Head of Communications,
Elering, electricity and gas transmission system operator,
This past summer marked the first anniversary of a key event in the construction of the Estonian-Finnish gas link, Balticconnector: the first end of the offshore pipe was pulled in at the Estonian point of landing in Paldiski. Balticconnector began operation on 1 January 2020. The connection marked the beginning of a single gas market between Finland, Estonia and Latvia where gas can flow without commercial obstacles and transfer fees.
Although Balticconnector has yet to achieve its maximum capacity, it has made a noteworthy contribution to the development of the gas market not only in Finland but the region as a whole. Significantly, the gas flowing through Balticconnector into Finland covers approximately one-third of Finnish gas consumption. Up to the launch of Balticconnector, Finland exported all of its natural gas from Russia.
In the first eight months of this year, approximately 10.6 terawatt-hours of gas flowed from Russia to Finland through the Imatra entry point. From January to August, slightly over 5 terawatt-hours of gas flowed into Finland through Balticconnector. To this point, gas has not flowed through Balticconnector in the opposite direction, from Finland to Estonia. However, it is likely this will occur at some point in future. Another interesting fact is that the quantity of gas flowing through Balticconnector is greater than Estonia’s own gas consumption, which was slightly under 3 terawatt-hours during the eight months in question.
Nearly all of the gas flowing into Finland through Balticconnector during the winter period originates in the underground gas storage in Inčukalns, Latvia. As recently as a few years ago; only natural gas of Russian origin was stored there, but now the liberalization of the market has brought about a situation where different market participants can use the storage and Inčukalns houses gas from different supply channels, including gas imported through the LNG import terminal launched in late 2014 in Klaipėda, Lithuania.
Most of the major market participants on the Baltic states’ market sell gas to the Finnish market, including Estonian, Latvian and Lithuanian traders. Thanks to the single cross-gulf gas market, market participants also have access to the GET Baltic gas exchange, which is assigned 10% of the entire transmission capacity daily, allowing market participants to compete in the Finnish bidding area with offers entered in the single zone area.
If one were to ask how successful the Baltic market participants have been in establishing a toehold on the Finnish market, the answer is simple. The advantage has come from the price. Above all, the use of the Latvian underground storage allows gas to be stored until a time when the price of gas on world markets is favourable. In practice, it is not out of the question that Russian gas stored in the Latvian facility will also reach Finland, but that is not a problem. The opening of the market has created conditions for the free import of gas from all possible supply channels and the competition keeps the price under control even if a large share of the gas comes from the same source.
With the launch of Balticconnector, the development of the single Finnish-Baltic gas market is not yet complete. Finland is not yet in the single balancing area, which is currently comprised by Estonia and Latvia. Negotiations are under way for adding Finland to the balancing zone in the coming years. Finnish accession should further facilitate the activities of the gas market participants.
In the talks preceding the launch of the single Finnish-Estonian-Latvian market area, an agreement was not reached regarding Lithuania merging with the market. The stumbling block was Lithuania’s demand that the other countries compensate Lithuanian investments into the gas system. The desire to expand the single market to Lithuania has not been shelved and efforts are still under way toward this goal. Discussions are focusing on different scenarios for enlarging the single market. It is likely that the single area including Lithuania will not become a reality before additional network investments are made in Lithuania and Latvia to reduce the risks of internal overload.
Besides the fact that Lithuania is the site of the region’s only LNG terminal with significant import capacity, the GIPL (Gas Interconnection Poland–Lithuania) is now being established. Half of the connection is complete and according to plan, gas will start flowing between Poland and Lithuania at the end of 2021. Connecting the Baltic gas network to that of Poland and, by that means, the rest of continental Europe will create further options for market participants to do business, i.e. for the import of gas to the Finnish-Baltic market and conceivably also the sale of gas to Poland and other neighbouring markets.
Ten years ago when the newly established Elering was architecting its vision of the development of the electricity and gas market, few believed that a regional gas market would get off the ground, yet the establishment of the Finnish-Estonian-Latvian gas market can already be deemed a success story less than a year after the completion of Balticconnector. The respective governments, ministries and companies responsible for the development of networks and markets have all made a solid contribution to this accomplishment. Together we are moving toward a common goal – a single European energy network and energy market.
Expert article 2782