Elering head stops short of promising LNG terminal in Paldiski by fall

Taavi Veskimägi.
Taavi Veskimägi. Source: ERR

Taavi Veskimägi, head of the Estonian power and gas transmission system operator Elering, told ETV morning show "Terevisioon" that Estonian consumers will have gas supply security next winter but stopped short of promising that it would be ensured through the planned LNG terminal in Paldiski.

Liisu Lass: Estonia's annual natural gas consumption should be around 5 terawatt-hours (TWh). Do we know what it would be for Estonia and the Baltic region should prices spike? Would it remain the same or start to fall?

Taavi Veskimägi: Forecasts suggest that gas consumption in the region, by which I mean Estonia, Latvia and Lithuania, will be somewhat lower than it has been in the past at around 58 TWh in all. This once again demonstrates just how small Estonia's share in the Baltic-Finnish gas market really is. This is the reason why all four countries need to act together, based on the same principles whether we're talking about stockpiles, additional supply chains or pipeline gas and stopping Russian exports.

What are Estonia's chances of getting gas from storage facilities in Latvia and Lithuania, considering our modest consumption? How much is available?

Covering Estonia's demand from the Klaipeda terminal or the Incukalns underground gas storage in Latvia would not be a problem. Klaipeda handles around 30 TWh of gas annually, which can be boosted by another 7 TWh with investment. The Incukalns facility holds 21 TWh. A gas link between Lithuania and Poland will become operational this week. Rather, it already has.

Existing infrastructure is more than enough talking about Estonia's needs. Our problem and preparations made over the past years concern the end of Russian exports. Until recently, our calculations were based on Russian gas no longer coming to the Baltics. The infrastructure we have – Klaipeda, Incukalns, Balticconnector (gas pipeline between Estonia and Finland – ed.) and Baltic pipeline developments – is enough for us.

What has changed is that neither Finland nor Estonian security services deemed it possible that Russian exports to Finland could end. Adding Finland's consumption to that of the Baltic countries creates a problem once pipeline gas is cut off.

That is what we are doing, trying to bring additional supply to the northern part of the Baltic Sea, the Gulf of Finland area.

The plan existed in 2014 and we could have gotten the LNG terminal done then.

A very good question…

But if the current plan prescribes Alexela building an LNG terminal in Paldiski – to build a mooring quay and lease a tanker – what is Elering's role or plan?

I said it was an excellent question because there is something we need to clarify. We have been criticized for constructing the Balticconnector pipeline instead of building an LNG terminal. The two pipeline developments – Balticconnector and reinforcing the Estonian-Latvian link to Incukalns – are the reason we can talk about an LNG terminal today. No one would construct an LNG terminal just to cater to Estonia's 5TWh demand. A single LNG tanker takes on roughly 1 TWh of liquified gas. This would mean covering annual demand between five tankers.

It is clear that a terminal would not make economic sense at such a low volume. In other words, the Balticconnector pipeline and the Estonia-Latvia link make it possible for a terminal to be built in Estonia in the first place. It would have been sensible to build it anywhere else otherwise.

Allow me to give a simple example. Gas had no way of moving north to south before the Balticconnector pipeline. There was no way of taking gas from Paldiski to Incukalns. Because the Soviet design meant the compressor was in Latvia and pushing gas northward. Today, the system allows gas to be transported from LNG tankers to storage in Latvia because gas consumption in Estonia is seasonal. It is brought in, stored underground and used when needed.

Now, when it comes to…

Let us stick to the project at hand! What should be done, in Elering's view, for Estonia to have gas come fall?

It is important to keep track of the problem we are solving. We are solving the problem of gas supply security for consumers. We are not solving problems tied to economic development that, while also important, are not the focus here.

The project can be split into three parts to understand what we're talking about. First, a floating gas terminal or a ship called an FSRU – floating storage regasification unit. Next comes the mooring quay…

That doesn't exist yet…

Yes, where the ship can dock and that has a pipeline to move the regasified product into the Estonian system, the regional system. Finally, there is the gas market aspect or making sure we have LNG in the first place.

