Estonian plans present challenge to Lithuanian energy strategy

Estonia submitted an application to the European Commission in mid October, asking for funding for a regional LNG terminal. Estonia would build the facility in the town of Paldiski.

A regional LNG terminal on the eastern shore of the Baltic Sea is envisaged in the EC’s Baltic Energy Market Interconnection Plan, despite the fact that there already is one in Klaipėda.

Observers note, however, that the planned facility in Estonia might run into serious problems arising from the fact that gas consumption in the Baltic states has fallen considerably in recent years, especially in Estonia. The gas market has been contracting in Finland, too, although it is still considerable – the Finns are expected to have consumed 3.5bn cubic metres of gas this year.

Homework for Estonia spoke with Lithuania’s Energy Minister Rokas Masiulis about Estonia’s plans to build a regional LNG terminal in Paldiski.

He says that the Estonian application for EC funding has been somewhat premature, as Tallinn has not yet reached agreements with regulators in Finland and Latvia on dividing up costs.

“The application fails to meet minimal requirements spelled out in EU legislation, therefore it cannot be processed by the EC. In order for Estonians to make their plans of a terminal into reality, they still have a lot of homework to do,” Masiulis said.

Should, however, Estonia pull it off and start building the terminal in the near future, would Lithuania know what to do with a surplus of gas as the Klaipėda facility is much to big for its domestic needs? The situation would become even more tense, if Latvians decided to buy their gas from Estonia rather than Lithuania.

“If one more LNG terminal were built in the Baltic region, then Latvian consumers, as consumers in any other country, would work with the supplier who can offer the best terms for gas purchase. I believe that Klaipėda LNG terminal would be competitive enough and could offer attractive terms,” the Lithuanian minister insists.

Where to sell gas from Klaipėda?

Lithuania launched its LNG terminal to much fanfare and jubilation a year ago, although observers have reiterated many times that, with the capacity of 4bn cubic metres per year, it is much too big for the country, as gas consumption in all the three Baltic states is right now only 5bn. Moreover, Russia has recently cut its price, which is why Lithuania’s neighbours buy cheaper gas from Gazprom.

Is there a contingency plan that Lithuania could use, if Latvians and Estonians refused to buy gas from Klaipėda? For the facility to work, it has to operate at an adequate capacity – where would the extra gas go?

“Even today, there are all necessary technical possibilities to supply gas to Latvia and Estonia; within four years, once a pipeline to Poland is complete, we’ll be able to ship gas to Poland and Ukraine.

“Moreover, demand for gas from the terminal will grow due to new services: ship bunkering and an onshore LNG distribution station. Through it, liquefied natural gas can be shipped to consumers in Lithuania and neighbouring countries. LNG can also be used in public and heavy transport, shipped to regions that cannot connect to pipelines,” Masiulis explains.

However, not everyone shares his enthusiasm. Labour Party MP Kęstutis Daukšys, former chair of the parliamentary Energy Commission, said: “Right now we have a clear oversupply of gas in Lithuania. In several years, gas consumption will be about 300m cubic metres per year, excluding Achema [Lithuanian fertilizer producer and single biggest gas consumer, accounting for over a third of total consumption in the country]. This means that consumers will have to shoulder even bigger taxes to support the terminal’s maintenance and surplus gas.”

MEP Zigmantas Balčytis counters that Estonia’s plans to build a regional LNG terminal are still far from realization and, moreover, gas supply from the United States will be a game changer.

“Let’s hope that the load on the Klaipėda terminal will grow, Latvians and Estonians might still use it. Moreover, once the US starts shipping gas via the Klaipėda terminal by the end of next year, the situation in the gas market can change dramatically. It is not for nothing that Russians are rushing to complete a second pipeline underneath the Baltic Sea, so they can transport gas to Germany and other European countries,” Balčytis said.

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