The Baltic region is making a significant progress in developing functioning regional natural gas market, expanding and integrating the related infrastructure, and ensuring the security of supply.
However, there are multiple factors—at the national, regional, European and even global levels—that prevent this from becoming an ideal market capable of delivering greater security at a reasonable cost. Liquidity of the market is low due to falling consumption; state aid and state participation in the energy enterprises discourage private investments and distort market conditions, while geopolitical tensions between the West and Russia add further complications.
The report considers the trends in the overall natural gas sector—such as greater portion of trade being conducted in gas trading hubs; more reliance on spot pricing rather than long-term contracts; LNG glut in the global markets, introduction of “virtual pipelines” and flexible infrastructure, pressure to reduce CO2 emissions as well as the US entry into the global LNG market as a major player—and analyses their implications to Estonia. It puts forward a number of recommendations on how to create and sustain the conditions necessary for efficient natural gas market in the region as well as for improved energy security of Estonia:
- Estonia needs to argue for a free-market approach to energy security and promote this principle
within the European Council.
- Estonia needs to establish the position of energy minister or even create a separate energy
ministry. Greater political weight is needed to promote the energy policy agenda and Estonia’s
national interests abroad.
- Flexible LNG infrastructure should be favoured over capital-intensive infrastructure, and Estonia
has an opportunity to reinforce LNG-to-LNG competition in the region.
- Vertical integration in the Estonian gas market needs to be taken seriously into account and
conditions for market fragmentation need to be developed.
- In the event of an energy market “weaponisation” by the external geopolitical players, Estonia should create a framework allowing for greater reliance on US LNG, while still working to promote competition in the markets.
- Domestically, the focus should be on incremental gas demand in power generation and transport.