“Rus.nra.lv” interviewed Jānis Kalēju, the head of the wholesale department of “Latvenergo” about the nuances of the gas market – from servicing households to deliveries to large companies.
Many residents of Latvia learned about “Latvenergo’s” connection with gas only last spring, after the government imposed an obligation on your company to purchase gas on the international market in order to ensure reserves for the winter…
In fact, “Latvenergo” has been operating in the gas market since April 3, 2017, since the liberalization of the gas market. Since 2017, volumes of liquefied natural gas have been supplied through Lithuania, gas of Russian origin is also purchased through the pipeline through the company AS “Latvijas sāze”. Currently, due to the war in Ukraine, Russian gas supplies to our region are prohibited from January 1 of this year. “Latvenergo” has carried out the restructuring of gas suppliers, which we now receive from Lithuania’s Klaipeda and Finland’s new LNG terminal in Inko port. In this way, we balanced the client portfolio and delivery volumes. At the same time, “Latvenergo” increased gas supplies to the Baltic States and Finland, where we only have industrial customers.
Where does liquefied gas come from in Latvia? Russian suppliers again?
No. “Latvenergo” currently has direct contracts with more than 10 global gas suppliers and traders, with world-renowned companies – direct LNG (liquefied natural gas) producers and traders. Of course, everyone knows LNG producers: companies from Norway, the USA, South Africa, Australia, Qatar and South America.
Lithuania has a gas terminal in Klaipeda, Estonia has a common terminal with Finland Inko and its own, although not yet operational, in Paldiski. Maybe it’s time for Latvia to build its own gas terminal?
Two already operating gas terminals in Inko and Klaipeda provide the gas needs of the entire region. Both terminals have an annual regasification capacity of 72 terawatt hours (TWH). They have reached the optimal gas supply capacity for the region, but it can be increased if necessary. Klaipėda is already discussing this issue. In Paldisko, as far as I know, about two months ago, small construction works had to be done. All that was missing was a loading lever to ensure the supply of LPG from the sea to the shore. But the pier itself and all the structures were ready. I think they’ve got it covered now and all that’s left to do is put the gas tanker at the dock to start the regasification.
I think the Estonian terminal should definitely stay for the sake of security of gas supplies. A couple of months ago I had a conversation with the operator of the Finnish gas distribution system, who is also the operator of the Inko terminal. At any moment, the gas tanker used for gasification can move from Inko to the terminal in Paldiski within a few hours and continue working there.
How much gas do we need?
If we look at the gas consumption in the entire region – after last winter and after the commissioning of production capacities of renewable energy resources (using solar, wind, etc.), this year gas consumption will be approximately 40-45 TWH. The capacity of each terminal is approximately 36-40 terawatts per year. And the market in our countries is too small to build another terminal. I repeat that from an infrastructure point of view, the capacity of the existing terminals is sufficient. In addition, part of the gas from Klaipėda goes through the pipeline in the direction of Poland to Western Europe.
Last year, “Latvenergo” signed a long-term contract with the Klaipėda terminal for loading six terawatts of gas per year. So you took on about half of the total gas consumption in Latvia?
Even more. Historically, Latvia actually consumed about 12-14 TWH of gas per year. Everyone knows what happened to gas and energy prices last year. Since the outbreak of hostilities in Ukraine last year, gas consumption has logically decreased. Latvia has also started to actively use renewable energy resources, perhaps even earlier than expected. Consequently, gas consumption in Latvia has decreased to approximately 9-10 TWH per year. However, we do not look at the market only from the point of view of one country, our region is Latvia, Estonia, Finland.
Did you not forget Lithuania?
When transporting gas through Estonia and to Finland, there are no tariffs for pumping between countries. In this way, “Elektrum” can deliver gas to customers in Estonia without additional fees for gas that crosses the border between Latvia and Estonia.
The same applies to deliveries to Finland. Lithuania appears to be planning to join the treaties and the issue has been under discussion for several years, but so far there has been no progress. Since “Latvenergo” has concluded a contract for the supply of 6 TWH, regasification at the Lithuanian terminal is extended throughout the year – gas is supplied to customers in Lithuania directly from Klaipėda.
How much more do Lithuanians have to pay for gas that crosses the border of Latvia?
There is no secret here. Regasification in Klaipėda costs around €1.40 per megawatt hour to feed the gas into the system. You have to pay later, depending on what goods are bought at the border – the next day, for a quarter, for a year – approximately one euro per megawatt hour. That’s how the market works. It should be noted that from April – May, when the gas pipeline interconnection between Lithuania and Poland began to operate, technically, gas from Latvia, from Inchukalna, can reach Spain. Of course, border tariffs will become an obstacle – on the border between Poland and Lithuania, Poland and Germany. When crossing the borders of each country, each operator has its own tariff. Technically, such pumping is possible, but from the point of view of costs, it is unlikely to justify itself.
Won’t we pay Klaipeda for gas?
Of course, it would be better if this tariff did not exist. However, if you compare the two terminals – Inko in Finland and the Lithuanian LNG terminal – the regasification tariffs are lower in Klaipėda. The fact is that the liquefied gas must be heated before it is pumped into the pipeline so that it can be transported further along the pipe. And the same liquefied gas is used for heating. The percentage charged by Klaipėda is lower compared to Inko terminal tariffs. Klaipėda works more efficiently. There is no astronomical difference in the service prices of the two terminals – depending on the season, the difference is about 50 cents per megawatt hour in favor of Klaipėda.
