Special: Baltic Gas Conference: The gas market structures are changing

Sebastian Gröblinhoff, Vice-Chairman of the Board at Latvijas Gāze initiates the discussion at the 5th Baltic Gas Conference

The gas market structures are changing

For the fifth time, leaders of the largest gas companies in the Baltic States, politicians, regulators and customers discussed the current developments and future perspectives of the Baltic gas market at the Baltic Gas Conference in Tallinn. The Baltic Gas Conference 2019 focused on the opening of the Finnish gas market and the commissioning of the Baltic Connector. But topics like green gas in the energy transformation, alternative use of gas and the consumer as king were also discussed. The Baltic Gas Conference was organized by the German-Baltic Chamber of Commerce in cooperation with the Estonian Gas Association (Eesti Gaasiliit), Eesti Gaas, Latvijas Gāze, Alexela Energia and the Konrad Adenauer Foundation.

by LĪVA MELBĀRZDE

“We have to make our energy system smarter, and this requires innovative digital solutions. Work on a joint Baltic gas market is ongoing and the Estonian market really needs regional cooperation”, said Taavi Aas, Estonian Minister of Economic Affairs in his opening speech at the 5th Baltic Gas Conference. “Closing the last gaps within the European gas transmission system on the way to a European single gas market, the energy island of Finland will soon be history. Along with more intense competition and the emergence of new players, the market structures in this region are changing and it is important to answer the question of what this means for the supplier-consumer relationship”, stated Florian Schröder, CEO of the German-Baltic Chamber of Commerce. He mentioned that this conference is taking place at a historical moment – the gas pipe between Finland and Estonia, called the Baltic Connector, is filled with gas and from this moment integration with the EU’s common energy market has really started. “We need every brain and voice to convey where we stand and how we should move forward”, concluded Schröder.

First climate-neutral continent Europe has decided to become the first climate-neutral continent. There are discussions about a so-called European green deal, which means climate-neutrality by 2050 and is more ambitious than a 40% reduction of CO2 emissions. The talking points about future energy at the European level are the integrated, interconnected, properly functioning EU energy market, regional cooperation efforts towards better integrated markets, as well as a long-term strategy for emission reductions. “Natural gas as a resource will decrease, while renewable energy sources and decarbonised fossil fuels will become more and more significant.

This is the broad framework of the future energy landscape. The open question is still how to upgrade the gas market, while working on new conditions. We don’t have rules on the distribution level now, and more flexibility regarding the buying and selling of gas is needed”, said Bartek Gurba, leader of the gas team in the unit dealing with wholesale markets; electricity and gas, European Commission. He noted that the technology which turns electricity into hydrogen and then uses it to produce gas is already there, but the question is how to trigger these investments. “In the future, we will need interaction between different markets with different products and between different types of gases. It should be possible for a wind farm to produce electricity or hydrogen. We talk about solar hydrogen, which is produced in the box of solar panels. It should became a very innovative market. The big challenge we have is how to help the transition and make the national markets more open”, Gurba emphasized. He pointed out that for smaller markets, mergers might be a solution to overcome market segmentation. There are some examples in Europe but not full market mergers yet. “We look carefully at what is happening in the Baltic states. It is a difficult process and takes time. There might be risks, the capacity at the border could decrease and the tariffs there could increase, but I don’t think this will be a big issue in the Baltics”, Gurba concluded.

Finland is opening “The Baltic Connector is ready for use – the offshore pipeline with 77 km in length and a 7.2 million m3 per day capacity is now built, so I could say that my job is done”, said Tom Främling, Project Director of Baltic Connector OY, said at the beginning of the first discussion panel. “We have to talk about key drivers for the gas spot market – this needs sufficient infrastructure, liquidity and trade volumes. It’s better to have a regional trading system. I am sure Latvian and Estonian market areas will merge, a spot market will be opened 24/7, similarly to the Nord Pool power exchange. There is still a price difference between the Baltic countries, but we have 50+ active gas traders. For the next year at least a 4 TWh gas market should be available. My opinion is that the gas market should become competitive by 2022 and then the financial players will enter it and show an interest in this market.” Gintaras Buzkys, CEO of GetBaltic, has a clear vision about the gas market’s perspective. “The Finnish government set a target to become carbon neutral by 2035, which represents a huge transformation. The technical capacity is there, the commercial capacity will be there too, but we – the Baltics and Finland – are a very small market”, concludes Olli Sipilä, CEO of Finnish Gas Transmission Services. “The capacity of Lithuania’s gas market is 2.2 bcm, Latvia’s 1.2 bcm, Estonia’s 0.5 bcm and Finland’s 2.5 bcm. ‘Gasum’ has a monopoly status in Finland but what’s different from the Baltic countries is that large companies take a very big share of the Finnish market – more than 90%. Price is important in Finland but it is not everything. The partner should also be reliable, solid and capable, and there is great demand for green energy and ethical standards”, says Ants Noot, CEO of Eesti Gas of the Finnish market. “We have to start investigating how to show the ways in which companies benefit by being fully sustainable. How can we increase the organic component because this is a big issue for Finnish customers. We have already had some customers asking if it is possible to buy vegan gas”, adds Olli Sipilä. “We started with the electricity market and building cables. A lot of jobs are done here but we would like to integrate the market and as soon as the liberalization of the gas market was discussed, we started to lobby very hard for it. Without vision there is nothing. The Baltic Connector pipeline without a common market, based on money, is just a piece of infrastructure, but now we look forward to plenty of opportunities”, said Taavi Veskimägi, CEO of Elering AS.

