Finland and Estonia Strike LNG Deal

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Written by Martin Lynch, European News Editor for Industrial Info (Galway, Ireland)--A month after a proposed LNG link between Finland and Estonia was put on ice, the countries have agreed to move ahead with a project to build two LNG terminals connected by the planned Balticconnector gas pipeline.

Finnish Prime Minister Alexander Stubb and Estonian Prime Minister Taavi Rõivas have agreed on a roadmap to get the project off the ground and reduce both country's reliance on Russian gas. It comes a month after Finnish gas utility Gasum announced that the proposed Finngulf import terminal--part of a plan to connect the gas grids of Finland and Estonia via the Balticconnector pipeline--would not proceed. For additional information, see October 7, 2014, article - Finland-Estonia LNG Project Canned.

"I am very satisfied that we have reached an agreement," Stubb said. "With the implementation of the planned measures, Finland will become integrated into the European gas network and be able to improve the country's gas-based energy security."

Finland's Minister of Economic Affairs Jan Vapaavuori added: "There is no point in building the pipeline unless we also put up a regional terminal. The projects are a large investment, and we need all of its components. The whole undertaking must also be economically feasible as, ultimately, the investment costs will be transferred to the price paid by the end users."

The planned terminal, Finngulf, located at Inkoo in southern Finland, will have the ability to supply 1 billion to 2 billion cubic metres (bcm) of gas per year after commissioning in 2019. Finland imported just more than 3 bcm of Russian gas last year. A small-scale LNG terminal also will be built in Estonia for the distribution of gas and security of supply. Developing a gas infrastructure in the Baltic region will allow Finland and other Baltic states to utilize Latvia's underground gas storage as well.

Finland and the Baltic states of Estonia, Latvia and Lithuania rely completely on Russian gas imports. By developing LNG facilities and the Balticconnector gas link, they will have access to European gas conduits for the first time. The increased conflict between Russia and Ukraine has placed energy security at the top of concerns for the European Union (EU). Russian gas accounts for one-third of Europe's gas demand, and half of that comes through Ukraine.

Gasum said that the Gulf of Finland gas infrastructure discussions were a "positive step" in developing new gas links and establishing the locations of the LNG terminals.

Gasum CEO Johanna Lamminen, said: "Gasum will continue its work to achieve progress in the projects. To be realized, the projects will have to be commercially viable. This will require the development of the gas market in the Baltic Sea region and sufficient financial support for the projects."

The EU will need to provide about €200 million ($250 million), or 75%, of the cost for building the Balticconnector pipeline. The whole project, including the two terminals, is expected to cost about €500 million ($625 million).

A fortnight ago, the Finnish government spent €510 million ($638 million) to buy back a majority stake in its only gas utility, Gasum, in an effort to reduce its dependency on Russian gas supplies. The deal took the government's share to 75%, with the remaining 25% held by Russian gas giant OAO Gazprom (Moscow, Russia). For additional information, see November 7, 2014, article - Finland Secures Gas Utility.

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