Macroeconomic conditions were the main drivers behind the decision to start work on the new strategy, and these included the global fall in crude oil and natural gas prices, the growing competition on the Polish market, and the need to diversify gas imports beyond 2022.

“The main reason for revamping the Group’s business model is our intention to become better adjusted to the new challenges and the market reality. This includes the need to diversify gas imports, the growing competition on the Polish market and gradual lifting of the obligation to seek approval for gas tariffs. With the new strategy in place, we will handle those new challenges more effectively”, emphasizes Piotr Woźniak, President of the PGNiG Management Board. “Our ambitions and guidelines for 2017−2022 will allow us to balance our goals and activities, and minimise the risk of the Group’s focusing on short-term targets at the expense of long-term goals”, he added.

The planned changes will include roll-out of a new approach to strategic management, which focuses on balancing the Group’s financial, operating, and development goals. Development and implementation of the new strategy was based on the methodology of sustainable strategic management − the Balanced Scorecard (BSC), which enables the balancing of the Group’s goals in various areas of the business based on the four key ‘perspectives’ (financial, customers, processes, and resources and growth).

Direction: North

The PGNiG Group’s strategic objective is to strengthen its competitive position while supporting the development and ensuring security of the gas market in Poland as a whole. Strengthening of the Group’s position vis-à-vis its competitors will be based mainly on investments in the Norwegian production assets, participation in the Norway-Denmark-Poland gas pipeline project, and the development of the Group’s trading presence on natural gas and LNG markets. In the context of the development of Poland’s gas market, the key strategic goals will include faster roll-out of the country’s distribution network, expansion of the upstream business in Poland, and further improvement of the customer service standards.

“We expect to produce around 2.5 bcm of gas from the Norwegian Continental Shelf annually. The Group will also take part in the Norwegian Corridor project to secure direct gas imports from Norway. At the same time, we will step up the Group’s LNG business, which should lay the foundations for successful trade relations with the key market players. All those projects will underpin our competitive position”, says Maciej Woźniak, PGNIG’s Vice President for Trade.

Planned capex of over PLN 34bn

In 2017-2022, the Group’s capex will exceed PLN 34bn, almost half of which will be spent on hydrocarbon exploration and production. Thirty per cent will be invested in expanding the Group’s distribution business, with smaller amounts to be spent on electricity and heat generation projects and other selected growth initiatives offering attractive returns. Over the term of the strategy, average annual capex will reach approximately PLN 5.7bn.

“In 2017-2022, we want to deliver cumulative EBITDA of ca. PLN 33.7bn. We expect the investment programme to support long-term growth of this metric, which should be evident particularly in 2023-2026, when the annual average EBITDA is expected to reach ca. PLN 9.2bn”, declares Michał Pietrzyk, PGNiG’s Vice President and Chief Financial Officer.

Production growth through acquisitions and new licences

One of the Group’s key objectives in the upstream business is to increase its documented hydrocarbon reserves by 35%. The annual production volume is expected to rise from ca. 39 mboe in 2017 to nearly 55 mboe in 2022 (up 15.9 mboe, CAGR 6%). This will be achieved by maintaining the annual hydrocarbon production volume in Poland at 30-33 mboe and significantly increasing the volume of hydrocarbon production in Pakistan and Norway (to ca. 22 mboe per annum) through acquisitions of new deposits and new E&P licences.

In wholesale, the strategic objective is to expand volume of the Group’s gas sales from approximately 166 TWh (ca. 15 bcm) in 2017 to approximately 178 TWh (ca. 16 bcm) in 2022 (up 7%). This is to be achieved be increasing gas sales in Poland, but also by expanding the volume of gas sales abroad by over 250% by 2022. In retail, PGNiG will focus primarily on maintaining its market position and maximising profit margins. In the context of the new strategy, the overriding objective of PGNiG OD is to improve margins on gas sold to retail customers and to maintain total gas sales volume on the retail market at around 67-69 TWh/year.

In its storage business, the PGNiG Group will focus on two key strategic goals – securing storage capacities to satisfy actual demand, and further improving efficiency of the sector’s operations. The Group’s key objective is to complete its current storage projects, which will drive up Poland’s total storage capacity to ca. PLN 3 bcm.

Extension of distribution network

In 2017-2022, the Group will build more than 300 thousand new service lines. The process of connecting new customers will also be accelerated (the annual growth rate to increase by 17%), and the customer service quality will be improved.

“Our goal is to change the approach to growth projects and new service lines, and to focus on active market development measures and closer relations with customers and local administration. This will not only drive up the rate of new connections, but will also help us increase the volume of gas distributed to end users to ca. 12.3 bcm in 2022”, says Radosław Bartosik, PGNiG’s Vice President and Chief Operating Officer.

In electricity and heat generation, the Group’s strategic ambition is to increase the annual volumes of electricity and heat sales from approximately 15 TWh in 2017 to around 18 TWh in 2022. This will be attained mainly through upgrades and growth investments in the existing production facilities, full integration of the heating assets acquired by the PGNiG Termika Group, increase in electricity and heat production volumes, and further acquisitions of local heating systems.

Over PLN 100m to be spent on R&D&I per year

“We are set on building an efficient organisational and management model across the highly complex structure of the PGNiG Group. Our projects will include optimisation of the Group’s operating model and roll-out of an efficient management system. We will also lend more support to our business environment. In the coming years we would like to have more influence on how the Polish gas industry develops. Our ambition is to become an innovation leader in the sector. We are on the constant lookout for, and are always open to, new initiatives. We are actively supporting Polish companies through our InnVento incubator, cooperation within the MIT Enterprise Forum accelerator, and the Innovative Thinking Workshops”, explains Łukasz Kroplewski, Vice President of the Management Board for Development.

The PGNiG Group will spend ca. PLN 680m on research, development and innovation in 2017-2022 (more than PLN 100m per year, on average). Some of those projects are already under way.

The new PGNiG Group Strategy is in line with the government’s ‘Sustainable Development Plan’.