Alexela chief: Operating on gas market the private sector's job

Tanker and ships at sea off the coast of Tallinn.
Tanker and ships at sea off the coast of Tallinn. Source: Siim Lõvi/ERR

At the center of energy company Alexela and investment firm Infortar's current negotiations with the Estonian state are state guarantees regarding plans to abandon Russian gas and how to ensure the cost-effectiveness of the planned LNG terminal once Finland's LNG reception capacity is completed. According to Alexela board chairman Marti Hääl, operating on the market is the private sector's job, and that is how it should stay.

According to Hääl, it isn't appropriate to comment on how negotiations are going while they remain underway, but private companies are hoping to reach an agreement with the state.

"We're conducting negotiations in a field that's new for [electricity and gas system operator] Elering, but in which Alexela has extensive experience in operating port terminals," he explained. "We hope that we can manage to explain our empirical experience and get there."

Hääl noted that the small size of the Estonian market won't play a significant role in the leasing of a ship to be used as a floating LNG terminal, as they will be operating on a common gas market.

"Eesti Gaas and Alexela's gas portfolio is currently several times larger than Estonia's annual gas consumption," he said. "We definitely plan to move forward with the LNG terminal project. It is the state's job to ensure a market, and the private sector's job to operate on the market. Let's hope that this principle continues to apply going forward as well."

Until now, state capitalism has unfortunately dominated the LNG terminal market, the Alexela chief said, citing the Klaipeda terminal in Lithuania, where 90 percent of costs have been socialized. "At the same time, there is talk of the development and liberalization of a free gas market," he continued. "I hope that this development is still positive going forward."

Finland's gas consumption is significantly higher than Estonia's, however one new terminal will not suffice here. "One vessel certainly won't cover Finland's security of gas supply, regardless of which end of the Balticconnector it's on," he said. "Finland's security of supply will be backed by a combination of several alternatives. One of these is [Alexela's] Hamina terminal, which we will be launching by this fall."

Finland yet to decide on giving up Russian gas

According to Hääl, Alexela is awaiting guarantees from the state that Estonia's political positions will not change. "If the state has decided to stop using Russian gas, then we want assurances regarding that risk — that a new political decision won't be made that Russian gas is good," he said.

Latvia, Lithuania and Poland have all likewise decided to give up Russian gas.

"The only one who hasn't yet made this decision is Finland — but there's a cure for that as well, if anyone is interested," he continued. "If the state or Elering leases a ship, then that doesn't mean that a guarantee wasn't given; rather, that it was paid for in cash. We're offering an option in which the state wouldn't have to put up that cash right now, and instead only if the risk materializes that they don't abandon Russian gas."

If the countries lease this ship themselves, then that's fine for Alexela, but this means that they are paying for it in cash from the state budget, Hääl emphasized.

Another yet unresolved matter is how the construction of Alexela's Paldiski terminal could be cost-effective upon the completion of the Inkoo LNG terminal in Finland.

"That's what we're currently discussing — how this could be doable," the board chairman said. "What's clear is that it isn't reasonable for anyone to build an LNG ship's reception capacity for just two years."

He said that they can't spend long on talks, and that there's no time for them to extend beyond the end of the month. "Time is actually incredibly precious right now, if the goal is really to be finished by the next heating season," he added.

Estonia's share of split lease nearly €10 million

Speaking on Vikerraadio's "Uudis+" program on Wednesday, Timo Tatar, deputy secretary general for energy and mineral resources at the Ministry of Economic Affairs and Communications, said that Estonia and Finland want to establish gas reception capacity in order to ensure security of supply for several years, and that the private sector could at some point build a land-based terminal as well.

Of the €30 million earmarked in the recently agreed upon supplementary budget, the biggest expense will be the leasing of a floating storage regasification unit (FSRU), which would cost Estonia nearly €10 million a year. "The lion's share of the lease would be covered by Finland, as Finland's gas consumption is nearly five times higher than Estonia's," Tatar said.

"Another part of the cost is related to the reception of the floating terminal," he continued. "Elering's role is the construction of the gas connection up to the pier — Alexela's the construction of a pier. We know here that the construction of a land-based capacity will cost €20-30 million."

According to the deputy secretary general, procurements are under way, and it is not currently possible to be much more precise regarding costs. The cost of building of the pipeline may reach around €10 million, and the construction of other infrastructure another €20 million.

"Right now there is nothing yet built on Pakri Cape," he said. "The possibility that a floating terminal will be leased there will provide Alexela with the opportunity to build this project. Should Alexela remain the owner of the pier, for example, and lease it long term to Elering, then it will earn property income on the pier. When the contract is up on the states' jointly leased ship, a land-based terminal can continue to be developed on the pier. The building of this floating terminal capacity is certainly in Alexela's interests as well, and will create opportunities for further development of this terminal."

The Estonian state wants to ensure the capacity for LNG reception for a shorter period, and is pinning its hopes regarding the development of more permanent solutions on private companies.

"In a situation where it isn't quite clear yet how many countries are giving up Russian gas and for how long, private companies don't have sufficient assurance to take on such a business risk," Tatar explained. "This terminal can only be leased if sufficient gas passes through it. Thus it currently makes sense for state-owned businesses to handle the floating terminal side."

The ministry official added that upon the completion of Finland's reception capacity, it would be reasonable to keep the leased vessel on the Finnish side of the gulf due to the Balticconnector pipeline's limited capacity.


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Editor: Aili Vahtla

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