At the moment, natural gas flows into the Inčukalnas underground gas storage only from Lithuania. In total, the storage currently has around 10.4 TWh, but it is not known how much of this gas is intended for the Latvian market, as gas is also stored in Inčukalni for the needs of Lithuania, Estonia and Finland. Depending on the length of the heating season, the total annual consumption of all four countries could reach as much as 69 TWh. Experts estimate that the amount of gas owned by Latvian companies in storage could be around 3 TWh. This is about a quarter of Latvia’s total natural gas consumption in the past year.
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Crisis simulation – who will be “unlocked” first?
As part of the training, a situation was simulated when an energy crisis has been declared in the country – the exchange of information between the parties involved and the possibilities of technically limiting the supply of natural gas to the largest consumers were tested. The training was organized by the natural gas distribution system operator “Gaso” in cooperation with the Ministry of Economy and the Inčukalna underground gas storage manager “Conexus Baltic Grid”. The training involved 1,500 natural gas users, who, upon receiving a warning, had to simulate reducing their natural gas consumption to a certain amount.
In the exercises that took place last week, all possible stages related to the limitation of natural gas supply were played out – from early warning to users up to the third-level energy crisis. With the participation of one and a half thousand natural gas users, only one of the levels of the crisis was “played”, while at the operational level, without the participation of users, all three levels of the energy crisis were played out as part of the training. “The composition of the training participants was deliberately designed in such a way as to realistically play out the requirements of the current regulatory framework,” says Jana Rubinčika, the representative of “Gasso”.
According to the rules adopted in 2011, a first-level energy crisis occurs when the possibility of ensuring energy supply decreases by 7%-12% of the daily average energy consumption, a second-level crisis – if it decreases by 12%-17%, and a third-level crisis – if it decreases by more than 17%. According to the level of the crisis, the consumption of natural gas users is reduced. Secured users, that is, households, as well as, for example, schools, social care centers, operative and emergency services, as well as several other institutions are not affected by these restrictions. On the other hand, for users of the second and third groups, the amount of consumption restrictions depends on the level of the crisis – the higher the level of the crisis, the greater the restrictions. In a third-level crisis situation, the amount of restrictions can reach up to 100% of daily consumption for users of the third group. Most companies fall into the third group. Exceptions are producers of food and agricultural products, local public transport service providers, food suppliers and companies in which interruption of the technological process may cause accidents, damage to equipment or loss of produced products on a large scale. They belong to the second group, whose consumption restrictions in the case of a third-level crisis are up to 80% of daily consumption.
Rubinčika points out that according to the lists of natural gas distribution system operator “Gasso”, which were updated last year, the last of the mentioned criteria is met by approximately 200 users.
The capacity of Klaipėda is exhausted, the construction of the Paldiski terminal is delayed
After Russia’s invasion of Ukraine, the issue of giving up Russian natural gas came to the agenda of both the European Union and the Latvian Saeima and government. Last year, the share of natural gas in Latvia’s total consumption of energy resources reached about a fifth, more than 90% of the gas consumed in Latvia was of Russian origin. Already at that time, energy experts emphasized that, from a moral point of view, the intention to give up Russian natural gas is, of course, justified, but it should be taken into account that in the current conditions, when the only alternative for natural gas supplies via pipelines from Russia is the Klaipeda liquefied gas terminal, the implementation of this decision may prove difficult in practice. For the fastest liquefied gas infrastructure object to be implemented, which would allow supplying the Baltic States and Finland, as in springthe liquefied gas terminal in Paldiski, Estonia is still considered.
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Although the construction works of the pier in Paldiski are planned to be completed by September 1 of this year, Estonia itself does not particularly count on the possibility that this terminal will start working this year. This week In Estonia, “Eesti Gaas” announced, that in October-November of this year, the company will receive liquefied gas in the amount of 2TWh through the Klaipeda terminal. “Eesti Gaas”, which operates in Latvia under the brand name “Elenger”, purchased the liquefied gas worth EUR 300 million from the Norwegian concern “Equinor”. In the first half of this year, “Eesti Gaas”, which, unlike “Latvenergo”, currently publicly discloses both the parties involved in liquefied gas purchase transactions and the costs, purchased liquefied gas from the USA and Norway using the services of an intermediary – Polish “PGNiG”. Meanwhile, “Latvenergo” purchased 2 TWh of liquefied gas in March of this year – it has been transported from the Klaipėda terminal to the Inčukalnas underground gas storage. By the end of this year, “Latvenergo” has been instructed to purchase another 2 TWh of gas. In her reply to the Saeima Requests Commission dated June 16 of this year, Economy Minister Ilze Indriksone stated that “Latvenergo” has made capacity reservations at the Klaipėda terminal. True, publicly available information does not confirm this – terminals have been reserved for use in the last three months of the year by five companies, among which there is no Latvian company. In the period from October this year to the end of the year, 9.66 TWh of liquefied gas will flow through the Klaipeda terminal. The demand for terminal services has even exceeded the available capacity four times, so now “Klaipedos Nafta” has decided to study the possibilities of increasing the regasification capacity. “Latvenergo” on the program “What’s happening in Latvia?” the question of whether it should be concluded from the answer of the Ministry of Economy that the company has an agreement with a third party regarding the use of its reserved capacity in the last quarter of this year, no clear answer is given. “An