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Businesses concerned EU gas infrastructure investments will distort market

Pipes at the Inčukalns Underground Gas Storage Facility in Latvia.
Pipes at the Inčukalns Underground Gas Storage Facility in Latvia. Source: (Ints Kalniņš/Reuters/Scanpix)

Businesses planning to invest in an LNG terminal in Muuga Harbor think that a state-subsidized terminal in the Lithuanian port of Klaipėda will distort the gas market in the region. Elering CEO Taavi Veskimägi disagrees, and points to the infrastructure on the whole that will make an open and competitive market a reality.

CEO of Vopak E.O.S., Arnout Lugtmeijer, told daily Postimees on Monday that it is in Estonia’s interest to keep the transport prices of liquid natural gas low. The terminal in Klaipėda, on the other hand, will make this much more expensive. Vopak is planning a terminal in Muuga Harbor together with port operator AS Tallinna Sadam.

The terminal that is currently under construction in Klaipėda is comparably small and will mainly be used to fill up tank trucks. Like the floating terminal nearby, the new terminal is subsidized by the state. If these units are maintained with subsidiaries, then this will distort competition in the market considerably, Lugtmeijer told Postimees.

The situation in Estonia was much “healthier”, as here port operator AS Tallinna Sadam as well as Vopak E.O.S. had identified a commercial need for a terminal, and the one in Muuga would be built by businesses and not the state. “The business solution is based on market rules, and we can’t accept that our plans are derailed by a state-subsidized terminal in Klaipėda,” Lugtmeijer said.

With such a subsidy in place, the consumer will pay less for the transport of gas to Estonia when buying from a source in Lithuania. Instead of a company passing them on to the consumer, the transport costs would be covered by the state.

Gas from a local supplier, on the other hand, would be more expensive, as it would also have to cover transport costs, and this meant a distortion of the market. “This isn’t honest competition, because if we build a terminal we can’t tell our customers that the terminal service or a part of it is free,” Lugtmeijer said.

Elering CEO: Klaipėda part of the solution

Commenting on the current EU investments in the supply security of Finland and the Baltic states, CEO of network operator Elering, Taavi Veskimägi, told Postimees that Elering expected the result of the investments to be a very active and competitive regional gas market, connected to the global market at several different points.

Klaipėda was a part of this and couldn’t be seen as a state’s means to influencing the gas price.

“The gas currently coming from Russia will have to constantly compete with Western-European and world market prices, and the consumers will profit from this competition,” Veskimägi said.

The conditions for a regional market covering Finland and the Baltic states were currently being created based on the existing or still to be constructed network infrastructure, Veskimägi added. The connection between Poland and Lithuania as well as the LNG terminal in Klaipėda guaranteed some 6.4 billion cubic meters of gas a year, which was close to the overall consumption of the region.

And this was adding to the volumes available from Russia. Currently it is Gazprom that covers most of the supply. Investments in excess of a billion euros have recently been met with criticism, as at the same time network infrastructure is extended the consumption in the area is actually dropping.

According to Veskimägi, the eventual distribution of supply sources will depend on how the market develops. Potential schemes could include Finland getting its supplies through Klaipėda as well as through Poland, for example, but also in the reverse direction, from Finland to Poland. On top of that, the storage facilities in Inčukalns will allow businesses to buy and keep gas when prices are low. “Price discrimination based on the state is no longer possible,” Veskimägi said.

Editor: Dario Cavegn

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