FOI-R--3990--SE_reducerad

FOI-R--3990--SE
linking the price of gas to that of oil. 159 If the Commission is unsuccessful and
Gazprom maintains the oil price link, the Baltic states will be at an even bigger
disadvantage – cut off from the rest of Europe as it moves to a more competitive
and resilient hub-based pricing system.
In addition to fluctuations in gas prices, dependency on a single monopolistic gas
supplier can lead to supply interruptions, which in the dead of winter can prove
politically disastrous for national leaders and even deadly for consumers. In
Estonia, for example, during peak winter gas demand, restrictions on the Russian
side of the transmission system can leave the Narva and Värska cross-border
points inactive as Gazprom strains to meet demand in St Petersburg and northwest
Russia and as a result, gas stops flowing into Estonia. According to the
contract between Gazprom and Eesti Gaas (Estonia’s gas importer and
distributor), under such circumstances Estonia is forced to rely exclusively on the
underground gas storage (UGS) facility at Incukalns, Latvia, in which Gazprom
also holds a significant stake that affords it effective control. Since the facility
has limited capacity during times of peak demand, and since the gas connection
between Latvia and Estonia cannot deliver more than 6 or 7 million cubic meters
(mcm) per day, Estonian consumers could face power cuts when they are most
vulnerable. This came close to occurring in 2006, when freezing weather pushed
Estonian gas demand to almost 7 mcm/day. 160
To lessen Russia’s leverage on the Baltic states, the three countries have aligned
their priorities with those of the European Commission’s energy policy. These
priorities include diversification and ensuring the security of energy sources,
increasing the competitiveness of domestic energy markets and widening the use
of sources of renewable energy. In order to achieve these goals, steps have been
taken to improve the region’s energy infrastructure and better integrate the Baltic
energy systems into the European energy network. For instance, there are plans
to build liquefied natural gas (LNG) terminals and gas pipelines. A local LNG
terminal at Klaipėda in Lithuania will be fully operational by the end of 2014,
and Finland and Estonia are still negotiating the details of a major regional
facility. An gas pipeline between Estonia and Finland will be connected to the
chosen site of the regional LNG terminal, and another is planned between
Lithuania and Poland.
Diversifying supplies and fostering a spot market for natural gas in a region
highly dependent on Russian oil-indexed pipeline imports will enhance energy
security in the region while, ideally, lowering gas prices too. The EU’s support
for these projects, provided as part of the Baltic Energy Interconnection Plan
159 European Commission (2012): Antitrust: Commission opened proceedings against Gazprom,
Press-release, Brussels, September, available at: http://europa.eu/rapid/press-release_IP-12-
937_en.htm
160 Bryza & Tuohy (2013): op. cit.
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