Auditor General lists issues to be resolved at Paldiski LNG terminal

Paldiski LNG terminal
Paldiski LNG terminal Source: Alexela/Infortar

Auditor General Janar Holm writes in a memo to the climate minister that a decision and clear guidance are required regarding the timeline for achieving LNG reception capacity at the Pakrineeme Port of Paldiski, as well as the appointment of a central coordinator for this project and the development of a financing model.

"It must also be determined if the mooring quay is appropriate and secure for vessels between 270 and 300 meters in length," Holm wrote in a memo to Climate Minister Michal (Reform), adding that if the Paldiski Pakrineeme Port could accommodate a wider variety of vessels, the risk of not being able to deliver the necessary gas would be significantly reduced.

Paldiski's ability to receive liquefied natural gas, or LNG, was investigated by the National Audit Office.

The Ministry of Economic Affairs and Communications, Elering and the Estonian Stockpiling Agency (AS Eesti Varude Keskus) contributed information and clarification throughout the project. In a letter to Michal, Holm summarized the findings of the investigation and indicated problematic areas.

"The National Audit Office deems it necessary to address the matter because approximately €60 million of taxpayer funds have been invested in the construction of the port and gas infrastructure in Paldiski, but the LNG receiving capacity has not yet been achieved," Holm explained.

In the fall of 2022, the cargo arm which is required to connect the gas pipeline to the ship, drew significant public interest. Although the government viewed the Elering project and the construction of the gas infrastructure as a functional whole, only the technical readiness for the Finnish-leased ship has been taken into account, according to the audit office.

Exemplar vessel itself was equipped with a cargo arm, which excluded the possibility that Paldiski Pakrineeme port could be used by another vessel without its own loading berth, e.g., in the event of the Exemplar's failure.

"At the moment, Elering has placed an order for a universal loading arm." With only minor changes it will be possible to connect about 80-90 percent of the world's 270-300 meter long LNG terminals to the new dock. The arm will arrive in Estonia by the end of 2023, according to Elering.

Elering explained to the National Audit Office that the Paldiski Pakrineeme port itself is one of the constraints. Specifically, the port can accommodate ships ranging in length from 270 to 300 meters. No engineering calculations or models have been evaluated to guarantee that the constructed mooring quay is secure and appropriate for vessels of different lengths. Since the vessel owners, including LNG carriers, evaluate the quay's suitability for mooring on a case-by-case basis, no risks are taken and berthing is many instances is rejected.

Another issue that needs to be addressed is funding. The Paldiski Pakrineeme port is intended to serve as a reserve and, if necessary, a replacement for the Inkoo LNG port. As a result, there is no long-term revenue from the shuttle quay and funding will be needed to keep the port operationally ready.

"The launch and operation of the LNG port in Paldiski in 2023 will be financed by the government's addition of €30 million to the Estonian Stockpiling Agency's share capital in order to increase the security of natural gas supply. No decision has been made regarding a more durable solution. One of the financing options discussed at the government meeting in November 2022 was the inclusion of the costs of port operations in the gas reserve levy, which would be used to cover the costs of managing the strategic gas reserves. One of the options discussed at the time was to include the costs of maintaining the LNG port in the storage fee," Auditor General Janar Holm said.


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Editor: Urmet Kook, Kristina Kersa

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