Lately it seems like LNG terminal projects have been popping up like mushrooms after a rainstorm. To begin with, there is the long-promised regional terminal, to be partly funded by the European Union, which now might turn into two separate terminals – one in Finland and one in Estonia. The second one is the smaller Klaipėda terminal in Lithuania, with a promised completion date of December 2014. And the third is the fully privately-funded Sillamäe project in Estonia, which recently has reentered the picture after being considered virtually dead by experts. If those weren’t enough, Latvia’s government is now claiming that it “would only be logical” if the country gets its own terminal as well. Given that the total annual gas demand of the three Baltic countries and Finland combined is only 10 billion cubic meters (bcm), the question then arises: is there really a market for more than one terminal in the region?
The future of Gazprom between international transformations and domestic rivalries. The largest single producer of natural gas in the world might face serious problems in the near future. Just as it celebrates the twentieth anniversary of its incorporation, Gazprom is back to a low point in both domestic and international achievements. The state-owned company is engaged in a frenetic and grandiose activity, with many titanic new projects in the making, and it occasionally has to publicly defend its business strategies. This behavior may seem untimely at a historical point when the stark reality would need a more mundane and pragmatic approach.
More than two decades after the end of the Soviet occupation, and eight years after they joined NATO and the European Union, the Baltic republics remain disintegrated from the rest of Europe in one crucial way: their natural gas infrastructure isolates them into “energy islands.” Yet, for the first time in their histories, Estonia, Latvia, and Lithuania now have a chance to secure their energy independence by connecting their natural gas networks with those of their European allies and evolving them into market-based trading systems. This will require the Baltic republics to work with their EU partners to develop the physical and regulatory infrastructure necessary for liquid trading hubs and spot-market pricing of natural gas to emerge in the region. By achieving these objectives, these three small countries on the EU’s periphery will help the EU achieve two key strategic goals: to establish a single European energy market; and to complete the full integration of the EU’s easternmost member states into a Europe that is whole and free.
The “shale gas revolution” in the United States is changing the world’s energy map. The International Energy Agency’s latest predictions suggest that by 2035 America will have become the world’s largest gas producer, outpacing Russia. Until recently, Gazprom, Russia’s natural gas monopoly, has been skeptical about such forecasts. But Gazprom’s lack of long-term vision can have negative implications both for the company and for the country.
Gazprom has long enjoyed the title of Russia’s “national energy champion,” but in a race to meet rising energy demand in Asia, Moscow’s shifting gas strategy could enable the rise of alternative gas producers Rosneft and Novatek, and weaken Gazprom’s position at home and abroad. Novatek, Russia’s second-largest natural gas producer, is working hard to bring the Yamal LNG project online and to secure future gas export contracts to Asia. Meanwhile, after recently acquiring significant offshore natural gas reserves, Russian oil major Rosneft has announced plans to enter the Russian gas market and has chosen independent gas producer ITERA to operate its future gas projects, increasing competitive pressure on both Gazprom and Novatek. A government decision to liberalize LNG exports, anticipated very soon, could be the final straw that breaks Gazprom’s stranglehold on the Russian gas export market. Yet, Gazprom remains hopeful in light of new supply agreements with China. Now, all three gas producers are gearing up for a heated competition over the future direction of the Russian gas industry.
Sequels of outstanding movies inevitably tend to pale in comparison to the originals. Yet with the “never-ending story” of the Ukraine-Russia gas disputes, however, the plot gets more captivating by the year. On April 4, Coal and Energy Minister of Ukraine Eduard Stavytskyi brought the audience into familiar territory, responding to a Russian promise that there would be no discounts by declaring that Ukraine would simply stop buying gas from its neighbor altogether Stavytskyi affirmed that Ukraine stops completely buying Russian gas:
More than two decades after the end of the Soviet occupation, and eight years after they joined NATO and the European Union, the Baltic republics remain disintegrated from the rest of Europe in one crucial way: their natural gas infrastructure isolates them into “energy islands.” But, for the first time in their histories, Estonia, Latvia, and Lithuania now have a chance to secure their energy independence by connecting their natural gas systems with those of their European allies and evolving them into market-based trading systems. This will require the Baltic republics to work with their EU Allies to develop physical and regulatory infrastructure required for liquid trading hubs and spot-market pricing of natural gas to emerge in the Baltic region. By achieving these objectives, these three small countries on the EU’s periphery will help the EU achieve two key strategic goals: to establish a single European energy market; and to complete the full integration of the EU’s easternmost member states into a Europe that is whole and free.
Previously confined to a narrow audience of specialists, the issue of the gas market in Estonia and the Baltic states has recently garnered broader attention. Numerous articles have appeared in the Estonian media discussing the proposed LNG terminals in Paldiski, Muuga, Sillamäe and in other countries in the region. Unfortunately, by focusing on the terminals in isolation, this media coverage has too often failed to provide the necessary context for the discussion of these LNG projects—which are a key element in a broader strategy of contributing to energy security by diversifying sources of supply and establishing a liquid natural gas market where prices are determined by supply and demand. Without this context, the risks and opportunities for Estonia and Estonian consumers can therefore remain unclear for the wider public.
In a December 7 article in the Estonian daily Postimees, Evelyn Kaldoja* quoted energy analyst Matthew Hulbert of oilprice.com as saying that Russian President Vladimir Putin’s announcement of the start of construction of Gazprom’s South Stream pipeline (connecting Russia with EU markets in the Eastern Balkans under the Black Sea) marks the death of the Nabucco natural gas pipeline (from Azerbaijan to Austria). The underlying assertion of this comment is that the EU’s strategy of relying on Azerbaijan to reduce its reliance on Russia’s Gazprom has failed. While this may be precisely the impression President Putin seeks to create, this is untrue for several reasons.