The document discusses the opening of natural gas markets in Finland and the Baltic states. It outlines the goals of creating a regional gas market by 2020 through infrastructure projects and a common regulatory framework. Specifically, it summarizes the status of market reforms in Finland, Latvia, Lithuania, and Estonia, including details on ownership unbundling, new regulations, and planned infrastructure like the Balticconnector pipeline. The ultimate aim is full integration of the region's gas markets to improve competitiveness, security, and sustainability of energy supplies in line with EU energy policy goals.

1. Opening of Natural Gas Markets
Case Finland and the Baltic States
ENGI'17 Milan, 30 May 2017
Dr. Laura Huomo
Roschier Attorneys, Ltd.

2. Agenda
‒ Opening of Natural Gas Markets
‒ Natural Gas Markets of Baltic States and Finland
‒ Regional Gas Market
‒ Opening of Country-specific Natural Gas Markets – Finland
‒ Opening of Country-specific Natural Gas Markets – Latvia
‒ Opening of Country-specific Natural Gas Markets – Lithuania
‒ Opening of Country-specific Natural Gas Markets – Estonia
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3. General - Opening of Natural Gas Markets 1/2
‒ Three priority objectives of the EU's energy policy
‒ competitiveness,
‒ security of supply, and
‒ Sustainability
can only be achieved through a well-connected and well-functioning internal
energy market.
One of the priorities of the Commission in the framework of the Second
Strategic Energy Review is to connect "energy islands" with the internal
market.
‒ Integration of the Baltic States into EU energy networks is seen as one of the main
objectives that will contribute to the stability and economic growth of the Baltic Sea
Region.
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4. General - Opening of Natural Gas Markets 2/2
‒ Prerequisites for joining the internal gas markets of the European
Union requires
‒ unbundling of the TSO (already carried out in Estonia, Lithuania and
Latvia);
‒ the introduction of an entry-exit system and tariffs; and
‒ establishing a network code on capacity allocation mechanisms in gas
transmission systems (CAM) and congestion management procedures in
the event of contractual congestion (CMP).
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5. Natural Gas Markets of Baltic States and Finland 1/4
‒ The objective of the region (Fin + Baltics) is a common Regional Gas Market by means of
cross-border interconnections, national grid enhancements and investments in LNG
terminals and infrastructure.
‒ Objective to be executed in coherence with the Baltic Energy Market Interconnection Plan
(BEMIP).
‒ BEMIP aims to integrate the Baltic energy market by constructing key items of
infrastructure. BEMIP projects include:
˃ new interconnections such as the BalticConnector pipeline between Estonia and Finland;
˃ implementation of reverse flows such as through the proposed Amber PolLit pipeline between Poland
and Lithuania;
˃ LNG facilities in Estonia and Latvia; and
˃ gas storage facilities in Latvia.
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6. Gas infrastructure projects in the Baltic region relevant for BEMIP
Picture from: https://ec.europa.eu/energy/sites/ener/files/documents/2009_11_25_hlg_report_170609.pdf
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7. Natural Gas Markets of Baltic States and Finland 2/4
‒ The EU Projects of Common Interest list contains a number the BEMIP key infrastructure
projects.
‒ Aims for significant development in the region's natural gas network by 2020.
‒ Harmonisation?
‒ A new "super TSO" to be established as a jointly owned company by the national TSO:s –
similar to models in Germany and the Belgium-Luxemburg zone.
‒ Tariffs set forth by authorities in Baltic Countries – in Finland only the tariff setting
principles are set forth by authorities.
‒ Objective is creation of a Market Balance Area (MBA) in the Baltic States and Finland.
‒ Baltic countries – common balance area schedules to come into force 1 January 2018
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8. Natural Gas Markets of Baltic States and Finland 3/4
‒ Lithuania is currently the only Baltic State operating as an entry-exit zone.
‒ A joint working group between the countries' TSO's: East-Baltic Transmission System
Operator Coordination Group (EBTSO) – enhances and supports market integration and
harmonization in the region.
‒ The Baltic States and Finland still form an energy island in the EU internal gas market due to
the absence of gas interconnections with other Member States, although this is currently
changing.
‒ A common objective of the region is an integrated Regional Gas Market.
‒ Smooth operation of the single market will require further investments into the infrastructure.
‒ E.g. the Gas Interconnection Poland–Lithuania (GIPL), also known as Lithuania–Poland pipeline, is
a proposed natural gas pipeline interconnection between Lithuania and Poland that is expected to
be finished by 2022.
‒ GIPL will constitute an important element of expansion of the BEMIP gas network, connecting the
Baltic States to the EU gas market.
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9. Natural Gas Markets of Baltic States and Finland 4/4
‒ Also the Regional Gas Market Coordination Group (RGMCG), consisting of relevant ministers,
regulators and transmission system operators of the Baltic States, strives to implement the
BEMIP objectives.
‒ Also representatives of Finland's stakeholders are invited to join the RGMCG.
‒ In order for Klaipeda and GIPL to meet demand in all countries, cross-border
interconnections have to be upgraded or built.
‒ Upgrades of existing cross-border interconnections by 2020.
˃ Lithuania-Latvia: From 2.6 bcm to 4.4 bcm per year.
˃ Latvia-Estonia: From 2.2 bcm to 3.6 bcm per year.
˃ New interconnector between Finland and Estonia, 2.6 bcm per year.
‒ Interconnectors are often not commercially attractive for investors
˃ EU funding and state support are crucial.
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10. Regional Gas Market 1/2
‒ The Regional Gas Market Plan provides for merging of the gas
markets of the Baltic States into a single area by developing a
single system of entry and exit points, including a single virtual
trading point, a regional gas market, and a single balancing
area.
