Experts: There will be more LNG terminals in the Baltic Sea if it pays

LNG terminal in Sabine Pass, USA [Think Defence/Flickr]

Baltic states have to consider the business potential of new liquefied natural gas terminals before further investments take place, experts from Latvian ministries told EURACTIV Czech Republic’s Adéla Denková. New technologies will also change the game in energy security, a central goal of the EU’s Energy Union plan, they said.

Rota Š?uka is director of the energy market and infrastructure department at the Latvian Ministry of Economics. Juris Ozoli?š is an advisor at the Latvian Ministry of Foreign Affairs. Both of them were speakers at a seminar devoted to Energy Union held at the Embassy of Republic of Poland in Prague, organised in cooperation with the Embassy of Republic of Latvia.

Does Latvia support enhancing the transparency of agreements related to the buying of gas from external suppliers? It seems there has been a controversy among the member states about that idea.

Rota Š?uka: The process will not be easy. The European Union went through a similar discussion about intergovernmental agreements couple of years ago. It is even more difficult question at the commercial side as it touches directly upon companies. It will be necessary to keep the commercial information in a confidential manner and to assure the companies it will stay like this. But we may indeed support the idea that the contracts should be kept in line with the European law, especially vis-à-vis third countries. It may bring added value to each European country.

What kind of data should be collected within this process? And who should have access to the information?

Juris Ozoli?š: The current discussion is concerned mostly with “commercially sensitive information” which is a very broad term and not easy to explain. One might ask how long information should be considered “sensitive”. If we were talking about pricing terms, one could say that a few weeks after an agreement is concluded there is no further need for confidentiality. When you trade at an exchange, the information is sensitive for just a couple of hours before closing the gates. It is the same story with the long term contracts. If commercial information on price and pricing principles is kept secret for a long time, it means tricking the customer. For this reason, we should always start with a standard agreement which might put pressure on the traders.

But we also have to understand that the debate took place in the Council. There are governments, like the French one, which are not involved in such kind of discussions, because the business is done by companies in such countries.

What is actually the situation in Latvia?

RŠ: In Latvia we do not have intergovernmental agreements as it is a commercial company that concludes the contracts. As Juris said, we should look for some kind of “model agreement” or some specific articles which should be included in the contracts and would help to avoid unfair attitudes in the longer term. Getting back to the question who should be able to gain access to the sensitive information – it would be the European Commission service who should really keep them confidential.

JO: The prices are already recorded today, you can get them from companies’ accounts. Unfortunately, you can only get them a year later. The question is how to accelerate this process, how to get the – maybe sensitive, maybe not sensitive at all – information and put pressure on Gazprom in Poland, in Latvia or in Greece. Transparency is the key, as it is a bargaining power of the buyer.

This is all connected also with the possibility of common gas purchase, which is an option that has disappeared from the project of Energy Union. However, there should be a possibility of voluntary demand aggregation. Is this potentially interesting for Latvian companies?

RŠ: We have one monopoly company in Latvia – JSC Latvijas G?ze and it has concluded a long term agreement with Gazprom and Itera Latvia regarding gas supplies until 2030. The question of demand aggregation, for example for all the Baltic states, should be discussed with the companies. We should bear in mind that the aggregation would have be based on a voluntary basis and the process should not break the EU competition rules. The EU has several dominant suppliers – Russia and Norway are among the largest. I assume that for example Norway would like to see more competition in the gas market.

JO: We need to say this is just an emerging market at the moment. To attract more suppliers, countries must also have infrastructure in place. This is what the Energy Union is about. Without infrastructure, nothing will happen. Before this “common purchasing” can fly, many things would have to be done.

What are the current plans for gas interconnections in the Baltic region?

RŠ: There is a list of projects of common interest (PCI) and the Baltic states do also have some projects aiming at improving gas market interconnections. We are looking forward to an interconnection between Poland and Lithuania which is on the list and which would provide for alternative gas supply source. There is also an option for Finnish-Estonian interconnection which is progressing gradually.

We are also awaiting an agreement on regional LNG gas terminal in Estonia or Finland which would bring benefits to the whole region. Additionally, there are potential plans for extending underground storage capacities in Latvia which should also serve the whole Baltics. We may also mention interconnections between Latvia and Lithuania on the one side and Latvia and Estonia on the other side. These are relatively small scale projects but still important if we want to see the gas flow through the region.

Are there also plans in Latvia to build your own LNG terminal? Or is there a feeling that the capacity of other terminals will be sufficient?

RŠ: There is a company in Latvia which does have a business plans to build floating LNG regasification terminal. But we have to evaluate the real business potential very carefully and the plans to build new interconnections. But indeed, there is an intention to build an LNG terminal and we will see how realistic the plan is. It also depends on the market prices.

JO: The LNG terminal in Lithuania is a typical public–private partnership project and probably a good sample of private money working together with the public one. Klaipeda does indeed have a big capacity and therefore we should leave it up to the business to decide about other investments. The government should be careful about taking risks. Playing with public money is easy, but so are mistakes.

On the other hand, we may also take into account the so-called sulphur directive which applies to marine fuels in the EU. LNG may also be seen as an alternative here and it is an important question in the Baltic Sea region. This is another opportunity which makes it easier for the business to decide. LNG is also perceived as an alternative fuel for roads and rail transport. This is exactly what changes the whole picture – new technologies and business concepts.

In Latvia, there is a huge underground gas storage facility – In?ukalns. Reportedly, there were plans to utilize the storage for natural gas imported through the LNG terminals in the Baltic Sea, but there was a problem because of Gazprom’s share in the facility. Is that true?

JO: The In?ukalns storage is owned by the natural gas company Latvijas G?ze, where Gazprom does have a 34% share. But the ownership structure does not reflect any specific rights of Gazprom. Latvia has the Third Party Access. There is a kind of chicken-and-egg problem as the gas company still does have an obligation to supply its customers. That creates some sensitivity. But the company has already concluded nine contracts on storage and transit from Lithuania to Estonia.

RŠ: Also, there are already contracts between the Klaipeda LNG terminal and In?ukalns about storing gas. We have the Third Party Access since 2014, but the Latvian regulator and storage system operator is still working on more detailed rules for standard contracts.

There are still countries in the European Union that seem willing to rely on Russia in energy sector also in the future. What do you think about that?

JO: We hear about Greece and what they have been saying. We also hear about Hungary. When you look at the map, in Hungary you will see plenty of interrupted interconnection lines and plans that have not been materialised – like the South Stream. Definitely, if I was the prime minister of Hungary and saw these maps, I would cooperate with Russia as I would see the opportunity to secure gas supplies and get transit fees etc. You have to understand specific geographic conditions and industrial policy of a particular country. It is nothing to blame them for. Latvia is lucky as we have an alternative next door. Landlocked countries are in a different situation.

RŠ: We should also take a broader view as it is not just about energy. It is also a question of how we would like to keep the links already developed with Russia. Once we have established the relations, we cannot blame businesses for developing them further. For example, our power market is historically linked with Russia and Belarus. It is not a very big problem for companies to cooperate, but from the geopolitical point of view we understand quite well that we need to connect with the European market. This process is going on and we are aiming at 2025 as a finishing tape.

JO: Energy Union is a strategic project. It does not mean that we are cutting our trade relations with Russia. But we are creating security. That is the key, although it is very difficult for a customer to understand what security is. Because we have to pay for it.

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