very difficult market environment, when cheap products imported from China, the US or South America effectively push European producers out of the market.

Paradoxically, at the EU level we hear about the need to take action to improve the competitiveness of industry at the national level, in Poland about the need to implement an economic strategy and the need to support Polish industry through low prices of electricity and fuels, and at the same time the Ministry of Industry, which should implement this declared strategy in practice, is introducing regulations that increase the costs of industry by charging it a new fee.

It is therefore necessary to introduce changes to the proposed solutions that would reduce the negative impact of the gas fee. Therefore, the industry proposes protective mechanisms:

• exemption from gas fee for entities that use natural gas for non-energy purposes,
• introduction of a gas fee reduction system for large industrial customers using energy-intensive production technologies, with the level of relief depending on the annual volume of gas consumption,
• increasing the exchange obligation covering gas trading from the current 55% to 70%, which would contribute to improving liquidity on the Polish Power Exchange and ensure greater market transparency, thus reducing the real costs of purchasing natural gas.

The bill is expected to have its first reading on 24 June at the meeting of the Sejm's Energy, Climate and State Assets Committee. Both the Ministry of Industry, as the author of the proposed changes, and the members of the Sejm of the Republic of Poland can still introduce the corrections expected by industrial recipients to the bill. They have time until the end of the second reading. Senators will also be able to propose changes to the bill's content as part of the work of the Senate committee. Industrial recipients, associated in the Forum of Electricity and Gas Recipients, count on the interest in the submitted proposals from both parliamentarians and the government administration, and appeal for their introduction to the bill, preferably in the form of self-correction by the Ministry of Industry. This will limit the negative impact of the gas fee on the Polish industry.

Source of information: Electricity and Gas Consumers Forum