Strategy for the PGNiG Group until 2015

The overarching strategic objective pursued by PGNiG is to secure growth of the shareholder value. In its pursuit of the strategy, in June 2011 the Company adopted 18 strategic objectives under the "Update of Strategy for the PGNiG Group until 2015" within the six areas:
  • Exploration and Production,
  • Wholesale/Trading,
  • Storage,
  • Distribution,
  • Sales,
  • New Business Areas.

The strategy will be implemented taking into consideration the need to ensure long-term security of uninterrupted supplies of natural gas to the Polish market. PGNiG is a company with long-lasting tradition, enjoying an established position of the leader on the Polish gas market. Over the years of development, the Company has gathered valuable assets and now controls a number of segments of the energy market (natural gas production, storage, sales and distribution), which provides a robust foundation for PGNiG's further growth and steady value increase.

The following main strategic objectives make up the PGNiG Group's vision: to become, by 2015, a modern and efficiently managed organisation, control almost the entire value chain in the gas sector, and hold assets in the fuel and power sectors. Attainment of the strategic objectives will rely in particular on activities concentrating on: 

  • hydrocarbon exploration and production domestically and abroad, to ensure access to new oil and gas reserves;
  • the power sector, focusing on the development of gas-fired power generation in Poland;
  • management of the Company's natural gas portfolio and activities on the European gas trading market.

Exploration and Production

Access to own reserves is a key to success. For this reason, PGNiG is developing its exploration and production business in Poland and abroad. The updated strategy set the following strategic objectives:

  • to develop the E&P business in Poland;
  • to develop the international E&P business focused on key regions;
  • to enhance competences and optimise activities in the E&P business.

Actions taken to pursue these objectives include:

  • increasing domestic annual production of natural gas to approximately 4.5bn m3 and crude oil to 1.0m tonnes; 
  • maintaining the leading position among the holders of licences for unconventional gas exploration in Poland;
  • maintaining the reserve-replacement ratio of at least 1.1.

Wholesale/Trading

In order to balance the domestic demand for natural gas, the PGNiG Group produces gas from its own reserves and purchases gas abroad. The Group's own production satisfies around 30% of total demand, with the balance covered by imports, mainly from countries east of Poland (with OOO Gazprom Export being the largest supplier). The updated strategy sets the following objectives:

  • to maximise the use of the existing infrastructure and secure sufficient capacities;
  • to increase the flexibility of natural gas supplies;
  • to develop domestic/international multi-commodity trading and international sales.

Therefore, the following steps have been or will be taken to guarantee secure and uninterrupted supplies of natural gas:

  • using spare capacities of the LNG terminal, reserving capacities at the Lasów and Cieszyn interconnectors and capacities available in the virtual reverse flow on the Yamal pipeline;
  • renegotiating and increasing the flexibility of long-term contracts and changing the purchase portfolio structure by increasing the share of volumes under short-term contracts; 
  • in the future, launching international trading in gas and crude oil to support the processes of diversifying gas supply sources and risk management, while securing competitive selling prices. Our ability to participate in the European market will be particularly important if gas surplus occurs in Poland. 

Storage

The storage business plays a key role in stabilising the volatile demand for natural gas and ensuring the security of gas supplies to our customers. Given the development of the market and the need to harmonise the storage capacity with the legal requirements, PGNiG is involved in projects designed to expand the existing and construct new underground gas storage facilities.

By 2015, the planned expansion projects are expected to increase our storage capacity to approximately 3bn m3.

The updated strategy set the following strategic objectives relating to the storage capacity expansion:

  • to ensure sufficient storage capacity;
  • to organize an internal structure of the legally unbundled  Storage System; 
  • to maintain possibly high margins on the storage business following the launch of new underground gas storage facilities.

Actions taken to pursue these objectives include:

  • increasing the storage capacity by approximately 1.4bn m3, to a total of approximately 3bn m3, and securing EU funds to finance the projects;
  • establishing an internal structure of the legally unbundled Storage System Operator and executing the service agreements;
  • maintaining the pre-tax WACC at 8-10% and maximising sales of the storage services.

Distribution

Distribution plays an important role in the building of the PGNiG Group's value.  The updated strategy provides for the following strategic objectives relating to the distribution business:

  • to improve the profitability of the distribution business;
  • to optimise costs and functions;
  • to optimise development of the distribution network.

Actions taken to pursue these objectives include:

  • increasing the regulatory value of assets approved by the Energy Regulatory Office and closing the cost gap in the tariff;
  • implementing the strategic procurement functions at the distribution companies, establishing a shared services centre for the distribution companies and optimising/improving network efficiency;
  • establishing uniform rules for the distribution network development (including ten-year investment plans), streamlining the legally permitted platform of communicating the demand from customers and the sales business, and launching a pilot programme to assess feasibility of implementing an intelligent meter reading system.

Sales

PGNiG's trading business is all about satisfying the domestic demand for gas fuel through transactions of purchase and sale of natural gas. Natural gas is sold to both retail and industrial customers. Given the dynamic changes in the legal and business environments, we are taking a number of steps in the gas trading area to maintain its leading position on the liberalised Polish market.

The updated strategy provides for the following strategic objectives relating to the gas selling business: 

  • to maintain the leading position on the Polish market;
  • to improve operating efficiency.

Actions taken to pursue these objectives include:

  • developing a new product mix, improving customer service, winning new customers both within and outside of the transmission network's geographical coverage, entering the electricity market by approaching small and medium-sized enterprises as well as business customers with a dual-fuel offer (the "gas plus electricity" package);
  • developing and implementing actions conducive to natural gas market deregulation, preparing PGNiG for entry of new competitors onto the Polish market.