essential prerequisite for ensuring the supply of natural gas to Latvia and the Baltic States is the fastest possible construction of another terminal in the region, and the most expeditious one can be established in Paldiski, Estonia. Currently, it is predicted that the operation of the terminal could be started in November of this year, and the work of creating the infrastructure has begun,” “Latvenergo” communication director Andris Siksnis says in a written answer to this question. The task of the Cabinet of Ministers will be fulfilled by the end of this year. How much this transaction will cost “Latvenergo” is currently unknown, but the amount named in April – 230 million euros – will most likely not be enough. “Eesti Gaas” will pay approximately 300 million euros for 2 TWh of liquefied gas. The Minister of Economy Indriksone’s answer to the Saeima deputies indicated that in preparation for the purchase of liquefied gas, “Latvenergo”, fulfilling the government’s task, has approached the large gas consumers with an offer to purchase gas together. The response was not great, the letter stated, without specifically explaining the reasons for this. – “”Latvenergo” approached sixty customers with large gas consumption about their interest in participating in a joint purchase of natural gas. A total of six legal customers, including several municipal heat producers, food producers and a processing merchant, confirmed their formal readiness after evaluating their opportunities, the perspective of the offer. This type of transaction it is an unprecedented event for everyone involved, so it is understandable that it requires preparation, analysis and also risk-taking. – to direct legal funds even before the guaranteed reservation of the natural gas volume,” Siksnis explains the cautious attitude of the companies approached. The fact that the purchase of natural gas has become very difficult for the program “What is happening in Latvia?” confirmed “Rīgas siltumā” – since the spring, the company has held 12 procurements, but only five have resulted in signed contracts. In several of these tenders, no offer has been received, in others the offered price has significantly exceeded the market prices. In general, for the next heating season, “Rīgas pratmas” needs 0.5 million MWh of natural gas. Currently, the heat producer has managed to purchase only a part of this amount – with the purchased gas and what remained in the stocks after the previous heating season, enough until approximately the middle of December. “Initially, two procurement procedures were held with the planned delivery volume of 100,000 MWh. In both procurement procedures, the offer of JSC “Latvijas gāze” with the country of origin of natural gas – the Russian Federation was submitted as the cheapest offer. These procurement procedures were completed without a winner. Considering the situation market, a decision was made to divide the amount of natural gas required for the 2022/2023 heating season into smaller amounts and to conduct weekly procurement procedures for volumes up to 100,000 MWh, but not less than 20,000 MWh. The tender requirements provide that the country of origin of natural gas must not be the Russian Federation,” explains Linda Rence, the representative of “Rīgas pratma”. Looking for opportunities to purchase natural gas, “Rīgas siltums” will approach “Latvenergo” in April of this year with a request to include 0.25 million MWh for “Rīgas stilmas” in the total purchase. Quite recently – on June 29, an answer was received that the purchase of natural gas from “Latvenergo” will not be possible. On July 14, the Saeima adopted amendments to the Energy Law in the final reading, prohibiting the supply of natural gas from the Russian Federation. It is true that the ban will come into effect from January 1 of next year, which means that pipeline deliveries from Russia are still possible in the coming months, but taking into account Russia’s requirement for western countries to pay for natural gas in rubles, it would be quite difficult for potential buyers of Russian gas at the moment options to pay for it. The Cabinet of Ministers also adopted a decision similar to that of the Saeima, namely to ban natural gas supplies from Russia, but only from next year. Zero as amendments to the law passed by the parliament will actually take away natural gas public trader status for “Latvijas gāzei”, whose shareholder is the Russian “Gazprom”. Namely, in accordance with the norm included in the law, the public trader is obliged to ensure that no later than August 31 of each year, the amount of natural gas required for the consumption of related users for the period from October 1 of the given year to April 30 of the following year is stored in the Inchukalnas underground gas storage. If this obligation is not fulfilled, the duties of the public trader will be taken over by “Latvenergo”, which until the end of this year will have to sell natural gas to related users at the tariff already set by the Regulator. It is calculated at the natural gas purchase price of EUR 107.34 per MWh. Currently, natural gas the price already reaches 165 euros per MWh and sometimes even higher. “Latvijas gas” board chairman Aigars Kalvītis in the program “What’s happening in Latvia?” confirmed that the current largest natural gas trader does not currently have large enough natural gas reserves to fulfill this obligation. In addition, the company is not currently planning large-scale gas purchases to build reserves. “At the moment, we only sign contracts with clients for a month,” admitted Kalvītis. The injection of natural gas into the Inčukalnas underground gas storage has started earlier this year than in other years. The pumping season usually lasts until mid-October. 2020/2021 in the pumping season of 2008, the amount of gas pumped into the storage reached 21.5 TWh. This was the record of the last years, which is most likely explained by the fact that natural gas prices were very low in 2020. For example, in 2018/2019 In 2019, at the end of the pumping season, the amount of gas in storage was only 13.5 TWh, but in 2019/2020 at the end of the season – 17.7 TWh. High prices are one of the reasons why natural gas consumption in Latvia is falling, according to the data of the Public Services Regulatory Commission, it has already decreased by 18% in the period from November 2021 to the end of April this year. Energy market experts are sure that this trend will continue this year as well. However, how much natural gas Latvian consumers will need for the next heating season and how much they will have to pay for it in the end, no one can reliably predict at the moment. –Little interest in joint procurement, probably because of the risks
Dilemma – between lack of gas and buying Russian gas?
