Baltic states wrangling undermines plan for LNG port

TALLINN Wed Nov 14, 2012 6:28am EST

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TALLINN (Reuters) - Energy executives and officials cast doubt on Wednesday on plans to build a liquefied natural gas terminal for the EU's former-Soviet Baltic republics, part of a push to make them less reliant on former master Russia.

All too familiar with Moscow's willingness to play power politics with its oil and gas riches, Lithuania, Latvia and Estonia are part of a raft of former communist states in eastern Europe working hard to find alternative sources of supply.

But officials say they lack the drive to cooperate fully with one another, undermining larger scale projects which require a bigger funding and consumer base than each of their small economies provides independently.

"The Baltic region lacks clarity of future development and this needs to change as we require coordination to safeguard supplies," Dins Merirands, Director at the Energy Department of Latvia's Ministry of Economics, told a conference in the Estonian capital Tallinn.

Just along the coast, Poland is launching construction of its own LNG terminal, expected to start importing gas from Qatar in 2014 after it secured the last required piece of funding last month. But the Poles have a consumer base of some 38 million, while the three Baltic states of Estonia, Latvia and Lithuania have respective populations of 1.3, 2.2 and 3.2 million.

The three rely almost exclusively on Russian imports for the gas which covers around 50 percent of their power generation, according to Estonia's electricity grid operator Elering.

"If we only have one gas supplier there is no point in speaking of secure supply and there is no point in investing in gas-fired power generation," said Elering's CEO Taavi Veskimagi.

WHERE?

The Balts are waiting for a report from the European Commission on where best to place a 4 billion cubic meters (bcm) LNG terminal for the region. One possibility is that it would actually be in Finland, with a pipeline from the Nordic state to the Baltic countries.

But the EU will only help fund the project if there is agreement between the countries involved and the three governments still seem at odds on whether they need to broaden the project out to include Finland in a common infrastructure.

"The most important argument for cooperation is economics of scale to create a common gas infrastructure," said Ando Leppiman, Deputy Secretary General at Estonia's Economy Ministry.

Lithuania is still in the throes of post-election political wrangling to secure a new government and its officials voiced more concern regarding joint developments. Latvia has said the port in its capital Riga would be the best location.

"The upcoming government supports the LNG project as an alternative source of gas, said Birute Vesaite, a member of the Social Democratic Party who won the Lithuanian elections.

"But the project is not transparent in terms of funding. Additionally, the existing pipeline highway is too small to support the 4 bcm LNG terminal."

She also said that the gas purchase obligations currently being discussed with the LNG terminal developers were a matter of concern.

Like most European countries, the Baltics have a flat gas demand outlook, so they have to tackle the problem of having to diversify supplies without the need to receive more gas.

A Finnish government official said at the same conference that Finland supported the LNG terminal but that the country did not seek to increase the share of gas in its energy mix, which currently stands around 10 percent of primary energy demand, mostly used for power generation and by industrial companies.

"No one (in Finland) is considering to increase their share in gas because it is not competitive, but we also don't want to reduce our gas use, ... and although Russia has been a very reliable supplier, that is why we are interested in a Baltic LNG terminal," said Esa Harmala, Director General of the Energy Department at Finland's Economy Ministry.

Electricity generation from gas is less profitable than coal-fired power production because gas prices have remained higher when compared to coal.

(Editing by Patrick Graham)

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