‒ According to the plan
‒ a single regional gas market in the Baltics becomes operational in
2020.
‒ the national TSO's will coordinate the principles and rules for
distribution, balancing, trade and other issues relevant to the
wholesale market.
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11. Regional Gas Market 2/2
‒ Capacities will be allocated in accordance with the implicit capacity
allocation model, where capacity allocation is responsibility of the
natural gas market operator UAB GET Baltic, which won the tender on
the provision of capacity allocation services.
‒ The model will include allocation of short-term transmission capacities
between member states on the natural gas exchange platform together
with the volume of gas sold on the Baltic countries’ markets through
the exchange
‒ The model was approved by the national regulatory authorities of each
Baltic State on 6 January 2017 – Finland not part of the model yet.
‒ Trade platforms of the gas exchange will be set up in Latvia and Estonia,
and the natural gas exchange GET Baltic will become a regional
exchange.
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12. Opening of Country-specific Natural Gas Markets – Finland
1/2
‒ In Finland, currently there is only one importer and wholesaler of gas, Gasum Ltd, which, in
turn, transfers the natural gas from the Russian border into Finland. Gasum is 100% owned
by the Finnish State.
‒ In 2014, the Ministry of Economic Affairs and Employment set up a working group to draft a
proposal for reformation of the Natural Gas Market Act and the opening of the Finnish
natural gas market.
‒ August 2016: EC announced it would grant EUR 187,5 million (75% of the total costs of the
Balticconnector pipeline project) to Baltic Connector Oy and Elering AS for the
Balticconnector pipeline project.
‒ A final Government Proposal was presented in May 2017 and according to the Proposal,
Finland will open its wholesale and consumer gas markets for competition on 1 January 2020
as a result of the completion of the construction of the Balticconnector pipeline.
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13. Opening of Country-specific Natural Gas Markets – Finland
2/2
‒ The regulation related to the unbundling of the TSO will come into force on 1 January
2020. Finland will proceed with the full unbundling model.
‒ Other measures of the renewed legislation are
‒ Termination of the wholesale pricing mechanism.
‒ Access and regulated tariffs are to be applied also for off grid LNG terminals.
‒ The Balticconnector pipeline physically connects the Finnish and the Baltic gas
infrastructures. In addition, Balticconnector as a part of the regional gas investment
program gives the Finnish gas market access to the Latvian underground gas storage
and Klaipeda LNG terminal and gas from central Europe through the GIPL.
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14. Opening of Country-specific Natural Gas Markets – Latvia
1/2
‒ Latvian gas TSO Latvijas Gaze was unbundled in December 2016.
‒ A new company, Conexus Baltic Grid, was established to cater for gas storage and transmission
services. Latvijas Gaze was left with gas distribution and sale.
‒ Even though the owner entity of the two companies are the same, full unbundling will occur by
the end of 2017 as means of the owners of Conexus Baltic Grid selling their shares in Latvijas
Gaze.
‒ The earlier monoploy of the Latvijas Gaze –company ended on 3 April 2017 and thereafter
the Latvian gas market has been fully opened up to competition.
‒ Opening of the market is part of a wider effort to develop diversified and secure gas markets
in the Baltic countries in integration with gas markets of other member states and with
reduced dependence on Russian gas.
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15. Opening of Country-specific Natural Gas Markets – Latvia
2/2
‒ The Klaipeda LNG terminal in Lithuania, which opened in 2015, provides an
alternative source of gas for Latvian consumers.
‒ Opening of the Latvian gas market is undoubtedly one of the most significant steps
towards regional integration and establishment of the single gas market of the Baltic
States.
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16. Opening of Country-specific Natural Gas Markets -
Lithuania
‒ Lithuania is one of Europe’s smallest national gas markets and was until recently reliant on
imported Russian pipeline gas for all its gas requirements.
‒ Lithuania begun the gas market reform in 2010-2012 and TSO AB Amber Grid was unbundled
in 2014.
‒ Amber Grid owns and operates the entire gas transmission system of Lithuania.
‒ The shares in Amber Grid are held by the Lithuanian State via the Ministry of Energy.
‒ In cooperation with the Polish Gas Transmission System Operator GAZ-SYSTEM S.A., AB
Amber Grid is carrying out works for the finalisation of GIPL.
‒ When the construction of GIPL is finalized (estimate 2022), it may create opportunities to
export the gas received via Klaipėda LNG not only to Poland, but also to Ukraine via the
the Polish-Ukrainian border.
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17. Opening of Country-specific Natural Gas Markets - Estonia
‒ The Estonian gas market was opened and Estonian gas TSO Elering GAAS AS was unbundled
in 2007, but until the end of 2014, there was no competition, which was hindering effective
function of the market.
‒ The gas transmission system network in Estonia was purchased by the state of Estonia. Elering
acquired the control over gas transmission network in January 2015. Until the end of 2015, natural
gas transmission network operated under the name of Elering Gaas AS. From the beginning of
2016, Elering assembled electricity and gas transmission networks into one company and
continued its operation as one joint system operator.
‒ The situation improved in the end of 2014, when a liquefied natural gas terminal was opened in
Lithuania. The situation will further improve once gas infrastructure projects connecting Estonian
gas supply systems to central European gas networks are improved over the coming years.
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18. Keskuskatu 7A
00100 Helsinki
Finland
Thank you!
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Laura Huomo
Energy & Capital Markets Counsel
Contact
+358 20 506 6510
+358 400 298 328
laura.huomo@roschier.com