How did you sign a contract in Klaipeda? According to what schemes are the gas terminals of the region currently operating?
The possibility of long-term booking appeared in Klaipeda only last year. If there are more applicants than the offered capacity, then the available capacity is proportionally redistributed. Klaipėda reserves approximately two thirds of its capacity for long-term contracts. A little less, about 12 terawatts – for so-called short-term contracts. Any regional dealer can apply for these capacities throughout the year. And the so-called “spot” gas is purchased any month, at a specific moment. The same Inko in Finland does not yet offer long-term contracts, but started work in January and accepted the first commercial cargo in March – April (the gas year does not coincide with the calendar year, it is counted from October to October of the following year). For now, it works mainly in the spot market – it is offered for sale in the next month, on specific dates. Once they have a full year of gas then they will start offering annual contracts. In any case, as I mentioned, the total capacity of regasification terminals in the region is greater than the existing demand. Therefore, both Inko and Klaipėda traders often place orders when necessary. Here, first come, first served. And if it is necessary to increase the volume, we evaluate the need to purchase gas on the “spot” market.
Do we only get gas through sea terminals?
Now it is possible to receive gas through the gas pipeline – an international connection between Poland and Lithuania. There, the gas flows in both directions. More, of course, to Poland. Users of the Klaipėda terminal are also Polish companies. Everything depends on the price situation. And not only Polish companies are already operating in our region. Dozens of Western European companies have already opened representative offices with us, operate in the region and use our infrastructure. For example, those who send gas to the Czech Republic or vice versa. Of course, they work only in wholesale, not with end consumers and especially not with households. Transactions are concluded on the exchange or directly with other traders who resell gas to smaller consumers. At the scale of our market, the big players are not interested in individual consumers. We can compare volumes – in Europe, more is pumped into storage during a day than the whole of Latvia consumes in a year.
Can we say that gas prices are now significantly different from last year?
Right now it’s the so-called summer prices, and as soon as the strike was announced in Australia, literally on the same day they went up by 30%. And as soon as they agreed that there would be no strike, prices immediately fell. Current prices are 30-35 MW per hour.
So why did I hardly notice it as a small household?
Households had a regulated market until May 1. Only “Latvijas gāze” provided gas supplies to private individuals. And, of course, there was a large reimbursement of expenses from the state. And thanks to this mechanism, it was possible to resist a sharp rise in prices for Latvian residents in the winter. Market regulation ended on May 1. You can choose a supplier and simply compare prices.
There is an opinion that gas prices for residents are not falling at the moment, because pipeline gas from Russia was cheaper.
No. The price of pipeline gas from Russia was also indexed to the gas price on the popular Dutch gas exchange TTF. Accordingly, it no longer made much difference whether the gas came through a pipe or was supplied in liquefied form.
You sell a lot of gas. Has the price difference between wood chips and gas for heating decreased due to the drop in gas prices and the increase in wood chips?
From a purely economic point of view, it does not matter whether you are a district heating plant or an industrial company – last November everyone had to make one decision about what fuel to use in boiler houses. Considering wood chips as an energy source, let’s remember that the European decarbonization policy has been announced. Wood chips, biomass, wind farms, solar energy – this is the direction in which the entire energy industry in Europe is heading. There is pressure to reduce the amount of burning of non-renewable energy resources, and this is reinforced by the introduction of emission allowances. On a per megawatt basis, energy from wood chips is cheaper than from natural gas. Especially when the cost of emission allowances is taken into account. And today it becomes clear that the Green Deal will last for a long time and we will continue to move forward together with all of Europe and the world.
Considering the plan to build new capacities for the production of “green” electricity, will gas disappear as a raw material for heat and electricity in the near future?
There is and will be a place for natural gas in energy to balance consumption peaks and ensure the balance of the energy system – when solar panels cannot work at full capacity in winter or wind farms cannot work at full capacity in periods of peace. Or, conversely, when renewable resources provide too much energy. Of the fossil resources, natural gas provides the most environmentally friendly way to balance these peaks. It is convenient for the house – I turned on the boiler, and the radiators began to heat.
What can be recommended to owners of gas heating boilers in this regard?
“Latvenergo” under the “Elektrum” brand deals not only with the sale of electricity and gas to end consumers, but also with alternative types of heating systems, including heat pumps. Trading volumes for these systems have increased significantly recently as people calculate the long-term costs. But this only applies to private houses. A heat pump cannot be installed in the apartment.
You are a very large gas trader for Latvia, including for households. Why did you not buy the gas distribution system operator “GASO” at an auction, but gave it to Estonians?
“GASO” is indeed the only operator in the country responsible for the distribution of low-pressure gas. Until the auction, the owner of “GASO” was the company “Latvijas gāze”. The Latvian company “Connexus” is responsible for the main gas supply. “Latvenergo” carefully studied the possibility of purchasing “GASO”. However, the company was sold to Estonians. The sale was confidential, probably the Estonians offered better terms. The current operator also owns the Estonian gas distribution system. They have experience.
After the cessation of Russian gas imports through the pipeline, where do you think Latvijas gāze can get gas from now?
It can be delivered by pipeline from Poland. I have not heard that they participate directly in the Klaipeda oil auctions, but it is quite possible that they are now buying this gas from other companies. Such a possibility exists. There is enough gas in the Baltic region.
2023-09-10 02:15:12
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