Alexela board member: Company has not asked state for LNG terminal funding

Marti Hääl appearing on 'Esimene stuudio', May 11 2022.
Marti Hääl appearing on 'Esimene stuudio', May 11 2022. Source: ERR

Fuel retailer Alexela has not appealed to the state for taxpayer funded-support in constructing a proposed Liquefied Natural Gas (LNG) terminal in Paldiski, company board member Marti Hääl says.

Appearing on ETV politics discussion show "Esimene stuudio" on Wednesday evening, Hääl told interviewer Johannes Tralla that the company has reached agreement with state gas grid distributor Elering and the Ministry of Economic Affairs and Communications on the matter. The interview follows in its entirety.

At first, all parties seemed bright and optimistic and in agreement; everyone had their clear goals, but then some dramatic discussions took place. It all ended in somewhat of a fiasco last week, when both you and Elering accused each other, via the media, that this is no way to do business and that there will be no way out of dependency on Russian gas. Are you yourself surprised that today, an agreement seems to have been reached?

Yes, absolutely, the signals are very positive and I was able to look at thing before I came here to this interview, and they give a lot of cause for hope that we are moving very fast in the direction that all gas consumers and the entire gas market are waiting for.

The government is itself in a hurry, there is huge political support to stop consuming Russian gas. You are the only option in the region with the ability to quickly launch an LNG reception berth. Why didn't that all work and what has changed in the meantime?

I think it is important to understand first of all that major changes are taking place in the wider energy economy. Many new producers will emerge; the existing so-called national or planned production capacities will be replaced by very dispersed production capacities. 

A totally similar change is taking place in the gas market. The current situation, where all the gas comes from just the one pipeline to the east, is changing and alternative supply channels are emerging.

Every such change is complex, and many questions arise in the process. The question is, among other things, what can be entrusted to the private sector to carry out and what the state should do. I think that was also at the heart of this two-month-long debate.

Listening to what the representatives of the state are saying, it seems that Alexela was simply presenting some impossible conditions until the end of last week, leaving all the risks to the state but taking all the profits?

First of all, I have to dispel the myth that we have asked the state for financial help or made some kind of request on the taxpayer's wallet. That is not the case.

Taavi Veskimägi told "Aktuaalne kaamera" that you wanted €40 million from the state to cover the costs of building the so-called terminal.

It is on everyone's own conscience why this is so. I can only attribute the €40 million figure to the fact that this is the likely construction cost of this berth [at Paldiski]. Exactly what this will be will be clear at the end of the construction, as there are always risks involved which can make it more expensive.

We have never, however, had a desire to be the constructor and build a quay, then sell it at construction cost price. Our and [private sector partner] Infortar's offer has been that we will solve the whole issues of security of supply as a whole, but resolving the problem of security of supply does not mean just building a quay, but that rather a gas molecule that provides a real alternative to Russian gas lies with an LNG ship, and is unloaded and re-gassified and delivered to the pipeline.

I still don't comprehend. It has been stated for weeks that Alexela wants to recoup the cost of the berth back from the state, and that the berth would remain in your hands. Has anyone thought about this €40 million and never really talked about it in the discussions? Or where do such numbers, and the logic that the taxpayer should pay for it, reach you from?

When the taxpayer's representative wants to purchase berths, they must pay for them.

What about renting from you?

Then you would have to pay the rent. However, I can confirm that these two months of negotiations have not constituted a commercial dispute or a dispute over amounts, but have instead been a fundamental dispute over who should operate the LNG terminal. Should this be conducted by a state-owned company or could it be entrusted to private companies, given the current EU law on natural gas stipulates that this is not the task of the network operator? We have tried to convince the state that Alexela and Infortar are reliable enough companies to do this, that we have a responsibility to our employees and the customers we need to ensure security of energy supply, and that we have around a quarter of a million of these customers in energy services.

Be that as it may, no one has prevented Alexela from commencing with this commercial project. You have all the approvals, the permits have been in hand for a long time. Why haven't you done that? Had you still wanted any guarantees from the state?

First of all, it would clarify this guarantee issue. Obviously, this is a word that can be easily misleading, i.e. that a guarantee means a blank promissory note with which you can ask for money. We were using the term guarantee in the context that if a country has opted not to use Russian gas, it will stand behind that decision next year, and the year after.

The flip side of the question is why this terminal had not been built earlier. The answer to that is very simple: Because the gas market has not yet supported this investment, because the terminals that have been built on this gas market so far have been built at the expense of very strong state aid, or to a very large extent, taxpayers' money. For example, 90 percent of the Klaipeda (in Lithuania – ed.) LNG terminal's costs are from the public sector. In a situation where a competing terminal is so heavily subsidized, it is impossible for private capital to compete with another country's wallet.

What has changed as of now? The government has not made any decision to ban the use of Russian gas in Estonia; we have Balticconnector, through which Russian gas can continue to flow to Estonia, we are connected to Poland, through which in theory we could start to get gas which originated in Russia and reached Estonia. You don't have any guarantees that what you have pledged to construct from your own resources, not wanting any additional from the state that it will actually enter the market. Maybe this is what changed in the meantime?

What has changed in the meantime is that the consumption of Russian gas has gotten such an assessment as it has in the values-based market [in the wake of the invasion of Ukraine], in other words our customers and consumers would like an alternative.

Can you build business plans on such values though? Do such values ​​fit in an Excel spreadsheet?

No, values ​​do not fit in an Excel spreadsheet, but as an entrepreneur, you need to make value-based decisions and, in addition, believe in certain changes or believe in and invest in the changing world around us. So it goes.

The other side is that both we and Eesti Gaas, part of the Infortar Group, have made significant promises to our customers, and these promises will continue to supply them with gas next winter. In order to fulfill the promises, it is essential to build an alternative LNG terminal for this market, otherwise it will only be possible to fulfill the pledge by buying Russian gas.

Doesn't it seem to you know that you almost earned €40 million last week and, realizing that the state will not meet your request, you are now preparing for this terminal in good faith that the government will prevent companies from buying Russian gas in the future?

No, it doesn't look that way. More correctly, this is not the case, because if we had built this berth and sold it to Elering at construction cost, we would have lost all the 13 years of work and development costs incurred by the Paldiski LNG terminal, I.e. all that permits the building of this terminal by this fall.

My sources say that out of the €40 million, €15 million constituted this preparatory work exactly.

Your sources are wrong, then.

Who rents this LNG floating terminal and who pays for that?

The terminal operator, i.e. Alexela and Infortar (which owns gas supplier Eesti Gaas – ed.) jointly. We have said from the beginning that this terminal is open to market participants who want to pipe in gas through it, and that in this sense it is not a matter of an exclusive club. But there is simply not much interest in investing in this supply channel to be found in the market today.

How much will my gas bill go up due to the cost of building this terminal and the charter of the LNG vessel. I have no doubt that Marti Hääl is a very generous person and wants to make the world a better place, but I imagine that he will not do that out of his own pocket. All in all, it will be paid for by the gas consumer.

The cost of such an LNG terminal, assuming 25 to 30 TWh of gas passes through it, which is its reasonable consumption load, would be between about €2 and €3 per TWh. By comparison, if the price of gas today is €100 TWh, it is not very significant on this scale.

However, in reality, the LNG terminal, in terms of so-called long-term strategy and long-term supply channel, provides an opportunity to buy medium and long-term contracts on the basis of Spot transactions, meaning the European gas exchange index.

Will my gas bill fall if Alexela sets up its LNG terminal?

Certainly not on day one, because these agreements can be made when the world's gas producers, liquefiers and shippers see that the terminal is functioning, that it has gained confidence so that ships will come here, as a full load costs around €100 million and this will thus be sent to a terminal where it is taken on trust that the vessel will be operated at the highest professional level.

Nevertheless, what guarantees do you have that those millions of euros will not go to the LNG quay in a situation where, for instance, Finland is still buying Russian gas which, through Balticconnector, reaches the Estonian market in sufficient quantities?

Of course, it is possible to come up with different risk scenarios and this is certainly not risk-free. But, as I said, we get a sense of this every day from our customers' inquiries, that if they could be supplied with non-Russian gas, customers would want to take this opportunity.

The state has, however given you no guarantee that we will actually stop buying Russian gas here in the whole region. Since what the Estonian government is saying is one thing, but as I have repeatedly given the example, if Finland repurchases cheap pipeline gas, it may be difficult to corner the market at your terminal.

Yes, there are many risks, but still, to my knowledge, the Estonian Government has decided on March 31 that the use of Russian gas will cease when an alternative supply arises, and we must believe that the promise made by the Government of the Republic of Estonia will remain valid.

This point also goes into the agreement that you are now, I imagine, no longer negotiating with Taavi Veskimägi, but instead with [economic affairs minister] Taavi Aas? Or are you talking directly to Kaja Kallas?