Talking about those three pillars, I believe the first – the ship – is clear by today. The Estonian government has decided to pursue the project together with Finland. The two countries' economic affairs ministries have signed an agreement, while another will be signed by system operators Elering and Gasgrid that will be renting the ship between them. /…/

The question is where to put the ship without the quay?

Yes, that is the second pillar – the mooring quay. The Lahepera project (in Paldiski – ed.) is not the only option. It is merely the fastest today.

What would be the alternative? If Alexela says their Lahepera project only needs a green light for construction work to begin, what is the alternative and how long would it take? Would it mean we do not have a quay by autumn?

Yes, the Lahepera project is the fastest and the only once that can be done by fall. Other projects, like the Inkoo project (in Finland - ed.) would definitely be completed in 2023.

That is why we are in talks with Alexela and Infortar for a sensible agreement concerning risks and profitability – how to strike that balance.

And I remain optimistic in that we will find that sensible solution, meaning that…

One part of this solution is Alexela asking for a government guarantee for compensation should Russian gas remain a lot cheaper than LNG.

That concerned the tanker debate. When it comes to the mooring quay, we have three versions on the table. Number one is that Elering has said it is willing to buy the project, meaning the private partner will cover their expenses and get a sensible profit, which is naturally their goal.

The second option would see us buy the infrastructure today, with the developer obligated to buy it back. They've said they want to do business there in the future, whereas Elering wants no part in that – our goal is ensuring gas supply security.

And the simplest option is to simply rent the quay built by Alexela and Infortar based on private initiative for the two years it will take to finish the terminal in Inkoo.

We have heard a lot about the importance of the project involving private capital, but after two months of negotiations in different forms, if there is a "but" you need to listen to what comes before the "but" and especially what comes after. All of what we've heard has been about private capital taking care of it BUT the state needing to provide a guarantee. In that sense…

Elering CEO Taavi Veskimägi. Source: Siim Lõvi/ERR

Taavi Veskimägi – do we have calculations for the state's participation in a situation where Alexela has proposed the project and it has been presented to the public? As the agency tasked with ensuring supply security, which would be cheaper? Have you crunched the numbers?

Yes, we are considering it… Rather, it is important for the price to be transparent.

Alexela have said they want to get back their investment – and, of course, we have nothing against that. They must also be given sensible profitability.

But it is crucial to consider, which I can say with nearly 30 years of experience both as an official, politician and head of a company, whether the things we do today will seem sensible five years down the line.

That is why we cannot just pay the private partner what they ask. We need to understand the where and why of their costs, which is what we are talking about today. For the public to understand the expenses' structure and how we got there. Elering has no money of its own so to speak, so the money we will spend on the project will translate into consumers' transmission fees. That is why it is extremely important to be diligent and really understand…

There is no such calculation I take it?

No, the calculations…

I would refrain from commenting on the talks in more detail. I believe it is not right at all to try and negotiate through "Aktuaalne kaamera." That is why Elering has tried to keep a low profile in the media. Let us leave those things behind the negotiating table.

But I am optimistic that we can strike a sensible balance where the private entrepreneur gets their profit and we get to receive LNG come autumn.

Taavi Veskimägi, will Estonia be importing LNG this fall or will we still depend on Russian gas?

Estonia already uses LNG through the Klaipeda terminal. It largely already is the gas we use. Russian pipeline gas deliveries are modest.

Yes, we are making efforts, doing everything we can to make sure the capacity exists by fall. But it is not our only plan.

We will be storing an additional 1 TWh – talking about total consumption of 5 TWh – in Incukalns. In terms of what interests consumers the most, whether they will have gas next winter – home consumers, schools and hospitals will definitely have gas next winter.

No one will have to worry about Estonia running out. Whether it will be based on stockpiles or LNG – it will be there.


Follow ERR News on Facebook and Twitter and never miss an update!

Editor: Marcus Turovski

Hea lugeja, näeme et kasutate vanemat brauseri versiooni või vähelevinud brauserit.

Parema ja terviklikuma kasutajakogemuse tagamiseks soovitame alla laadida uusim versioon mõnest meie toetatud brauserist: