Finland and Estonia close to agreement on pan-Baltic LNG project

By bne IntelliNews October 24, 2014

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Finland and Estonia appear to be looking to revive a plan to build two LNG terminals under a EU-backed scheme to develop a pan-Baltic facility, despite Brussels having rejected a twin terminal solution earlier this year. The EU will have the final say because it will need to provide most of the funding.

Following a meeting in Brussels late on October 23, Finnish PM Alexander Stubb and Estonian PM Taavi Roivas released a joint statement suggesting they are closing in on an agreement on the long delayed  project. Brussels maintains a pan-Baltic LNG terminal is key to raising energy security for the region, which is cut off from European networks and fully dependent on Russian gas supplies. However, bickering on the location of the terminal has delayed the scheme for years.

The statement spoke of Estonia and Finland concluding an interstate agreement that would help achieve progress in building the Balticonnector - a pipeline across the Baltic Sea to connect the pair - as well as the terminal facilities. Stubb said the two leaders had made progress on the issue, but added that more talks will come next month. Roivas told Leta he is optimistic that the agreement will be concluded in Helsinki on November 6-7.

“Certainly it is important, in terms of energy self-sufficiency and to some extent, energy security," the Finnish PM told Yle. "I am confident we will reach a satisfactory solution. The most important thing is that the pipe is built first, and the terminal will surely follow." Roivas said Balticonnector would be ready by 2018 at the earliest.

Little and large

However, the leaders also suggested in their statement that they are still talking over a twin terminal solution, with a larger facility in Finland and a smaller one across the sea. 

The European Commission rejected two facilities earlier this year. Finland's Gasum and Estonia's Alexela - the private companies working on the project - scrapped talks on cooperation in September, and confirmed to bne this month that they both intend to go forward on their own

Meanwhile, analysts say that with Baltic and Finnish gas demand totalling no more than 9bn cubic metres a year, and long-term contracts with Russia in place in Finland - the largest consumer - the economic viability of even one platform is questionable. On top of that, Lithuania is set to launch operations at a 3bn cm floating terminal at the start of 2015 and hopes to serve the rest of the region.

However, the Estonian PM suggests that far from the parochial backbiting of recent years, Estonia and Finland are now looking to a wider strategic role for the project. “We are still negotiating a schedule for several years from now," Roivas told Leta. "If we could build a large market, from Finland all the way to Poland and perhaps even beyond, then we would have the opportunity to build terminals as well."

All, however, will depend on the EU. With the economics shaky, the level of funding that the project can secure from Brussels is key, with a single 4-5bn cm facility estimated to cost up to €500m, with Balticonnector to need another €100m. While the European Commmission rejected the initial twin terminal idea in June, Yle claims it suggested the large plus small solution instead. 

The EU could provide up to 40% of the cost of a regional terminal if it is judged to serve the interests of more than one country. However, Tallinn and Helsinki will need to find an agreement swiftly if they are to get it into the next EU investment package. Currently under preparation, President-elect Jean-Claude Juncker’s European Commission has said it is waiting for specifics from the two countries.

"The European Commission will support in substantial part the financing of the pipeline," Roivas told Leta. "Whether and how much it is possible to support the terminal investment, is still not clear." 

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