Baltic LNG fiasco to cost a billion euros

Photo: Georg Kõrre

Ineptitude on the part of the European Commission and national governments threatens to render wasted €900 million spent on eliminating the gas dependence of the Baltics and Finland provided a market-based LNG-terminal is not constructed in Estonia.

The Klaipeda floating LNG-terminal cannot facilitate a situation where gas would reach consumers free of market distortion and at favorable prices as an element of the Balticconnector pipeline to be constructed between Estonia and Finland.

The same conclusion has been drawn by both Alexela and Vopak E.O.S. that are competing mercilessly for the terminal contract in Estonia.

“Considering agreed-upon infrastructure investments into the floating terminal in Lithuania and the Balticconnector that come to a total of €900 million, it would have been possible to build three regional terminals for that money,” said CEO of Vopak E.O.S. Arnout Lugtmeijer.

“However, we do not have a single permanent solution that would effectively open the market as things stand, despite funds spent.”

While Balticconnector and the Klaipeda terminal would ensure security stockpiles and connect the energy islands that are the Baltic states to other countries, it would not open the market to gas supply.

“Neither Estonia nor Finland can boast gas production to fully utilize the pipeline, meaning that the lion’s share of gas would still come from Russia once the pipeline is built,” Lugtmeijer explained.

Market-based work

The only alternative is the expensive Norwegian floating terminal in Klaipeda, Lithuania, which means these developments cannot give us gas at competitive world market prices.”

Lithuania used taxpayer euros to rent the terminal ship from Norway for a decade for a total of €640 million to be paid by 2024.

The cost of a terrestrial terminal with a comparable output has been put at €340 million. The obligation to maintain security stockpiles means independent gas suppliers cannot freely access the Klaipeda terminal’s tanks.

The market-based approach proposed by Estonian entrepreneurs would prescribe the construction of a terrestrial terminal that would be independent from suppliers and therefore automatically ensure sufficient security stockpiles.

“The money spent on lease payments could be used to construct two analogous land terminals; and constructing a pipeline with a throughput of nearly two billion cubic meters between Estonia and Finland the bulk of which would be financed by the European Union and that costs as much as a single regional terminal distorts the market,” Lugtmeijer said.

“A market-based project cannot compete with regional state-developed gas projects, especially those that are financed almost exclusively by the taxpayer.”

One of the heads of Alexela group, author of the idea for the Paldiski LNG terminal Marti Hääl said it is unclear what will happen in 2024 when the Klaipeda terminal’s rent contract runs its course.

“We could offer the entire region favorably priced energy supply on equal grounds; however, we cannot construct a terminal next to a state-guaranteed one the expenses of which are covered by the taxpayer,” Hääl said.

“If the current situation is perpetuated, it is logical to conclude that a bill will be delivered to the taxpayers of all countries in the region, including Estonia, for the floating terminal’s expenses in 2025 at the latest.”

The European Union’s energy and climate package prescribes and Estonian governments have consistently promised to ensure free market competition on the regional gas market.

Hääl said that experts have found the Paldiski terminal project to be the best in the region both in terms of technical and economic aspects, unlike the Klaipeda floating terminal he described as a result of Lithuanian political lobby.

Chaotic efforts

“Our value offer is much more favorable than the Klaipeda terminal’s current cost. It would be regrettable if European politicians would overlook the nature and price of value offers also in the long run,” Hääl said.

Years of aimless activity by the Baltic countries has led to a situation where the European Commission is about to remove the regional Baltic LNG-terminal from its list of projects of common interest.

At the same time, expensive and inefficient state projects make it impossible to develop effective market-based gas supply solutions.

If an earlier agreement between the European Commission, the Baltic countries, and Finland prescribed a regional LNG-terminal in Estonia, Lithuania announced late last year that it wants it in Klaipeda.

The European Commission has also made an about-turn. Head of the European Energy Union Maroš Ševcovic told Postimees that the Klaipeda LNG-terminal is a realistic source of diversifying supply the potential volume of which could cover Baltic consumption.