The Ministry of Economic Affairs and Communications is the body who, to my understanding, has been tasked by the government and is party to the negotiations. It is certainly not a habit of mine to discuss the exact content and terms of the negotiations on TV.

How did it go anyway? Finland wanted to ensure a level of security of supply, then the system operators tried to strike a deal whereby Elering would start renting the LNG vessel itself, and somehow then the governments were reminded that it is good to do so. I simply do not understand when you say that you have been ready to rent an LNG ship from the outset, you have been ready to build it from the beginning; so why did we see this type of state capitalism here in the agreement between the Finnish and Estonian governments?

As I said, this shift in the market is so great that these disputes were probably necessary in order to find out whether to go the private sector or the public capital route. There is certainly a side to the fact that Finns are even more concerned about their higher gas consumption.

But I think we still have to get out of this mentality that we are 'small Estonians' and we cannot offer solutions to our neighbors either. The joint or double-sided gas consumption portfolio of Infortar and Alexela comes to 15 Twh and, as has been the case here, the consumption of Eesti Gaas is 5 Twh. We have not been talking about the Estonian market, or Estonian consumption, for a long time. In other words, it can be put in a simplified way that seven out of every eight molecules coming to this terminal, the gas that will start flowing in Paldiski, will be exported, and the remaining one to Estonia.

Who are the main customers you are banking on in the business plan?

Those in Finland, Latvia, Lithuania and Poland in addition to Estonia, and especially large industrial consumers.

But why did we still need this Estonian-Finnish intergovernmental agreement, as it seems to me that there is no such conviction in Estonia nowadays that state capitalism is a great thing. Still, something must have gone very wrong that the state will, figuratively speaking, start looking for LNG ships in a world where private companies actually have this competence and willingness.

I agree, this is not a good plan if both the state and private companies are trying to do the same thing and compete with each other. However, I think I would look at it very positively if the discussion had been held for two months and this clarification has now taken place. What is especially positive is that all parties - Alexela, Infortar, Elering and certainly our partners - have had technical people, a hundred people have been working all these past two months to maintain the possibility that in the autumn it will be alternative gas supply available. In fact, a lot of positive things can be found in this process.

Attentive people who have been walking around Paldiski have noticed that the reconstruction of the future quay is actually underway. Am I wrong in saying that the plan from the outset was to build this terminal as ready in any case, regardless of whether you reached an agreement with the state or not?

Alexela has been planning to build an LNG terminal in Paldiski for a long time. That is why we have had to move forward with this process, precisely because the problem is in the autumn, no matter how these negotiations go. And in any case, this berth is needed in the autumn. But, as I said, the quay does not guarantee security of supply. Security of supply is ensured if there is a functioning LNG terminal where there is also a physical molecule.

It has been said here that the share of gas in Estonia is six percent (of total domestic energy consumption), according to Statistics Estonia, but it is actually over nine percent of final energy consumption and, more importantly, for industrial consumers the figure is close to 50 percent. The concern arising from this, the concern of all Estonian homes as well as Estonian companies, is that we will be able to ensure that this need is backed next winter, no matter who finally does that, via a warm home and in a functioning business where jobs are maintained and can be added. We need that berth to do that, which is why we pressed on with it.

Are you still planning to build a permanent onshore gas station instead of this 'floating' terminal, in the long run?

Yes, and we hope to do so as soon as possible. Delivery times for such technology in today's changing world are difficult and we would not venture to announce an exact timeline. However, we hope to get it done in two, or a maximum of three years. There's another reason, and a pragmatic one that's understandable from an entrepreneur's perspective, too, which is that renting a floating terminal today is the costliest way to solve this problem. Consequently, this most expensive method should be used for as short a time as possible.

Do Finns still have thoughts of building their own large LNG terminal after Paldiski has an overland terminal that can pipe gas to Finland for at least 20 TWh cheaper than Balticconnector?

I do not see the economic point, because the Paldiski LNG terminal, together with the Hamina LNG terminal [in Finland], can actually ensure Finland's peak load in gas consumption. But, as I said, this market is changing in such a way that sometimes things may not be the most economically viable.

Now it would just be necessary for both the Estonian and Finnish governments to make a very clear, firm decision that Russian gas will no longer be purchased and your business will flourish?

I would say that it is sensible for the governments of Estonia and Finland and other countries to make this decision because if the market decides for them and the governments follow the decision of this market, it may seem a little strange.

How much natural gas is currently in reserve?

I don't know if I can announce that information on a live broadcast; but enough to supply my customers right now.


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Editor: Andrew Whyte

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