There is a common understanding among Latvia's political leadership that we should stop buying natural gas from Russia. The aim of this policy is to not be a part of the financing of the Russian military machine. Every euro paid for natural gas supplied by Russia allows Russia to continue financing its aggression against Ukraine. This is why the Public Utilities Commission also put forward a proposal to the Saeima that would have the force of law to ban the supply of natural gas from Russia from January 1, 2023.
Anyone might reasonably wonder whether the refusal of Russian gas supplies is not a suicide attempt by the Latvian state already in the winter of 2023.
To answer this question, it is necessary to understand the current consumption of natural gas in Latvia and the Baltic States and whether there are possibilities to secure alternative supplies of natural gas without Russia. The answer basically is: "Yes!"
Latvia's estimated consumption of natural gas is 1.1-1.3 billion cubic meters per year. The total natural gas consumption of the Baltic States is around five billion cubic meters per year. The Klaipėda LNG terminal has a current capacity of 3.75 bcm/year, while the Poland-Lithuania natural gas pipeline interconnector opened on May 1 this year with a theoretical capacity of 2.3 bcm/year.
Since 3.75 + 2.3 is even above six, not the five that would be needed to supply all the Baltic countries with natural gas, mathematically everything is in order. Moreover, the Lithuanian government wants to increase the capacity of the Klaipėda terminal to five or 6.25 billion cubic meters of natural gas by the end of autumn this year. The Inčukalns natural gas storage facility, which has an operational capacity of 2.3 billion cubic meters per year (theoretically enough for two years of Latvian consumption), has already stored some and is still pumping a bit.
Of course, anyone can store gas in Inčukalns, including gas traders from countries such as Hungary, which are not banned from buying Russian gas and even oil. Once gas enters the EU pipeline system, methane, whose molecule consists of four hydrogen and one carbon atom, no longer has citizenship, which is why Edijs Šaicāns, Undersecretary of State for Energy at the Ministry of Economics, pointed out at a meeting of the Saeima Economic, Agricultural, Environmental and Regional Policy Committee on July 6: "Natural gas flows through the whole region in a single system, so for the time being it is not possible to control whether the original source of the gas flowing into Latvia is not Russia."
So, mathematically, from May 1 this year, the Baltic States can do without Russian natural gas supplies by buying LNG from Qatar, Australia, etc., as well as receiving natural gas via the Lithuanian-Polish natural gas pipeline connection.
However, the Baltics are not an isolated island with a priority gas supply arrangement in the EU. In the EU, the natural gas market continues to function even after the Russian aggression against Ukraine. With 20% of the natural gas received at the Klaipėda terminal already flowing towards Poland and 40% of the Klaipėda terminal capacity already booked by Polish companies by the end of the year, the Lithuanian-Polish natural gas interconnector is already operating not from the EU to the Baltics, but in the opposite direction - from Klaipėda to Poland.
This means that, in the absence of specific EU rules, alternative supply options must be developed. The most technically feasible option for Latvia is the Paldiski terminal, which the Latvian government hopes for.
On July 13, Prime Minister Krišjānis Kariņš stressed that the government had already instructed Latvenergo to purchase 3.8 terawatt hours (TWh) of additional natural gas, which has already been pumped into the Latvian natural gas storage facility in Inčukalns, but two more cargoes are expected to be received in the third quarter of this year via the Klaipėda terminal. It is expected that the planned natural gas stocks could last until early next year. If necessary, Latvia could buy additional natural gas at the Paldiski LNG terminal in Estonia in early 2023, which could be operational in the second half of autumn, Krišjānis Kariņš stressed.
However, the Paldiski terminal has not yet become operational and there are some risks to the start of its operations.
It is now clear that the port has already been dredged and by September 1 the construction of a berth in Paldiski port will be completed, where the LNG decompression module and the LNG tanker could berth. There is already disagreement on the next step.
According to an information report prepared by the Ministry of Economics on the development of the Paldiski LNG terminal, "the Estonian Ministry of Economic Affairs and Communications is assessing the possibility of providing state guarantees to Paldiski LNG for the construction of the infrastructure and the lease of the floating storage and regasification unit (FSRU) terminal. Alexela has indicated that the FSRU cannot be leased until the company is sure that the connection will be built, while Elering, which is responsible for the connection, has indicated that it cannot take the risk of building the necessary pipeline without guarantees from Alexela and Infortar. Elering sees the necessary guarantee as the signing of a connection agreement with Alexela and Infortar reflecting the parameters of the FSRU. Thus, both parties involved in the project are basically waiting for the Estonian government to act. The Latvian side currently has no further information on the next planned actions of the Estonian Ministry of Economic Affairs and Communications."
As virtually nothing has been started on Latvia's alternative to a possible LNG terminal in the port of Skulte, the Paldiski terminal remains Latvia's only hope in case the winter of 2022/2023 is harsher than usual. Let us hope that the Estonian government will solve the problems with Paldiski port.