Politicking on northern Baltic LNG terminal grows as final decision looms

By bne IntelliNews February 27, 2013

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Estonia cannot afford to host a liquified natural gas (LNG) terminal, the head of the country's gas transmission system operator told local media on February 26. The claim is part of a growing row over Russia's involvement in the northern Baltic project as final decisions on it grow closer.

Alongside its Baltic neighbours Latvia and Lithuania, Estonia has been arguing for some time that it should be the one to host the long-planned Baltic LNG facility, which is desperately needed to break the region's total dependence on imports of Russian gas.

Unable to cease their bickering however, the Baltic trio was forced to ask Brussels to rule on the issue. The European Commission said in a study published in November that Estonia and Finland are the best locations. That prompted Estonian politicians earlier this year to push for a final decision on the location of the $1.7bn terminal ahead of a final agreement on energy infrastructure financing in the EU's Connecting Europe Facility for 2014-2020. March 6 is now a key date for an agreement, with the Baltic Sea Countries set to discuss energy issues.

However, Sergei Jefimov, head of Estonia's gas transmission system operator EG Vorguteenus, insisted to local newspaper Postimees that the project should go to Finland, saying that maintenance costs, which would be passed on to the Estonian consumer, would be too high for Estonia due to low local consumption rates.

"The government is thinking politically, because the LNG terminal means investment and jobs. However, a terminal has to be maintained for 30-40 years. I think the Haal brothers [owners of Alexela Group, which is planning an Estonian LNG facility] don't have such money, and the consumer is not strong enough," Jefimov said, according to ERR. "Without Finland, an LNG terminal is not economically feasible. Therefore, like it or not, we have to reach an agreement with the Finns. Otherwise the danger is that there will be no LNG terminal in the region."

The executive said that Vorguteenus and Finnish gas company Gasum have agreed that the Finnish side will cover four-fifths of the costs of building an Estonian-Finnish gas pipeline if the terminal ends up in Finland. That option that would take the pressure off gas prices in Estonia, he said.

However, Jefimov's motivation may be as political as those in Tallinn. Last week, politicians from both Estonia and Latvia called for both Gasum and Vorguteenus to be prevented from working on the Baltic LNG terminal due to the fact that Russian export monopoly Gazprom has ownership interests in both. The call came after the pair announced that they have inked a deal to promote the Finnish town Inkoo as host for the terminal, with a pipeline to be built to Paldiski in Estonia to provide the link the the Baltics.

"Being independent of the present monopoly gas supplier is an unavoidable prerequisite for Estonia's support for the regional LNG terminal," Estonia's minister of economy and communication Juhan Parts said on February 21, according to Reuters.

Latvian Economy Minister Daniels Pavluts joined the fray, pointing out that the goal of the terminal project is to secure real alternatives to gas supplies for the region. "With that, only those solutions can be supported that are not connected with the existing supplier of natural gas," he said in a statement. The ministry said that talks on the optimal location for the terminal could take place "in the near future."

Russia is fighting hard to derail Baltic ambitions to diversify their gas supplies, which would expose it to competition from global prices that are lower than those in the long-term contracts it pushes on European customers supplied by pipelines. The isolation of the Baltic energy networks from the rest of Europe has done much to aid its cause, but now, with no little support from Brussels, the three countries are pushing to connect up with European and global supply lines.

Lithuania has been the centre of the struggle recently, with Vilnius planning to launch its own LNG terminal in late 2014. In pursuit of that target, the government has fought several bitter battles with Gazprom over control of the country's gas network. However, the administration that came to power late last year in Vilnius has promised a far less confrontational stance towards Moscow.

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