Latvia Considers Collab with Estonia for Paldiski LNG Terminal as Skulte Project Becomes Unviable

  • 13-Apr-2023
  • Journalist: Jaideep

Latvia [Europe]: Latvia's climate and energy ministry has announced that they will be having preliminary talks with Estonian counterparts regarding the potential collaborative use of the Paldiski LNG terminal. This move comes as none of the proposed conditions for the Skulte LNG project have been deemed commercially viable or operationally feasible by the ministry.

Despite being designated as an "object of national interest" last year, the government declined the proposal for state support in February. The ministry has assessed alternative options to ensure Latvia's security of supply, and the cabinet of ministers has instructed the ministry to negotiate with Estonia for possible conditions for joint use of Paldiski.

Furthermore, with the recently opened facility in Finland's Inkoo and the unutilized jetty at Paldiski in Estonia, consumption in the region is insufficient to warrant the construction of another LNG terminal.

The Estonian stockpiling agency recently acquired Paldiski after successful negotiations that lasted for months. However, the interest in additional LNG capacity from Latvian firms remains limited. Latvenergo, a state-owned utility company, has already secured 6 TWh/yr of capacity at Lithuania's Klaipeda terminal. This amount is sufficient to cover half of the country's annual consumption at current levels.

As a result, some market participants have raised concerns over the necessity of commissioning a new terminal. Having three underutilized terminals doesn't make much sense given prevailing consumption. In the first quarter, Inkoo had no users, and during the summer, only Eesti Gaas booked slots.

The possibility of using Paldiski as a location for liquefied natural gas (LNG) operations in the future is more likely to be influenced by political motivations rather than market-based considerations. This is due to the absence of any immediate supply concerns for the coming year. To address concerns pertaining to security of supply, the government may be prompted to demonstrate action, particularly if there is no progress with the Skulte project.

Additionally, market analysts have raised questions around the availability of a suitable floating storage and regasification unit (FSRU), given the high demand for these vessels. Obtaining an FSRU could push up the cost of the project further. For instance, the Exemplar FSRU that was used in Inkoo was leased for €460mn, with a lease period of 10 years.

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