Europe must decide on Russian gas' future: Baltic firms

EU policymakers need to decide whether Russian gas imports have a future in Europe, the heads of Baltic energy companies said last week.

Europe has started to diversify its supply away from Russian pipeline gas by building new LNG facilities, and the continent now needs to stick to its promise of giving up Russian gas, chairman of Latvian state-owned utility Latvenergo, Martins Cakste, said. Having invested in alternative infrastructure, Europe must not return to Russian supply in five years' time because it is a cheaper supply source, he said. Cakste suggested taxing Russian gas, potentially at 30-40pc. Latvia would pay double or triple the price for gas from elsewhere if it has to because "independence is more important than money", he said.

At a separate conference, the chairman of Latvia's largest supplier, Latvijas Gaze, Aigars Kalvitis, said the country is facing difficulties following its ban on Russian gas since the start of this year because of high prices and infrastructural bottlenecks.

LNG cannot fully replace pipeline gas and price volatility remains significant, he said. There is also limited available capacity at Lithuania's 2.9mn t/yr Klaipeda LNG terminal, and imports through the Poland-Lithuania gas link are costly and subject to bottlenecks, Kalvitis said. Latvia should already start thinking about gas purchases for next winter in spring, he suggested.

European energy policy today does not really allow for long-term contracts to be signed for LNG, particularly not by state-owned companies, according to the chairman of Estonia's Alexela, Maarti Haal. If gas is to be a "bridge fuel", then long-term contracts should be facilitated and opposing them comes at a great cost to consumers as it makes supply costlier, he said.

Haal also criticised what he called a political risk premium for gas buyers stemming from a lack of clarity from the EU on imports of Russian gas. Russian gas could come back "at any time" because of a lack of concrete laws or sanctions against it, he said.

Margus Kaasik, chief executive of fellow Estonian supplier Eesti Gaas, is less worried about Russian gas. Minor flows still arrive in Europe, but "they don't matter", which is a testament to the resilience of the European market, he said. Europe's job now is to make sure that Russian gas is not needed, but if it is later decided that it is acceptable to import Russian gas, then it will matter little as Estonia can do without it, he said.

Speaking about the EU's gas price cap, Kaasik said that if this mechanism was activated, it would probably be a "huge mess", which might in itself act as a kind of "psychological barrier" against excessive speculation in gas markets.

All of the Baltic states have banned Russian gas imports. Finland has not passed such a law, but the new Inkoo LNG terminal will not accept Russian deliveries.

By Brendan A'Hearn