Latvia mulls use of Paldiski LNG terminal

Latvia's climate and energy ministry will begin preliminary talks with Estonian counterparties regarding the potential joint use of the Paldiski LNG terminal as an alternative to the domestic Skulte LNG project.

None of the submitted project co-operation conditions for Skulte LNG are commercially viable or operationally feasible, the ministry said, according to state-owned news agency LSM. The government in February rejected the terminal developer's proposal for state support, despite having last year designated the project as an "object of national interest".

The ministry has carried out an initial assessment of alternative options to strengthen Latvia's security of supply, and the cabinet of ministers has now instructed it to negotiate with the Estonian side about possible conditions for joint use of Paldiski.

Consumption in the region is at the moment insufficient to justify the construction of another LNG terminal, given the recently-opened facility in Finland's Inkoo and the as-yet unused jetty at Paldiski in Estonia, the ministry said.

The Estonian stockpiling agency last month acquired Paldiski after months of negotiations.

There might in any case be limited interest in additional LNG capacity from Latvian firms. State-owned utility Latvenergo has already secured 6 TWh/yr of capacity at Lithuania's 2.9mn t/yr Klaipeda terminal for the next 10 years, which would be enough to cover roughly half of the country's annual consumption at current levels.

Market participants question need for Paldiski

A number of market participants have questioned the necessity of commissioning a new terminal.

"Three underutilised terminals doesn't make much sense" given prevailing consumption, one market participant told Argus. Inkoo already had no users in the first quarter, and only Eesti Gaas booked slots for the summer.

Negotiations to use Paldiski are likely to be politically-driven rather than market-driven, as there are no immediate supply concerns for the next year, and the government needs to be seen as acting on security of supply concerns if it does not progress with Skulte, another market participant said.

There is also the question of whether a floating storage and regasification unit (FSRU) could be found, given high demand for these vessels, another market participant told Argus. This would only drive up the price of the project further. The Exemplar FSRU used at Inkoo was leased for 10 years at a cost of around €460mn.

By Brendan A'Hearn