Poland is rapidly replacing Russia in providing supplies to eastern Germany, a dynamic which could have long-lasting effects, writes Alessandro Bertoldi.
Alessandro Bertoldi is the executive director of the Milton Friedman Institute
For months European institutions have been hoping to achieve Europe’s independence from Russian supplies of energy and raw materials. Recently, however, actions from some EU states make us question the real existence of the highly vaunted European solidarity and good faith.
Poland, in particular, is rapidly replacing Russia in providing supplies to eastern Germany. The latter is losing its autonomy in the sourcing of raw materials, which hitherto was based on diversification and Nord Stream, and relies increasingly on Warsaw.
The Polish government, taking advantage of such a situation, is pursuing an aggressive supply policy effectively asserting itself as the market gatekeeper in eastern Germany.
Until a few months ago, Germany was perceived as the economic and political leader of the EU and the continent’s economic engine.
Now things are starting to change. As Berlin helplessly watches the destruction of the Nord Streams pipelines and is forced to buy LNG (liquefied gas -EdN.) at six times the price of Russian gas, its political clout is also gradually shrinking. But one thing is to abandon cheaper Russian gas to buy LNG from the United States.
Another is to accept that Poland becomes a leading country, capable of dictating terms to the economy of countries in Central and Eastern Europe.
What’s happening is not coincidental, but rather part of a scheme by the Polish government, endorsed by some international partners, which aims to replace Germany as Washington’s primary interlocutor within the EU, taking advantage of the current contingency and using precisely the much-criticised leverage arising from energy supplies.
Further proof of the high level of tension Poland wants to keep in its relations with Germany is, for instance, the demand for $1.3 trillion from Berlin as compensation for the damage inflicted on the nation during the years of the Nazi occupation.
This path of the Polish energy policy began long ago. As early as 2006, when PKN-Orlen acquired the large Mazeikiai refinery in Lithuania, the Butinge oil terminal and the Biržai pipeline from its subsidiary Yukos, the Poles began to expand in Eastern Europe, quickly conquering the markets of the Czech Republic, Slovakia and the Baltic States.
But the strategy has picked up recently. August 2022 saw the merger between the Polish companies PKN Orlen and Lotos, active in the sectors of energy and hydrocarbon. In the fall of the same year the takeover of the Polish state-controlled oil and gas company PGNiG by Orlen itself was approved.
As CEO Daniel Obajtek pointed out, PKN Orlen strengthened its position following the deal by becoming the largest company in its sector in Central and Eastern Europe, with a sales volume exceeding $80 billion a year. Before this series of mergers in 2021, this figure was just $33 billion.
Today PGNiG sells gas, pumped into Poland through Baltic Pipe, to others. The source of these supplies is the Norwegian Europipe II pipeline, which traditionally supplied gas to Germany, but today 40% of its capacity is used for shipments to Poland. PKN Orlen is also strong in the oil refining sector.
And while in 2000 the volume of oil refined by this company amounted to 12,5 million tons, by 2022 this figure has tripled to 37 million tons. Now, after the monopolization of the Polish oil and gas industry has been completed, PKN Orlen is expanding into the East German market.
In November 2022, Orlen completed the sale of part of its assets to the Saudi Arabian oil company Saudi Aramco: 30% of the shares in the Gdansk refinery, 100% of the wholesale business, 50% of jet fuel shares of BP Europa SE, which operates in seven Polish airports.
Aramco, in return for this transfer, promised to grant oil supplies, which cover 45% of the entire Orlen group’s demand. Orlen’s alliance with Saudi Arabia is of strategic importance for the supply of raw materials not only to Poland, but also to all countries in Central and Eastern Europe, and further reinforces Warsaw’s position as a regional leader.
“We have established the largest company group in Central Europe”, the head of the PKN-Orlen said recently, also suggesting that the company will continue its expansion and is considering further mergers and acquisitions.
The current German leadership doesn’t seem to realize what is happening, unknowingly agreeing to hand over the keys to its energy market to Poland. This is not limited to increasing logistical dependence of Germany on Polish port facilities. The Polish company will give precedence to supplies in Poland.
The German government is not only allowing a dangerous precedent for the national economy but also questioning Germany’s investment attractiveness and undermining the country’s energy security.
