bne IntelliNews -

Russia plans to build a giant liquefied natural gas (LNG) terminal on its Baltic coast that could disrupt efforts to construct a pan-regional facility to serve Latvia, Lithuania and Estonia.

Russian gas giant Gazprom said on January 22 that it will build an LNG terminal at the sea port of Ust-Luga. The facility is planned to be capable of handling 10mn-15mn tonnes of LNG per year. That could hinder the Baltic States’ efforts to find alternative gas supplies to upset Gazprom’s domination of the regional market.

“[The Ust-Luga LNG terminal] may have a detrimental impact on Baltic gas diversifications efforts," energy analyst Agnia Grigas told bne IntelliNews. "The Baltic States and Finland have been planning on building an LNG terminal in their region to reduce their dependence on Russian gas. Another terminal in the region may discourage investors and the Baltic States themselves from building what appears to be a duplicate project,” 

After years of bickering over the location of facilities, the Baltic States have finally made some progress towards securing gas supplies from sources other than Russia in the last couple of years. Lithuania launched operations at a floating LNG terminal in January.

Lithuania and Estonia have also successfully wrestled control of their gas pipelines from Gazprom; a pre-requisite for utilising LNG supplies. However, pushing Lithuanian LNG onto a regional market is made harder by the continuing monopoly of Latvijas Gaze. The pipelines of the Latvian gas company - controlled by Gazprom - sit between Lithuania and Estonia.

Latvia has yet to start the process of unbundling its pipelines. However, Riga promises that will come after Latvijas Gaze’s contractually mandated monopoly on the national market ends in 2017. LG also controls the region's only strategic storage facilities, from which Gazprom also serves the enclave of Kaliningrad and north-western Russia.

However, according to Grigas, “the unbundling really does not matter unless there is real competition - different sources of gas brought by different routes outside of just Gazprom’s gas via Gazprom-owned pipelines from Russia.”

“The newly built Lithuanian floating terminal in Klaipeda would now compete for LNG supply with the Russian terminal,” she notes. At the same time, Estonia and Finland finally agreed in late 2014 to move forward on a plan that has been delayed for years to build an official regional LNG terminal.

However, should Gazprom's project prove real, rather than the usual sabre-rattling in which the Russian company likes to engage in the region, the Baltic States may be pushed to look at an alternative, Grigas suggests. For example, there is currently no gas pipeline infrastructure connecting the Baltics to Western Europe, though this would be more expensive and more difficult to implement than LNG projects, she says. 

The Ust-Luga project emerged shortly after Gazprom pulled out from a project to build a 2.3mn tonnes LNG terminal in the Estonian port of Sillamäe in January.

Ust-Luga project’s first phase will be the construction of a high-pressure pipeline from Volhov to Ust-Luga across the southern part of the Leningrad Region, Gazprom announced on January 22.