European Commission turns back on Estonian LNG-termina

Only a small LNG-terminal to meet the needs of maritime transport seems feasible for Estonia, as a tanker vessel at Klaipeda can satisfy demand for gas in the Baltic region, head of the European Energy Union Maroš Šefčovič says in an interview on problems haunting the common energy market.

Please explain your optimism in terms of the European energy union in a situation where conflicting interests of member states manifest as soon as specific cross-border objects, like powerlines or gas pipelines, reach the construction phase.

My optimism is based on the fact that the energy union has been in the works for years. We have heard strong criticism from leaders and citizens of member states who expect much greater coherence between industry, transport, climate change and our policy.

Energy security is a priority for the Baltic countries and Central Europe as we can all remember the 2009 gas crisis in Europe said.

The other important factor concerns our ambitious climate targets. The task of finding cost-effective and coherent solutions in security and climate policy forces every country and its prime minister to look for solutions for a functional energy union.

My optimism is also based on the fact I’ve visited all member states, some several times. Support for the energy union has been clear everywhere. Naturally, countries have different wishes.

In Central and Eastern Europe, energy security is key, while the Nordics concentrate on renewable energy. Western Europe prioritizes sticking to the Paris agreement. Companies are interested in developing the common market to take advantage of opportunities offered by the European economy.

Support is clear, and we are currently busy converting it into legislation. Estonians are giving us a very good opportunity to finish formulating the legislative base next year and present proposals to the European Parliament.

An open energy market is the common-sense solution. However, what should we tell Polish miners who fear for their jobs in light of the open market?

I met with a local representative body in the Katowice mining area in Poland a few months ago. The results of the meeting were encouraging as they were clearly looking for cooperation in finding a new economic model for the region. They must develop other sectors because young people are leaving the area and children are often diagnosed with respiratory diseases.

We must be clear in stating that we honor the work of coal miners. My relatives also include coal miners who spend their life doing hard labor. We must also showcase success – how mining areas in Germany and France have successfully changed their economies.

We are working on this with Poland, Slovakia, and Spain. First, our experts try to find possible business models for the regions, look at their strong suits. Which industries could be developed there, and how could we support them using financial instruments.

The Poles are looking into technologies for storing greenhouse gases to minimize the environmental impact of using coal.

Should they find success, we can lay a foundation for so-called clean coal and carbon capture and storage. We can add these efforts to attempts at creating a new economic model to give these regions the opportunity for brilliant development.

Do I understand correctly that Poland is prepared to open its energy market in full?

That is our goal. We can ensure free movement of energy, similarly to what we have regarding capital and labor today, once we complete the European common energy market model.

However, it is a fact we have both software and hardware problems in the European energy sector. We suffer frequent losses in mutual connections, which is why cross-border trade volumes are often modest.

We must make sure we have the infrastructure with which to transport energy across borders. We also need software to facilitate cross-border trade. We believe that the opportunities offered by a free market will result in better results for participants and consumers.

Heated debates are taking place regarding the Polish-Lithuanian power link that is significant in the context of Baltic energy security. Lithuanians prefer a single line that could be built faster and more cheaply. Estonians would benefit from a double-line solution that would spare us from having to build a new reserve power station to complement the one at Kiisa. What is your opinion?

Synchronizing the Baltic power system with Europe is very important both for your governments and the European Commission. We agreed with Prime Minister Jüri Ratas that we need to move forward quickly and find a financeable solution during the time of this commission.

Representatives of transmission network operators of relevant countries will meet in Warsaw on September 29 to discuss all technical solutions countries have suggested. We must look at what they will cost and how to implement them.

PM Ratas and I concluded that potential solutions must be submitted to politicians by the end of this year, start of next at the latest.

My proposal was to reach the initial decision by the time of the March prime ministers’ meeting or by June at the latest. We agreed we would evaluate the Baltics’ proposals for use of the connecting Europe facility then.

The current composition’s final opportunity to make a decision in this matter will be in February of 2019. In any case, provided we want any kind of results, we must start making decisions today.

This will also answer the question of how many power lines should there be between Poland, the Baltics, and the Nordics.

It is very difficult to find common interest. For example, developments in the regional LNG-terminal project inspire doubts as to whether agreements will even hold. An earlier agreement prescribed the construction of an LNG-terminal on either side of the Gulf of Finland; however, Lithuania started promoting the idea of turning a tanker temporarily brought to Klaipeda into that regional terminal late last year. What kind of a solution do you perceive?

We see dynamic change in the energy sector. Oil and gas prices skyrocketed a few years ago. Now, we are seeing very low prices. New technologies allow the USA, Australia, and Qatar to offer LNG prices that can compete with pipeline gas.

That is why a lot of forecasts and decisions change. I believe it is important for Estonia and Finland to be joined by the Balticconnector pipeline. Participants need European support as it is not certain the pipeline would be feasible under market conditions. It is an important infrastructure object in terms of energy security.

Isn’t the problem that Balticconnector would not bring new gas to the market without an LNG-terminal and would just be transporting Gazprom’s gas?

The Klaipeda LNG-terminal is a real source for diverse supply the potential volume of which could cover Baltic consumption. The ship is on contract until 2024. I understand Estonia is interested in constructing a small LNG-terminal. However, from the business side of things, there is only sense in constructing a tiny LNG-terminal to service maritime transport needs in Estonia, as more and more ships use LNG instead of heavy fuel oils.

The most important thing is for you to work closely together to diversify gas supply in the Baltics.

Do I have this right in terms of the regional LNG solution: a big terminal in Klaipeda and a small one in Estonia?

I do not give financial advice for terminal operators, nor do my colleagues; however, relevant solutions must be economically feasible. We first and foremost support cross-border solutions, like the Balticconnector.

Terminal investors must decide for themselves whether they see a business opportunity there, especially in a situation where the Klaipeda terminal can satisfy Baltic demand. I believe Estonians should concentrate their LNG efforts on maritime and heavy transport needs.

Is Nord Stream 2 rather a business or political project? How will it affect our ally Ukraine, or Slovakia for example, if the Russians start pumping gas through Turkey and the Baltic Sea?

The effects of the project are unfortunate. I have never seen a commercial project be the target of so many political debates before. It is a polarizing project of immense political effect that is creating serious tensions between member states.

Cutting Ukraine out of the gas supply chain will result in negative consequences for the Ukrainian economy and energy security.

Nord Stream 2 will create a situation where instead of a single major line there will be two smaller pipelines that will harm the Ukrainian economy the infrastructures of which are already damaged by war.

I hope member states will give the European Commission a mandate to negotiate with Russia in this matter during Estonia’s presidency. As concerns transparency of operation, free access for third

participants. We have a mutual understanding that gas transit through Ukraine must continue. Central Europe’s energy security also depends on it.

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