Ball in Latvia’s court after Lithuania’s LNG terminal officially launched operations

Experts from the three Baltic countries told BNS that the Klaipėda LNG terminal creates a prerequisite for a common Baltic market, but this will have to wait until Latvia implements the requirements of the EU’s third energy package and liberalizes its market.

In the experts’ opinion, early signs of such a market already exist. For example, an Estonian company is already buying gas from Lithuania. However, actual gas purchases from the Klaipėda terminal will only be possible after Latvia simplifies third-party access to its networks. They do not rule out that the Klaipėda terminal might be helpful to Latvia and Estonia in their talks with Russia’s gas giant Gazprom.

Reinis Aboltins, energy policy researcher with the Latvian public policy centre Providus, tells BNS that Lithuania has basically done its job by removing the physical isolation of the Baltic countries. What remains to be done is to enhance the capacity of the Klaipėda-Kuršėnai gas transmission pipeline. However, Latvia’s political will – or the lack thereof – remains a problem in creating a common liberalized gas market.

“Of course, another thing is that political signals have been completely wrong and opposite to the whole idea of liberalizing gas market in Latvia. I mean these amendments in the energy law and attempts by Latvijas Gaze to influence decision-making by the government and the politicians in the parliament that they should extend significantly the favourable situation of Latvijas Gaze for many years to come. (…) All of these activities illustrate that Latvian decision-makers and policy-makers talk about energy independence a lot, but in practice, they do exactly the opposite,” the expert said.

“Therefore, I would say that LNG could have significance for all three Baltic states thanks to the Klaipėda LNG terminal, but there are some limitations that we have to deal with before we can say that this infrastructure object can function to its full scale and potential,” he added.

Aboltins said that rumours are circulating that the Latvian Economics Ministry is drafting amendments to the law on energy that would effectively liberalize the market and cancel previous decisions by politicians, which, in his opinion, delayed the market’s liberalization. However, he added that his sources at the ministry have not confirmed this information.

In the expert’s opinion, the LNG terminal could help Latvia in its talks with Gazprom, but only if Latvijas Gaze itself is interested in negotiating.

Arvydas Sekmokas, former Lithuanian energy minister and now an independent consultant, also believes that the Baltic states could use the LNG terminal as a tool to pressure Gazprom to lower prices, but it is necessary that they “speak with one voice”.

“This depends on whether they manage to speak with one voice in negotiations. This would at least allow using our terminal as an instrument of pressure,” he said.

Sekmokas is sceptical about a common Baltic gas market, saying that at the moment it is difficult to predict if Latvia and Estonia will be interested in buying gas from the Klaipėda terminal in the near future.

Uncertainty over the implementation of the third energy package in Latvia and gas reserves at the Incukalns underground gas storage facility do not lead one to expect that gas will be purchased from Lithuania, the experts said.

“There is the mandatory amount of 540 million cubic meters of gas, and the rest is not a wide opportunity. If Lithuanian, Latvian and Estonian consumers jointly ordered a gas tanker, that would be a big step toward a common market,” Sekmokas said.

Sekmokas said that Estonia’s Alexela Group might seek to buy gas from Lithuania, but added that this is unconfirmed information.

Andres Tropp, regulatory affairs and compliance manager at Eesti Energia, confirmed that at least one Estonian company is already buying has from the LNG terminal.

“I know at least one Estonian company that is already buying gas from Lithuania today. The quantities which are currently traded are small because the regional gas market is very young and there are various issues that need to be resolved before the cross-border trading may become more active. (…) We are hopeful that the Baltic states will be soon able to exploit the full potential of the Klaipėda LNG terminal,” he said.

Lithuania expects that its terminal will become a regional one and will supply gas to Estonia and Latvia. In the future, when a gas pipeline to Poland is built, which is expected to be done by 2019, gas could also be supplied to Poland or other European countries.