With geopolitical tensions, a history of independent statehood as well as harsh seasonal fluctuations the strategic need for the nations of the Baltic States to diversify their energy supply away from traditional piped Russian gas has become a key concern in recent years.
With Finland, Estonia, Latvia and Lithuania currently relying almost exclusively on Russian gas and Poland purchasing some two thirds of its gas from Gazprom the common and gruelling temptation to attribute this move by Warsaw, Riga, Vilnius and Tallinn to diversify their gas supplies away from the Russian Federation is to attribute this to Moscow’s perceived aggression in Ukraine and the Crimea. The reality is somewhat different however and most regional analysts would agree that all four nations, despite their long standing mistrust of Moscow and their over reliance on West Siberian gas have been eagerly looking to diversify their gas supplies for some time.
This is for a number of core underlying reasons – from the energy spats of 2005-2006 and 2008-2009 through to pipeline shutdowns the former states of the Soviet Union and Warsaw Pact respectively have been overly reliant on fixed piped gas since independence in 1991. As key and fairly new members of the European Union with increasing domestic demand the move toward a diversified energy mix has been on the cards for some time. The temptation to view this move to diversify gas supplies in purely political or recent geopolitical terms is tempting but driven more by economic reality than by the Balts mistrust of Moscow.
Accession to the European Union has given Latvia, Lithuania, Estonia and Poland unparalleled access to the single economic market space which has in turn driven both economic growth and demand for a diversified gas mix to maintain and fuel continued economic prosperity. Developing LNG regasification terminals on the Baltic coast as well as maintaining a reduced reliance on piped West Siberian gas gives the Baltic States the best of both worlds – energy security and a reliable backup in case of shortfall of supply or high global LNG pricing.
Most would recognise and applaud the four nations for their astounding economic and political development in the past two decades but the fact remains that whatever economic arguments are made to the move for gas supply diversification are more than not drowned out by political rhetoric. According to the former Polish Prime Minister Donald Tusk when referring to energy security he stated “Poland will never be subject to any blackmail in this respect,” a worthy point indeed however clearly aimed at Moscow and the energy spats with Belarus and Ukraine over the past five years or so. Little mention however is ever given to the breaking of contract terms by both countries in the Western press – a point we would do well to remember.
With all this in mind the practicalities of selecting the right LNG regasification model for each nation remains a pertinent one. For Poland with its larger demand, access to capital and also the wider European markets fixed onshore regasification has been both selected and executed. The Świnoujście LNG Terminal, currently under construction will consist of some three 7.5 billion cubic meters per annum of natural gas upon full facility completion – enough to provide 50% of national gas demand. Furthermore PGNiG has opened its arms to international cooperation and partnership with major global LNG producers and technical partners. Moving into the latter 2010’s Poland’s major political allies such as Canada and the United States will provide a secure and preferential supply – Qatar and others provide a ready, willing and able to supply option. In addition surplus gas can be traded with neighbouring partners or stored as the operator sees fit granting a degree of system flexibility.
For Poland, the largest of the Baltic States onshore facilities are a distinct option – for the other Baltic States offshore regasification terminals provide just as effective an option for energy independence. Aptly named the ‘Independence’ – Lithuania has opted for a floating LNG regasification facility, based in Klaipeda, with a capacity of 2-4 BCM of natural gas per year, potentially enough to supply some 65-70% of the country’s needs. In this case as well surplus LNG can be used as a competitive fuel for regional shipping to both Latvia and Estonia. For the cost of a single ex-South Korean LNG vessel Lithuania has almost ensured her energy security. In Latvia and Estonia the story is slightly different with no active projects but both are actively seeking to collaborate to build a joint terminal.
It is highly commendable that the Baltic States have actively developed LNG facilities or at the very least are seeking to do so have ensured their energy independence or at least a decreased reliance on piped supplies. It is not only good for the countries in mention on a political level but also offers their domestic energy industries unparalleled international partnership opportunities as well as access to the global gas markets. In short the move toward LNG for the Baltic States provides a real opportunity to chart their own energy destiny but we must not also forget that Russia can provide a secure backup and strategic partnership should all sides be willing to do so.
About the Author: Nicholas Cobb, stationed in London, brings a depth of knowledge having worked for a number of leading energy, events and trade media companies across the EU. Nic founded Cobb Energy Communications – an energy focussed PR, events and commodity trading company with representatives in Calgary, Moscow, Ankara and Berlin. Nic is also the Chairman of the Westminster Russia Forum.
Global Political Insight 
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