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Sulev vedler presentation

  1. 1. An LNG terminal for allthree Baltic countries Estonian Perspectives Sulev Vedler, Eesti Ekspress
  2. 2. Estonia as gas producer Keri lighthouse (on island in the Gulf of Finland) used local gas in 1906-1912. It was first natural gas-powered lighthouse in the world. After the Second World War, the Soviets started to produce gas from the Estonian oil shale.   
  3. 3. Estonia as gas exporter Gas was exported to Russia, for the city of Leningrad. German war prisoners constructed a pipeline from Estonia to Russia.
  4. 4. Estonia as gas importer Approximately 50 years ago, local production of the gas stopped and Estonia became a gas importer. At present Estonia gets all its natural gas from Russia. Gas to Estonia is supplied from two sources: directly from Russia or via Latvia.
  5. 5. Gas as a good fuel Ten years ago Russian natural gas had a good image in Estonia. It was a cheap and nature- friendly fuel. Estonia held to the official scenario that the biggest power stations would be using gas as fuel.
  6. 6. But there are risks... A single supplier risk. All gas sold in Estonia is bought from Gazprom and imported by Eesti Gaas, in which Gazprom is the biggest shareholder. The theory that the Kremlin uses its supplies of gas as an energy-weapon. There is also a physical infrastructure risk. For example, the pipeline between Latvia and Estonia exploded in 2005.
  7. 7. Solution: let’s build a LNGterminal! Two projects in Estonia. 1. In the harbour of Muuga. The developers are Estonian state- owned companies Elering and Port of Tallinn and Dutch private company Vopak LPG. 2. On the Pakri peninsula near Paldiski. The developer is private company Balti Gaas, headed by entrepreneur Heiti Hääl. The ownership is not transparent.
  8. 8. And problem... The Estonian gas market is too small. Annual consumption is only 7.1 TWh.
  9. 9. ... and solution But we can talk about a 14 times’ larger market if we add Latvia, Lithuania and Finland (annual consumption 99.1 TWh). Let’s build a LNG terminal for all three Baltic countries and Finland also! EU is ready to fund the construction if it will cover all the region. New question: which location is the best for construction of a LNG terminal? Estonia? Latvia? Lithuania? Finland?
  10. 10. A Baltic LNG terminal gives thebest price optionApproach Total Additional % increase over construction costs per year, the current gas price cost (€ million) for 20 years (€/ 1,000m3)Local terminal 125 8.9 2.0Regional 972 4.7 1.1Estonia and 412 8.2 1.9Latvia
  11. 11. Which location is the best?
  12. 12. New competition on a higher level In the spring of 2011, Lithuanian Prime Minister Andrius Kubilius announced that Lithuania will rent a LNG tanker (ship) and use it as a small, floating terminal.
  13. 13. Our biggest competitor isLatvia In the summer of 2011 the Latvians announced that the best location for construction of an LNG terminal is Riga. In this case, it was said, there would be no need to build new, very expensive storage tanks because the terminal can use the underground storage facilities in Inčukalns.
  14. 14. The Estonians are against The Latvian plan is to use the existing pipeline between Inčukalns and Estonia. The diameter of this pipeline is wide enough to supply the Estonian market, but not big enough to also supply the Finnish market. According to Hääl, a new, bigger pipeline between Estonia and Latvia will cost 350 million euros. But if a terminal was built in Estonia, then the current pipeline would be sufficient for Latvia.
  15. 15. The Estonians are against (2) The underground storage facility at Inčukalns is currently contracted out solely to Gazprom. There are also concerns that the Inčukalns facility may not be able support the high levels of demand from Estonia, Latvia and northwestern Russia when they all have peak consumption at the same time. The Port of Riga has the biggest problems with ice among the Baltic ports.
  16. 16. The fight In November 2011, the prime ministers of the Baltic countries decided that they were unable to reach agreement on where is the most suitable place for the LNG terminal. Estonia and Lithuania demanded that a study be done by the EU, which would be the best location for the terminal. Latvian prime minister suggested that the construction of a gas pipeline between Lithuania and Poland also be analyzed.
  17. 17. The bigger fight The most electric moment happened on 24th of November, when the economics ministers of all EU member countries discussed energy issues in Brussels. Daniel Pavluts, from Latvia, threatened to block the start of negotiations between the EU and Russia and Belarus regarding the synchronization of the electricity system if Latvia was not chosen as the best place to construct the Baltic LNG terminal.
  18. 18. The bigger fight (2) One observer described the meeting in Brussels as a madhouse. After the meeting Juhan Parts, Estonian Minister of Economy, said that Latvia unexpectedly tied one point of the agenda - synchronization of the electricity systems - with the location of the LNG terminal. Parts said that the Latvian demand was a surprise for everyone.17.05.12
  19. 19. The bigger fight (3) Estonia and Lithuania said no to Latvia. They explained that the best solution for the location will be the study done by the EU. Latvia didn’t give its nod to start negotiations with Russia and Belarus. It was the same as a veto. Juhan Parts said that Latvia’s step was regrettable: “If we talk about a common Baltic and Nordic electricity and gas market, it also needs common efforts.”
  20. 20. One cannot forget Finland. In April 2012, Estonian authorities received a letter in which a Finnish company explained its plans to construct its own LNG terminal. Possible locations are in Porvoo and Inkoo. A full-scale terminal (2 billion m3 capacity per year) has to be ready by 2018.
  21. 21. And the winner is... ...
  22. 22. And the winner is... The biggest winner during the present battle between companies and countries is, of course, Gazprom. So far all four countries continue to buy their natural gas from this Russian giant.