Negotiations for LNG mooring quay between Alexela and Elering fail

Representation of the location of the proposed LNG floating terminal in relation to the Port of Paldiski. Balticconnector is an existing gas pipeline which runs between Estonia and Finland.
Representation of the location of the proposed LNG floating terminal in relation to the Port of Paldiski. Balticconnector is an existing gas pipeline which runs between Estonia and Finland. Source: ERR

Both Estonia's gas and power transmission system operator Elering and private companies Alexela and Infortar announced that negotiations for a suitable LNG floating terminal mooring solution failed to reach the desired result as the sides found each other's proposals unacceptable.

Grid operator Elering said on Friday morning that it has discussed ways of constructing a mooring quay for hosting a floating LNG terminal with Alexela but that the talks have not culminated in an acceptable proposal in line with European and Estonian law and one that would not burden consumers.

Alexela and partner Infortar later announced that Elering's offer is not acceptable from their point of view and that they consider the negotiations failed. To ensure supply security, Alexela and Infortar will continue talks with the Ministry of Economic Affairs and Communications.

Alexela also said that it will continue working with Eesti Gaas owner Infortar on the Paldiski LNG terminal project and expects Elering to construct the necessary pipeline connection by fall and for the Competition Authority to ensure a market free of state aid distortion based on what EU directives and Estonian law have been promising for years.

"The past two months of talks have shown that Elering lacked the will to construct the terminal in Estonia both by this fall and in general. The talks have revolved around whether we would be looking at a loss of €15 million or €30 million after an investment of €40 million. At the same time, Elering's nearly €100 million plan basically prescribes procuring an FSRU for the Finns using Estonian taxpayer money. Whereas the fact that leasing the vessel for a period of ten years costs double what it costs to construct it in the first place and the owner is looking at a massive profit doesn't seem to bother anyone," CEO of Alexela Group Marti Hääl said.

Elering: Alexela's solution contrary to free market rules

Elering has described Alexela's proposed solutions as unacceptable on the grounds of price and contrary to with free market rules.

When Elering launched talks, project owners proposed a possible price of €20 million, while negotiations have now come to a proposal that would see Elering pay the entire €40 million it costs to construct the quay as its rental fee, with Alexela still retaining ownership, the operator said in a press release.

The €40 million would be due in just two years provided Elering does not give Alexela preferential rights to the terminal that would allow the company to handle 1 TWh of gas a year before anyone else. "At the same time, all other Baltic-Finnish common gas market participants would have to compete for the remainder of the terminal's output. It is impossible to give a single market participant such an advantage without permits from the Estonian competition watchdog and the European Commission," Elering noted.

Infortar Executive Manager Martti Talgre said that they have asked for nothing contrary to EU law and cannot accept a situation where they would be saddled with the loss, while the gas business would effectively go to a Finnish company.

Alexela and Infortar said that the grid operator running the terminal would be contrary to Estonian and EU law, whereas Estonia lacks a permit for relevant state aid. "In terms of connections, it would be Finland's terrestrial gas network acting as the bottleneck and not the Balticconnector pipeline," he said.

The companies also said that they have not attempted to negotiate through the media. "Unlike Elering, Alexela and Infortar have not issued any press releases on negotiations or disclosed sums unilaterally until now."

Plans aim for Estonia to be able to receive LNG in Estonia to ensure supply security should Russian pipeline gas deliveries to Estonia end. For that purpose, Estonia needs a mooring quay and a pipeline link between it and the terrestrial gas transmission network. Estonia and Finland plan to rent an FSRU between them to serve as the terminal.


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Editor: Marcus Turovski

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