The Evolving Role of Oil & Gas Companies in a Net-Zero Future – The View from Poland

The Evolving Role of Oil & Gas Companies in a Net-Zero Future – The View from Poland

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After a year of unprecedented health and economic challenges, the global economy is trying to recover, and the energy transition needs to be at the heart of this. As a lifeline out of the COVID-19 pandemic, the European Union has proposed the Green Deal, which focuses on achieving zero net emissions by 2050. Can oil and gas companies also lead the transition to a net-zero future in more traditional and heavily carbonized economies, such as Poland?

These companies are, however, well aware of the climate challenges and both the need for, and benefits of, the energy transition. Key Polish oil and gas players PKN Orlen, Grupa Lotos, and PGNiG have all pledged to facilitate Poland’s route to a net-zero future. These entities may take various paths in the energy transition, but the key pillars seem to be the same: low-emission power generation, alternative fuels, and energy efficiency in production.

Power Generation

In the field of electricity generation, Polish oil and gas companies focus on renewable energy sources and natural gas. By 2030, PKN Orlen plans to operate renewable energy sources with a total capacity of 2.5 gigawatts, including a 1.2-gigawatt offshore wind project. PGNiG aims to achieve a combined installed capacity from wind and photovoltaic assets of 900 megawatts beyond 2022.

Currently, over 70% of electricity in Poland is generated from coal. The existing coal-fired power plants need to be replaced with other stable, but cleaner energy sources. Natural gas plants fit this purpose and PKN Orlen already operates two combined-cycle-gas-turbine gas-fired cogeneration plants with a total capacity exceeding 1,000 megawatts and is aiming to increase natural gas power generation capacity to 2,000 megawatts by 2030. PGNiG, the country’s biggest natural gas supplier, is also targeting further investment in gas-fired power plants, including a 500-megawatt CCGT unit already under construction. In November 2020, Grupa Lotos, PKN Orlen, and its subsidiary Energa signed the letter of intent concerning another CCGT project, to be deployed in northern Poland.

Interestingly, PKN Orlen is also turning to nuclear power development. The company has recently agreed to cooperate with Synthos, a Polish private chemical company, on the development of micro modular reactors and small modular reactors. The two companies will jointly carry out research and explore the feasibility of deploying such nuclear reactors at PKN Orlen’s production plants in Poland.

Alternative Fuels

PKN Orlen’s alternative fuels strategy focuses on diversified biofuel production as well as a hydrogen production and distribution network.

Grupa Lotos, on the other hand, is pursuing the development of selected prototypes of low-carbon transport and energy-storage equipment. It has signed agreements with the Polish Universities of Technology in Gdansk and Warsaw to launch joint research and development. Another key focus for Grupa Lotos is hydrogen and green hydrogen production.

PGNiG has a pipeline of energy efficiency projects and plans to develop its commercial offerings of compressed and liquefied natural gas. Long-term, the company plans to increasingly feed biomethane and hydrogen into its gas grid.

Poland is still in the early stages of its energy transition and there is still a long road ahead for Polish oil and gas companies. However, it is good to see that Polish oil & gas players recognize the inevitability of a net-zero future and the direction they need to take to achieve this target.

By Lukasz Szatkowski, Partner, and Piotr Prawda, Senior Associate, CMS Poland

This Article was originally published in Issue 8.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.