Estonian state, private sector still maneuvering on LNG terminal details

Taavi Veskimägi (second from left) at a meeting on Tuesday, with representatives of the Ministry of Economic Affairs and Communications, and of Alexela and Infortar.
Taavi Veskimägi (second from left) at a meeting on Tuesday, with representatives of the Ministry of Economic Affairs and Communications, and of Alexela and Infortar. Source: Andres Kalvik

The state and the private sector are still hammering out the details on the construction of a Liquefied Natural Gas (LNG) terminal at the port of Paldiski, with state grid distributor Elering saying it needs exact details on a vessel to be procured for the purpose, before it can put in place the short connection pipe between ship and shore.

Meanwhile the board member of one of the private sector firms involved says Elering are aware of the dimensions of the proposed procurement, while at the same time, it needs written confirmation from the state on when the ship-to-shore connection will be finalized, before it can complete its work.

To concentrate minds, the original deadline for the terminal to be on-line is year-end at the latest; most dates touted have been in autumn, and the project is primarily aimed at decoupling from dependence on Russian natural gas, following that country's invasion of Ukraine.

Once Elering receives answers from the two private sector firms involved, Alexela, a fuel retailer, and Infortar, a holding company which owns natural gas provider Eesti Gaas, Elering can order the final components necessary for completing the pipe connection, the company said.

Taavi Veskimägi, Elering's CEO, told ERR Wednesday that the company already has the requisite offshore pipelines, onshore pipes and taps needed to connect the floating terminal to the gas network, plus the design stage is underway, but so far, Elering has not been able to order the part needed to connect to the floating terminal – essentially a ship fitted out specifically to the task.

Veskimägi said: "The last part of the connection which will be attached to the ship is vessel-specific. They (i.e. Alexela and Infortar – ed.) have to say which ship they intend to procure, so that they can provide the specific information to enable us to order the final components that would connect the ship to the gas system."

There is no point in playing with dates at the moment, Veskimägi added; more important is the security of Estonian gas supply and how long gas stored by both the private sector and the state will last.

"We issued an early warning on the gas system. Currently, we are collecting data from Estonian gas retailers on how much natural gas they have stored where they have contracts in place for the autumn."

The agreement struck with Alexela and Infortar rquires Elering construct a pipeline between the LNG floating terminal and the Balticconnector gas pipeline, which runs between Estonia and FInland. Once this is done, the private sector firms can reimburse Elering for the costs.

Elering also expects confirmation from the companies that the costs of the pipeline connection will be covered, as initially agreed.

Veskimägi said: "They have told the Ministry of Economic Affairs in writing that they are ready to cover the costs of the pipeline connection. We have no reason to assume that they have withdrawn from that, as of today."

The private sector firms had until Thursday to respond, by Elering's deadline, while the latter will continue with its work on the pipe connection, bearing in mind the time-sensitive nature of the work, the Elering CEO said.

The deadline of September 1, for having the LNG quay ready at Paldiski, remains in place, Veskimägi went on, while Elering's own work is due still to be completed by the end of November.

The state has also committed to purchase 1 TWh of natural gas as a reserve, allocating €170 million towards this via the recently-issued supplementary budget. Estonia's own annual natural gas consumption is around 5 TWh.

Alexela chief: Elering already knows the dimensions of vessel to be procured

Meanwhile, Marti Hääl, board member at Alexela, said that Elering is well aware of the parameters of the vessel – the company is in an advanced stage of negotiations on two shortlisted tenders, with both ships having similar parameters, he said – and so there are no obstacles to Elering getting on with the connecting pipeline in any case.

Hääl also said his company was in turn awaiting written confirmation from the state on the deadline for the completion of the pipeline connection

Once that was done, proceeding with concluding a vessel lease agreement would be viable, he said.

Hääl told ERR later on Wednesday that both his company and Infortar are ready to commence the LNG floating terminal operations on November 1, when the state should provide the pipeline connection.

Hääl nonetheless welcomed Veskimägi's date of November 30 for completion of the Elering work.

He said: "This is a very positive sign. If we receive a written confirmation of this, we will be able to proceed with the conclusion of the ship lease agreement."

"The quay where the gas equipment will be installed will be ready by September 1. We are on schedule, or even a little ahead," he said – this would enabling to commence work on the section between the ship and the shore.

Moreover the overall deadline of the LNG terminal and supply to be fully online of year-end will be met and may be beaten.

"We suggested that there might be a kind of buffer to cover unforeseen circumstances. But we have passed this phase with our construction and I believe we no longer need such a buffer," he added.

Nonetheless the vessel procurement agreement could not be signed until the state had confirmed in writing the date of completion of the pipeline connection, setting up somewhat of a Catch-22 since the state-owned Elering was awaiting details on the vessel from Alexela and Infortar.

The pipeline connection between the LNG terminal and the quay, as the smallest piece of the jigsaw, ought to be finalized ahead of the ship, a more expensive undertaking, and not vice-versa, he added.

Hääl also mentioned the Finnish aspect of the negotiations – the LNG terminal would also be capable of supplying Finland via the Balticconnector undersea pipeline – adding that potentially a floating terminal which Finland itself has procured LINK might also be a viable solution.

Hääl added that he hoped that cooperation would bring the project home, given the security situation, adding that the process is a first for Estonia and standards for such procurements have not to date been developed here.

The LNG terminal would replace dependency on Russian natural gas; other options include a similar floating terminal already in operation off Klaipeda, Lithuania, whose supply can reach Estonia. Connections also extend in the opposite direction, to the Polish border.

LNG needs to be re-gassified once it reaches the shore, before being piped as natural gas in the normal way.

Two other major players in the saga are the Ministry of Economic Affairs and Communications, and Paldiski's local government.


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Editor: Andrew Whyte

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