Margus Kaasik: Is the exclusion of the Baltic States from the LNG terminal EU subsidies problematic?


Clarification as to who, if anyone, can access EU taxpayer money to build a brand new liquefied natural gas (LNG) terminal has been long-awaited.

The gas supply network of the Baltic States is already well developed and provides for the transfer of a larger amount of gas than what is currently being transferred. Therefore, the tenability of each subsequent investment is questionable. Especially considering that the continuous increase in energy efficiency will also reduce the amount of energy consumed and transmitted over time.

All of this puts the news that the Baltic States’ LNG terminal projects are likely to be excluded from the list of European Common Interest Interests projects in a new and logical light.

The field of energy is such a capital intensive area that its developments in infrastructure need to relate to market-based logic and self-sufficiency. In the light of subsidies and competition with neighbours, it is tempting to make big plans and try to outperform the competition. But the real criterion is whether one or another investment is reasonable in a typical business environment. What is it that makes gas go through the infrastructure I build?

Any outside support can, on the other hand, be viewed as market distortion, which, in addition to affecting competition, eventually also has an effect on the bill for the client. It must be ensured that all our public or EU subsidies are invested in the best interests of the public benefit. This should be done in a way that does not ultimately lead to less effective solutions.

I can sense a threat that excess gas supply investments and its effects on fuel prices can trigger a reverse spiral effect and alter the image of gas being a clean, convenient and affordable fuel – the volume of gas will decrease due to the rising price, which in turn will increase the price and, in the end, will be detrimental for the customer.

I agree that the goal of bringing competition to the gas market and allowing more suppliers to distribute gas through pipelines is essential for increasing the competitiveness of gas as a fuel. However, establishing links between Estonia-Finland and Lithuania-Poland, which have already received European co-financing, and a more efficient utilization of the current infrastructure, would serve the necessary purpose for Estonia, subject to a better price and a stronger security of supply.

It is true that in some perspectives, the expansion of an LNG-terminal network is necessary, especially if projects can be planned on the basis of the needs of the market and in line with the logic of self-sufficiency. But today, the Estonian and the Baltic offline gas market is still too small – LNG generally can not compete with pipelines on the wholesale market; LNG as a marine fuel is still in its infancy, and LNG is still gaining traction as car fuel. Therefore, the existing infrastructure is enough to cover the actual needs for quite some time.

I do not believe that forcing the supply with subsidies would provide a sufficient social benefit – the market itself, as the demand grows, will send a signal to build new capacities! However, a better plan would be to support more efficient gas consumption by removing barriers to gas consumption or reducing subsidies for competing fuels. In the end, such an activity could have a much greater social benefit both from the perspective of the environment and for the consumer in terms of price. The customer is glad when they are not bound by the boundaries of heating districts, when they do not have to worry about voluntary excise tax increases, and when the fuel market as a whole is free of distortions.

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