Green gas in the energy mix “There are several ways of making green energy: methane (biogas), renewable decarbonised & lowcarbon gases, blending methane and hydrogen. What’s important are the EU guarantees of origin and certificates of the gas. Member states’ solutions should be compatible across borders and energy careers”, said Claude Mangin, ENTSOG market development manager. “The Energy Union means making energy more secure, affordable and sustainable. This involves putting energy efficiency first, achieving global leadership in renewable energies, and providing a fair deal for consumers. The European Commission’s longterm strategy shows that natural gas consumption could drop by 95% by 2050. The question is; how much renewable gas can be produced and how much will this transformation cost?” Nicolas Jensen opens up the second discussion panel about the importance of green gas in the energy transformation. “The costs of full electrification is incredibly expensive. We need to know what kind of gas we are actually trading. Decarbonised gas is not considered in the legislation. As a member state, you can put on a label, but this doesn’t mean that each member state has to follow suit”, Jensen concluded.

Consumer as king Since the opening of the energy markets, it was always said that the

customer is now the king. Indeed, customers have new opportunities and can request different types of products, which also means different prices and contract terms. “Is the consumer becoming a king? From a seller’s perspective, I hope not. LNG is only 10% of the global gas market, but we expect it to reach 15%. Gas prices dropped significantly in 2019 because many large Asian markets could not respond to LNG supplies and LNG imports to Europe increased by 85%. But European storage capacity is limited. Investors believe in the future of gas. For customers, competition is king because new products can be bought. The king and queen question depends on how quickly the markets open up for third parties”, said Niall Trimble, Managing Director at the energy contract company. “LNG prices in Japan for spot customers from 2015 to 2019 significantly dropped. Europe is a very open market, where the surge of LNG cargoes into Europe doubled, but LNG oversupply won’t last forever”, Trimble added. “The market merger will take time to build a bridge to a carbon-neutral society. We also produce biogas and believe in the circular economy. Nowadays most of the gas still comes via Russian pipelines, with LNG taking a very small share of the gas market. Environmentally-friendly solutions are in great demand, so our focus on safety and responsible business is very high. We invest in marine bunkering and the transportation sector. Biogas production is one of the key alternatives to reduce emissions, and transport is very important to reduce the emissions”, is how Jouni Liimatta, Head of Trading by Gasum OY talks of his company’s plans. “The position of the customers has improved in the last 2 years. The LNG terminal in Klaipeda was not utilised much in the first few years, but Russian gas began competing with LNG in 2019. It gives consumers a stronger position. Today, customers have a choice – fixed prices or flexible prices connected to Western European hubs. But customers must also assume responsibility for their decisions. There will be more competition and cross-border trade, but the market will not grow. More competitors for a shrinking market – this is a good message to customers. Consumers in free markets ask really advanced questions. Regulation is increasing rather than decreasing”, concluded Sebastian Gröblinghoff, Vice Chairman of the Management Board at Latvijas Gāze AS.

Alternative use of gas “The current use of natural gas is very different with regard to transport, condensing, heating and industry, but there is great scope for growth – hydrogen fuel cell trains, trucks, cars, steel production. An alternative use of gas focuses on the benefits of natural gas”, said Dr. Norbert Azuma-Dicke, Head of Public Affairs at Zukunft Erdgas e.V. “In the past, people believed that renewable energy would cover all natural gas demand. But now there are many new projects for alternative uses of gas. We are selling energy and are pioneers of LNG consumption in the Baltic states. LNG is also important for industry. If you want to drink wine, you have to have a glass. Similarly, if you want to use LNG, you need infrastructure. Our first project producing electricity from LNG in a cogeneration station in Latvia is

a price competitive solution“, points out Marijus Simanavicius, Business Development Manager Baltics of CROYGAS M&T. “We were an island connected to the Russian gas pipeline. There are no cleaner choices for transportation than natural gas. It has 25% lower CO2 emissions than diesel, 80% less than NOx, 99% less than Sox and it produces less noise. The Baltic Sea is one of the most endangered sea ecosystems in the world due to the more than 2,000 ships longer than 24 m on it. The fuel plays a big role for the environment. Very soon, we will have our own LNG bunkering vessel and the market is estimated to grow from 1 bcm to 7 bcm by 2030. LNG vessels will reduce emissions annually by the amount produced by 1,000 trucks. Public transportation is a key driver for CNG and biogas consumption as well as for cleaner cities. LNG use in trucks is estimated to grow more than 10 times in Europe by 2030”, said Kalev Reiljan, Board Member at Eesti Gaas. “Cars will remain – the question is, which energy they will use? CNG, LNG, H2? And what fuel will be used for aviation? There is constant searching for smarter solutions based on existing infrastructure and we also are working on it. There is no good short-term solution on the table, but gas is a very good alternative as the cleanest available fossil fuel”, believes Artur Dianov, Head of alternative fuels projects / development manager at Alexela AS.

Next year Helsinki The Baltic-Finnish gas market is still developing. There are still many questions to be discussed at the 6th Baltic Gas Conference 2020 in Helsinki. LM

in cooperation with