Latvia would like to have common LNG terminal project in Baltic region

What is Latvia’s strategy for its gas market? How do you see the future of gas market in Latvia?

According to the latest government resolution, Latvia has a target to liberalise gas market by April 2017. This includes amending current laws and adopting new secondary legislation to ensure functioning and competitive gas market.

The aforementioned government decision also means the implementation of the Third Energy Package. Besides opening the market for competition, government decided to put an obligation on the existing vertically integrated monopoly “Latvijas gāze” to separate transmission and storage operator from supply and retail activities.

Government decision will provide full unbundling of ownership, which means Latvia’s solution would be symmetric to the one in Lithuania and Estonia. I believe that legal unbundling can be carried out until April 2017 and full unbundling of ownership would follow.

How do you see Lithuania’s gas market strategy? What is your opinion on it?

In many ways Lithuania is an ice-breaker in the Baltic gas market – Lithuania didn`t use the option for derogation from the Third Energy Package and was the first Baltic country which fully implemented it. Lithuania was the first one to create a possibility to have alternative natural gas sources by building Klaipėda LNG terminal as well as the first one to create a gas exchange. There are a lot of things what we in Latvia can now learn from Lithuanian experience.

At the same time, these proactive steps have had a high price through higher (discriminative) gas prices from Russia. The cost for alternative LNG source is high, too. From the consumer point of view, it would be better for the Baltic states to agree on a common LNG terminal project and to have EU funds to develop it.

What is your opinion on the LNG terminal? Did it change competitiveness in the gas market of the Baltic region?

It is obvious that LNG terminal is a game changer in Baltic gas market. We can see the impact in gas prices in Lithuania, which have now reduced thanks to alternative gas sources. Another big shift is related to the fact that the LNG price is linked to NBP (UK National Balancing Point) instead of oil. So it is not only diversification of the source, but also diversification of gas price mechanisms.

Lithuania has already signed contracts with three Estonian companies to supply LNG. Do you think Latvia is also willing to buy LNG from Lithuania in the near future? If not, why?

There is a clear interest from our big gas consumers in Latvia to have the possibility of LNG supplies. We are now working on Third Party Access rules for transmission system and storage. Latvenergo submitted proposals to those draft rules, which indicate their interest to buy gas from alternative source. However, willingness to buy LNG will depend on the price as Latvian consumers will go for LNG only in case LNG offers lower price than current suppliers do.

How do you see the future of Incukalns gas storage facility? Is it becoming more relevant or less important for the region in the current political situation? How will it affect its’ operations?

Incukalns gas storage has historically been very important from security of gas supply point of view. This role of storage is even more important in the current geopolitical situation. In the new situation LNG terminal and Incukalns gas storage can complement each other very effectively not only as security of supply facilities, but also as market instruments. Access to storage can enable market participants to use price swings and to buy and store gas in the storage when it is cheaper and use it when the price goes higher. In this way, the storage can help hedge against price risks and these are the good news for markets and consumers.

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The 4th Energy Forum, which will be held next Wednesday in Vilnius, will focus on ensuring energy security in the changing geopolitical context.

Speakers from Latvia, Estonia, Poland, Lithuania, UK and Ukraine will speak about the latest energy and gas market trends in the Baltic region.