Alexela to launch large LNG terminal in three years

Photo: Irina Mägi

Alexela, pushed backstage by Prime Minister Taavi Rõivas in the interests of Finns, will latest at start of 2016 begin building a LNG terminal to sell its initial load of gas as early as 2019.

The need for an Estonia-based LNG terminal again became pressing as Russia last week for the first time threatened to turn off gas for Europe for political reasons. Up to now, it has proven physically impossible to transport gas into Estonia from the terminal located in Lithuania; thus, our only way to secure supplies of gas is to quickly build a terminal of our own.

«By August it will be clear if European Commission will support building a regional LNG terminal at Gulf of Finland shores, on the basis of which in September we will make the final investment decision and proclaim an international building procurement,» Alexela Group board member Marti Hääl told Postimees. «If European Union will not support the building of the terminal, we’ll build it ourselves.»

In case of a positive decision, EU support may cover 5–15 percent of costs of the €300m terminal holding 160,000 cubic metres.

Cheaper than fuel oil

The main clients of the terminal to be built in Paldiski would be enterprises with large energy consumption. The first Estonian company to use the LNG produced in Kingisepp Region, Russia, for making steam would be the dairy Saaremaa Piimatööstus – with a more favourable offer, they would opt for as from Alexela's terminal.

«On the isle of Saaremaa we have no natural gas pipeline and for producing steam LNG is much cheaper than fuel oil,» said Saaremaa Piimatööstus board member Ülo Kivine. «With our current LNG provider we are very satisfied, as for almost a year we have had no glitches in our production due to them. But we have no binding long-term contract with them; therefore, we are willing to take what the market and the business are offering.»

Another vital group of clients would the small LNG terminals to be built on Baltic Sea coasts, supplying local industries and providing bunkering service to ships switching off mazut due to tightening of environmental requirements. 

This March, Alexela became co-holder in a small 300,000 cubic metre LNG terminal belonging to the city of Hamina in Finland. The terminal, to be completed in 2018, will be supplying enterprises and households via the local gas network.

«Owners of cargo ships like Stena Line have ordered small 13,000 cubic metre capacity transport vessels which are fitting for distributing the LNG brought to our terminal into the small local terminals,» said Mr Hääl.

For the ordinary gas consumer, the gas produced out of LNG will be available via the mainland part of Balticconnector built between Estonia and Finland. The construction of the pipeline beginning near Paldiski and passing by Keila has been prepared to such a degree that, upon investment decision, it would only take a year to complete it. 

«As application to connect is presented, which is still pending, we will proceed it and will definitely be ready to the Paldiski terminal with Estonian gas networks. Understandably, building the pipe will take years,» explained Elering’s communication manager Ain Köster. «Pursuant to Prime Minister’s agreement, by 2019 Balticconnector should also be completed as well. Thus, basically, connecting the terminal will be no problem.»

The international terminals-company Vopak, having entered into cooperation contract with Port of Tallinn several years ago, intends to build a small 20,000 – 30,000 m³ terminal next to coal terminal in eastern part of Muuga Harbour.

«We may begin building at the end of this year or at the beginning of 2016, and the terminal will start operating in 2017,» said Vopak E.O.S. chief Arnout Lugtmeijer. «In its initial stage, it will be a terminal for bunkering ships; the development of a larger terminal will depend of the trends of demand on the market.»

Though in this March the gas from Klaipeda, Lithuania LNG terminal already amounted to nearly a fifth of Estonia’s gas imports, with potential political gas crises Estonia would have no security of supplies from there.

For technical reasons, till today not a single molecule of gas has been transported to Estonia from Lithuania by these LNG transactions. Rather, as is the usual in commodity business, these are the bookkeeping style derivate deals. By such transactions, only money and digits are being moved while Estonia gets gas pumped into Latvia-based Inčukalns underground storage by Gazprom.

According to Elering, options to import gas from Lithuanian to Estonia will improve as Lithuania completes its gas transit pipeline. «By the end of this year, the project ought to be completed and then the opportunities offered by Klaipeda terminal may be utilised to the fullest,» added Mr Köster.

With tank vehicles or wagons, however, it is impossible to bring LNG from Klaipeda, because the Lithuanians built their terminal on a river island inaccessible for trucks and trains. It is only by 2017 that the terminal’s owner Klaipedos Nafta will create conditions to reload LNG into tank vehicles or wagons.

Due to technical inadequacy, the terminal and the trading company Litgas it established are having a tough time – in Lithuanian, gas consumption is in decline, but the LNG purchasing contract with Statoil comes with requirement to pay for volumes ordered even if it is not actually needed.

