'Porridge and cabbages' – the 14-year LNG terminal saga

LNG terminal at Paldiski under construction in summer. The terminal is now functional.
LNG terminal at Paldiski under construction in summer. The terminal is now functional. Source: Priit Mürk/ERR

The recent news that a Floating Storage Regasification Unit (FRSU) vessel carrying Liquefied Natural Gas (LNG) would be sailing to to Finland rather than to Estonia, albeit to supply both countries, is the latest chapter in a saga going back a decade-and-a-half, linking the politics of both countries, and that of Latvia and Lithuania, not to mention the European Union, with the use of natural gas as a weapon on the part of the Russian Federation.

The tale has been characterized as "porridge and cabbages" (Estonian: "Puder ja kapsad", perhaps best rendered in colloquial English as "a hot mess"), but nevertheless, the arriving FRSU will bring extra energy security, particularly for Finland which only now has one functioning natural gas pipeline linking it to the friendly world- the Balticonnector pipeline which runs between Finland and Estonia and which will be used for the flow of re-gassified LNG, in that direction.

The most recent phase of the invasion of Ukraine, starting February 24, has also concentrated minds.

FRSU LNG vessel to be moored off Finland, Estonia preferential recipient

Minister of Economy and Infrastructure Riina Sikkut (SDE) announced that an expected FSRU would sail to the still-under-construction quay at Inkoo, Finland, for this winter, on the understanding of an agreement which gives Estonian natural gas retailers preference.

At the same time, Sikkut called for a separate FRSU to be brought to Estonia, to moor at the recently-completed berth at Paldiski, a move which Isamaa also supports.

Sikkut's predecessor as minister, Taavi Aas (Center), signed a memorandum for cooperation with Finland on April 29 this year, whereby costs of the terminal would be shared in proportion to how much gas each country, ie. Finland and Estonia, uses. 

Paldiski LNG terminal always planned to be completed earlier than Finland's

At that time, the agreement was that the transmission system managers Elering (Estonia) and Gasgrid (Finland) be responsible for bringing in the FRSU, essentially a large vessel refitted for the purpose of storing LNG and piping it to dry land as needed, while this floating terminal would have initially operated in the country that first completes the infrastructure, ie. Estonia, after which it was to relocate to Inkoo, Finland.

Elering and Gasgrid Finland signed the contract for the joint rental of the FRSU on May 4. "According to the current plan, the LNG floating terminal will arrive in Estonia at the end of this year and will remain here until the capacity to receive it also exists in Finland," Elering announced at the time.

Disputes also arose at the beginning of May, however, on the Estonian side of the Gulf of Finland as Elering, fuel retailer Alexela and parent company of Eesti Gaas, Infortar, found each other's terms in completing the berth at Paldiski unacceptable. 

While at around the same time all parties confirmed that the Finnish berth at Inkoo would not be completed before the Paldiski quay, in the summer, Finland, spurred on by Russia's switching off of its natural gas supply to the country, accelerated the pace of construction at Inkoo port and planned to have it ready just a few weeks after the due completion date of the Paldiski terminal.

Interface between state and private sector

Elering offered Alexela the opportunity to buy the berth while later a private company could buy it back, but Alexela board member Marti Hääl said the amount offered was too small. 

While the private sector puts the construction of the quay at €40 million, the state would pay a lower sum.

In July, Estonian the government decided to increase the share capital of the state Estonian Stockpiling Agency (EVK) by €38 million to provide a guarantee that the privately funded LNG terminal be completed on time, while Alexela has wanted to build an LNG terminal in Paldisk for several years - in 2017 the company applied to receive EU funding, while Alexela said early in 2021 (link in Estonian) that it would not possible to build a terminal using private capital alone. 

February 24 a game-changer

The February 24 invasion of Ukraine was naturally a game changer, making the need to decouple from Russian natural gas dependency at a time when prices were becoming increasingly volatile, all the more pressing, while Taavi Aas and his ministry were tasked with ensuring this happened – with Elerging constructing the ship-to-shore pipeline and Alexela to construct the berth and rent the FRSU.

LNG once arriving on terra firma is re-gassified for supply via pipeline in the way regular natural gas is.

Elering Ceo Taavi Veskimägi said on April 7 that the Paldiski terminal would be ready by November 1 while on April 13, Alexela CEO Marti Hääl, referring to what he called political risk, called for a guarantee from the state, both financially and in case the facility was ultimately no longer needed, as the result of political decisions, while Ain Hanschmidt, Infortar CEO, said the private sector was better equipped to do the project itself, from the construction of the quay to the chartering of the FSRU, with the state providing a price difference agreement should Russian gas still be supplied at a lower price to customer - in short Russia's tendency to use gas as a geopolitical weapon was highlighted throughout the saga.

Story now in its 15th year

Now around 14 years old, this saga started with an initial plan between the Baltic States and Finland to construct the terminal jointly with the support of EU co-financing, but cooperation between countries soon began to crumble, with separate LNG terminal plans emanating from Finland, Latvia and Lithuania – the latter later became reality – while for Estonia, building a terminal was considered too expensive for just one small state alone.

A decade ago, Paldiski had also also established a plan for an LNG terminal, but saw a legal challenge from environmental associations, while an additional complication at the time arose from the fact that Russian energy giant Gazprom, had a stake in both Eesti Gaas (which Infortar bought out in 2016) and Finland's Gasum. 

In 2014, this initial plan collapsed, as state leaders could not agree on the location of the terminal from the choice of Paldiski and Muuga in Estonia and Inkoo in Finland, while Lithuania's LNG terminal in Klaipeda opened up at the end of that year, and started reaching Estonian customers the following year.

European Commission declined to provide support for project

Meanwhile, the European Commission then finally decided not to support Estonian LNG terminal projects. 

The Balticconnector gas pipeline connecting Estonia and Finland started working at the end of 2019, which was aimed at ensuring security of supply in the region. While the joint gas market of Estonia, Latvia and Finland was officially launched last year on January 1. 

LNG receiving capacity facilities consist of three sections - a quay built on the shore, and FSRU and a gas pipe connecting the ship to the network.

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Editor: Andrew Whyte, Barbara Oja

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