A court of appeal in Sweden has dismissed Russian state-controlled gas giant Gazprom’s challenge to an earlier arbitration award in favour of its core customer in Poland, state oil and gas producer PGNiG.

PGNiG said in a statement that Gazprom had demanded to set aside the final award of an international arbitration tribunal in Stockholm from 30 March, 2020 by claiming that the tribunal exceeded its authority to settle disputes between the parties to the Yamal contract.

Gazprom paid the $1.5 billion to PGNiG as instructed by the tribunal to avoid it accruing additional interest, with the payment significantly bolstering the Polish company’s balance sheet and helping it navigate the decline in revenues related to Covid-19 shutdowns.

PGNiG said it also used the Gazprom payment to development its own exploration and production activities offshore Norway, including the acquisition of 21 licences held by Ineos E&P as part of its strategy to diversify gas supply sources and delivery routes.

The award was retroactive compensation for PGNiG paying Gazprom an above-market price for gas that the Russian company had delivered to Poland under a 1996 long-term agreement, commonly referred as Yamal contract in Poland.

However, due to “precedential nature of the case”, the Court of Appeal in Stockholm granted Gazprom the right to appeal to the Supreme Court, PGNiG said.

The court also ordered Gazprom to reimburse PGNiG’s legal costs of about €510,000 ($560,000).

In January, Gazprom said its export subsidiary Gazprom Export submitted a different claim against PGNiG to the arbitration tribunal in Stockholm, demanding yet another price revision of the Yamal contract.

This contract expires at the end of this year, with neither side so far indicating any intention to start talks to negotiate a new long-term agreement.

Since 1 January, Gazprom has been supplying minimal contract volumes to PGNiG under the Yamal contract, with the Polish company having to import volumes from Germany to help cover the shortfall.

Supply route to Ukraine

Despite low pipeline gas supplies from Russia, Poland progressed plans to improve its infrastructure to help guarantee natural gas supplies to Ukraine, according to Ukriane’s transmission authority, Operator GTS Ukrainy.

The work includes a reconfiguration of the pipeline network and a liquefied natural gas import terminal at the Baltic Sea port of Swinoujscie.

From this week, Ukraine will be able to import gas from Poland even if Russia were to halt transit gas supplies across its territory to Europe or seek to prevent any current gas swap arrangements between the two countries proceeding.

Southern Poland has relied on importing Russian gas from Ukraine because the Polish network was previously unable to divert gas arriving in Poland from other directions towards Ukraine.

With the new route secured, Ukraine can now import up to 50 million cubic meters of alternative gas from Poland, Slovakia and Hungary, or almost half of its average daily consumption of between 100 MMcm and 120 MMcm at this time of the year, according to Operator GTS.