This March, Lithuanian national energy holding company Lietovus Energia head Dalius Misiunas told BNS that it is prohibited by a law to resell LNG purchased from Statoil – one they now desire to amend. The law prescribes that the minimal LNG volume guaranteeing profitability be pumped through Klaipeda terminal while disregarding actual market demand.

«It is technically possible to reload non-degasified LNG from Klaipeda terminal unto other ships,» Litgas chief Dominykas Tučkus now told Postimees. «In cooperation with Statoil, we are intending to complete the list of our services with bunkering and reloading unto smaller LNG transport vessels.»

The LNG terminal owner Klaipedos Nafta, however, said that the claims of restrictions to LNG sales are for them incomprehensible: according to plan, the LNG reloading station will be completed by the end of 2016.

Gazprom threat

Earlier, the Kremlin-controlled Gazprom only explained difficulties supplying Europeans by payment troubles in the transiting Ukraine and for Estonia this spelled no threat. Namely, our country is being supplied via a natural gas pipelines-system which is not linked to supplies to the so-called old Europe. Last Monday, however, Gazprom’s head Alexei Miller set a spin altogether different to the reliably of his company. 

Speaking at Valdai forum, Mr Miller announced that they will put gas exports to Europe on hold if Europeans will not start trading via the pipeline passing through Turkey and Greece thus avoiding Ukrainian transit. This was the message mediated by Vedomosti. Namely, it has been decided in Russia not to extend gas transit with Ukraine valid till 2019; meanwhile, till today the EU has not hastened to create sufficient capacities for receiving gas at Turkish-Greek border. «We have warned you: if the capacities have not been created, it’s not our fault,» declared Mr Miller.

In international media coverage, the threat to turn off the gas was overshadowed by another weighty threat: namely, they promised to significantly raise gas prices should Europeans seek common gas supplies and joint price talks.

Should Alexela’s LNG terminal be completed at the same time as Ukrainian-Russian gas transit deal expires, this would secure Estonia with gas even in the event Russia  cuts off its supply to put political pressure on Europe.

Last November, Prime Minister Taavi Rõivas declared that Estonia needed to give up LNG terminal for the benefit of Finland because then, as a returned favour, the Finns would then agree to build the Finland-to-Estonia Balticconnector gas pipe faster. The statement was surprising as the gas pipe in question is much more needful for Finland than Estonia. By the pipeline, Finland would enhance its supplies’ security by Latvian underground storage.

Comment

Andres Mäe, energy expert

Gazprom will not cut off the gas. Our advantage lies in the fact that, in Estonia, gas can be substituted with other fuels. The governmental policy favours change like replacing natural gas with biogas and wood chips. A pity, actually, as natural gas is a cheap and environmentally friendly fuel the use of which would make sense.

The blackmail by Mr Miller was stupid of course as by so acting he spurs Europe on to seek replacements for gas. In Europe, Russia’s market share is shrinking anyway. Their new friends in the Balkans and in Greece use little gas themselves, about on the level of the Baltics.

The threat was meant to scare those countries that live on Ukrainian gas transit, and the Balkan states that desire to join the EU. Mainly, however, the threat was intended to affect Slovakia through which the main gas reverse-business to Ukraine is happening. 

Russia desires to redirect its gas supplied past Ukraine, via Balkans into Austria from where it is sold to Central Europe. 

The threat by Mr Miller contained the warning that should Europe wish to trade at unified price, the price would be higher than it currently stands. The situation is piquant to the backdrop of EU not having infringed any rules in gas trade, neither does it owe Gazprom a penny. Meanwhile, however, it is obvious that by 2019 when Russia-Ukraine transit contract expires, Europe will not have its interconnections ready and  is therefore unable to find alternatives for Gazprom’s gas, market-wise.

Though Russia is angry at Europe for selling gas on to Ukraine which Russia wants to squeeze, cursing Europe, in reality such deals are allowed by contracts and legal.  

Essentially, the recent threat was nothing new as Russia opted for gas-political pressure as early as in 2012 when energy minister Alexander Novak declared Ukraine would get favourable gas prices if it joins Eurasian economic alliance. As Ukraine came into favour by Europe, it was accused of stealing gas – something never proven. Right now, all Ukrainian gas flows are so transparent that claims of this sort have no basis whatsoever. Remarkably, also, during the hottest of the battles, the so-called separatists were not allowed to touch the gas pipes because Russia had to be able to sell gas into Europe.