Latvian gas monopoly in no hurry to join Baltic bid for freedom from Russia

By bne IntelliNews November 28, 2014

bne IntelliNews -


Latvia's national gas utility Latvijas Gaze has no intention of sourcing alternative supplies in the next two years, it said late on November 26. The statement suggests Riga continues to struggle to gain any traction in freeing its gas market from Russian control, even whilst the rest of the Baltic region is racing to free itself from Gazprom's grip.

Latvijas Gaze, co-owned by Germany’s Eon and Gazprom, says it will not look to buy gas from Lithuania's new liquefied natural gas (LNG) terminal ahead of 2017, when it will lose its monopoly status, granted during privatisation in 1997.

"We have an agreement with Gazprom for gas supplies until 2030, and we get a price discount depending on the amount we buy," a spokesman told Reuters. "If we decrease the amount we buy [from Gazprom], the price might increase."

Deadline day

The statement came the same day as a deadline for bids for Eon's 47.2% stake in the company, which controls both supply and distribution in Latvia. Gazprom is the second largest shareholder with 34% in Latvijas Gaze.  With gas trader Itera - owned by state-owned Rosneft - holding the remaining shares, Russian state-controlled companies hold a majority.

The Latvian government said in October that it had pulled out of talks on the stake as the German seller was asking too much. Eon has made no comment on potential buyers. 

Local media reported in September that several US companies are willing to stump up €175m for the stake. Meanwhile, infrastructure investment fund Marguerite, owned by European development banks, is also said to be interested. 

Closer to home, Lithuania's state-owned Lietuvos Energija and EPSO-G submitted non-binding offers. However, local media reports on November 27 suggested that they have subsequently pulled out, citing concern over Latvia's plans for unbundling - the seperation of sales and distribution functions under EU law - and a lack of transparency.

Another reported suitor is oil trader Vitol, which owns 49.98% of Latvian oil terminal operator Ventspils Nafta. The company opened an office recently in Riga, and said Latvia's capital will become its regional trade centre, the newswire adds. Described as "a mystery even to many in the oil business", the ownership of the Netherlands-based company is unclear.


Until recently, Eon controlled the gas markets across the Baltic states alongside Gazprom. However, it has recently sold its stakes in the national utilities in Finland, Estonia and Lithuania, as it seeks to rebalance its portfolio. 

All were bought by the respective governments which are pushing to secure control of distribution networks in order to be free to take advantage of LNG. Lithuania started the ball rolling in a bitter fight last year.

The LNG terminal at Klaepeida, which will start imports in December, breaks Gazprom's 100% supply of the gas consumed in the Baltic region, and Lithuania is keen to offer supplies to its neighbours. Vilnius has since secured a discount on its current contract with the Russian giant, and is in talks over a new deal, which will run from 2016.

Finland and Estonia, which finally wrested control of their pipelines in October, agreed to build a pair of LNG terminals under a long-discussed project to develop a pan-Baltic LNG platform earlier this month. However, despite some political talk on unbundling, Riga has yet to take on Moscow.

That leaves Latvia exposed, analysts told bne IntelliNews in October. Latvia is traditionally seen as the closest of the Baltics to Moscow, and hosts Gazprom's regional HQ. However, it's likely the fact that the country hosts the only storage facilities in the region that's the real obstacle.

Russia appears relatively calm about losing total dominance of what are tiny markets - total consumption in the region, including Finland, is just 9bn cubic metres or so. However, the 2.3bn cm capacity Incukalns storage facility is a strategic asset for any gas trading in the Baltics, and also serves western Russia.

The 1997 privatisation package also handed Latvijas Gaze exclusive rights to operate Incukalns. The company spokesman claims there are no plans to prevent gas flows from Lithuania to Estonia via Latvia, but insists it intends to protect the monopoly it enjoys inside Latvia for as long as possible. 

"There are no discussions that the monopoly would continue in Latvia after 2017, when Latvijas Gaze will be split and the gas market will be opened [for competition]," he said. He added that the company does not expect a fully-fledged Baltic gas market to emerge until 2020, when the region should be linked to Finland and Poland and the pan-Baltic LNG platforms should be up and running.


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