Since the government’s decision to reject the proposal of the developers of the Skulte terminal, the state institutions have not responded to the call of the management team of “Skulte LNG Terminal” AS and the investor to discuss possible scenarios for the construction of the Skulte liquefied natural gas (LNG) terminal and the further development of the project, said one of the shareholders of “Skulte LNG Terminal” AS “Virši-A” board chairman Jānis Vība.
He explained that state involvement in the construction of LNG terminal infrastructure is typical everywhere in Europe. In the case of Finnish and Lithuanian terminals, state involvement and support is measured in tens of millions of euros every year.
In the case of Latvia, such involvement would not even be necessary if AS “Latvenergo” had not concluded a 10-year contract with the Lithuanian Klaipėda terminal.
“It is significant and at the same time very peculiar that such an agreement was concluded literally a few days after Latvia decided on the need for its own terminal and the Skulte terminal was granted the status of an object of National Interest,” said Vība, explaining that the Klaipeda terminal and the Lithuanians thus “he very elegantly used the situation to slow down the development of his competitor Skulte terminal in Latvia”. Vibe also emphasized that this 10-year contract can be defined as our state’s guarantee, which has been given to the Klaipeda terminal without any discussion or special publicity.
As the chairman of the board of “Virši-A” explained, knowing that AS “Latvenergo” as the largest consumer of natural gas in Latvia is “locked in” for 10 years in the Klaipėda contract, as well as the fact that the Skulte project requires ambitious investments from the strategic investor, “Skulte LNG “Terminal” requested the involvement of the state in ensuring the financial flow in the first years of operation, in a preliminary amount of up to five million euros per year, depending on the actual load of the terminal.
“This state’s involvement would be compensated by reducing the terminal usage fee in the later period. Also, some reliefs of an administrative nature were requested,” explained Vība, adding that, in his opinion, it is not a high price for Latvia’s energy independence when compared to a similar situation in other countries, as well as , if compared to the Latvian state’s possible plan to build the terminal itself, which would be a significant cost to the state budget, besides, the construction process would also take much longer due to the bureaucratic burden of procurement and other issues.
Vibe explained that the company expects a constructive dialogue from the state and expressed regret that this is not happening at the moment.
“Since the government’s decision to reject the proposal of the terminal developers, the state institutions, at least for now, have not responded to the call of the “Skulte LNG Terminal” management team and the investor to discuss possible scenarios for the construction of the Skulte terminal and the further development of the project. We believe that both parties should move to a much more intense pace of negotiations to discuss the further scenarios for the successful implementation of the project,” said Vibe, adding that physical meetings would be a much more productive form of negotiations than “symbolic sending of letters every few months”, some of which have still not been answered.
Vība expressed confidence that as a result of such communication, a mutually beneficial result could be reached in the interests of all Latvian citizens, the national economy and security.
He also pointed out that it would be necessary to devote all efforts in order not to end up in a situation where “Latvia once again squanders a unique opportunity to promote a project that will have a positive effect on its economy in a similar way as it has already happened before with other ambitious investment projects”, which, without seeing the state’s interest and political entrepreneurship, in their realization they have drifted to neighboring countries, where new investments and jobs are created.
“As a result, in terms of economic development in the last decade in Latvia, we continue to lag behind neighboring countries, despite the advantages of our country with the availability of quality workforce and a favorable geographical location,” said Vība.
He explained that Latvia will need natural gas for at least the next 10-15 years, because it is used to produce electricity and heat in thermal power plants. Also, natural gas is used in many manufacturing companies as a convenient and relatively competitive energy source in terms of price in the long term.
“In the coming years, the Baltic countries will disconnect from the BRELL electricity supply circle. In order to maintain the electricity frequency in the Baltics at the required level, it will be necessary to produce additional electricity. In that case, the consumption of natural gas may increase provisionally by three terawatt hours (TWh), from the approximate average level of the last years, which is 10 TWh, up to potentially 13 TWh per year,” Vība explained, emphasizing that therefore the opinion that natural gas will no longer be used in Latvia in a couple of years has absolutely no rational basis.
He also emphasizes that, at the same time, it is important to increase the capacity of renewable energy resources (RES) in Latvia, but this is a large-scale process in terms of investment and a long-term process, so the importance of natural gas as an energy source in the Baltic region will remain very important in the medium term.
Vibe also explained that the natural gas market of our region should be viewed on the scale of Finland, the Baltics and Poland. Currently, the annual consumption of this region is about 80 TWh, while the current terminals in the region, which are located in Finland and Lithuania, have a capacity of 60 TWh.
“The argument has often been heard that the capacity of these terminals is sufficient to supply the Baltic States and Finland, however, it should be recalled that a large part of the Klaipėda terminal’s capacity is already directed to the Polish market, which is significant in terms of scale, so, in my opinion, there is room in the market for one more terminal , which would be located in Latvia, thus providing Latvia not only with energy independence, but also with new investments, jobs and a high potential to outcompete terminals in neighboring countries,” stated the chairman of the board of “Virši-A”.
Vība also explained that Latvia has a unique advantage given by nature – the Inčukalna natural gas storage. Practically nowhere else in Europe is there such a geographical situation where a natural gas storage is located so close to the sea and can be connected to a gas pipeline without crossing cities and other densely populated areas. This means that in the case of Skulte, there is no need to make large-scale investments in LNG storage, as is the case, for example, in Klaipėda and Finland, where these storage functions are performed by an expensive ship, but it is possible to direct the delivered natural gas directly from the terminal directly to the Inchukalnas storage.
“Such a solution requires approximately four times lower investments. Also, natural gas does not have to travel many hundreds of kilometers to and from Inčukalna, as is the case in competing terminals, which require significant energy consumption and the payment of transmission tariffs,” said Vība, explaining that Skulte’s solution would be able to to offer a much lower terminal tariff than other regional terminals, which would give the opportunity to take over the large natural gas consumers from Klaipėda and Finland, as well as resulting in lower natural gas and electricity prices for Latvian residents.
It has already been reported that in the second half of February, the Cabinet of Ministers rejected the cooperation conditions of the project proposed by “Skulte LNG Terminal” and the strategic investor, as it was not acceptable to it the amount of the required guarantees.
As informed by the Ministry of Climate and Energy (KEM), on January 24, the Cabinet of Ministers instructed the KEM to conduct an in-depth evaluation of the cooperation conditions of the project. In order to ensure a qualitative analysis, on January 30, KEM requested additional information from the developer.
After receiving additional information, which provided more detailed information about the project’s infrastructure, capacity and costs, KEM concluded that the specific terms of cooperation of the project could not be supported, mainly due to the extent of their regulatory benefits and guarantees.
On the other hand, Prime Minister Krišjānis Kariņš (JV) said in an interview with LTV’s “Rīta Panorāma” that the government has not abandoned the position that Latvia needs its own liquefied natural gas terminal for security reasons.
Kariņš explained that the offer was rejected because it made too many demands on the state, but the government had already formulated the position during the initial decision that it would allow the construction of such a terminal, but without particularly favorable guarantees for the private developer.
According to Kariņš, the investor’s offer contained such requirements that the public would not understand such a government approach. The requested support models were different, for example, that Latvian consumers would even subsidize the price of gas transmission also for those loads that go outside Latvia, “which is not serious”.
“It seems that someone here saw an opportunity to make a safe profit without risk, but it is not – entrepreneurship is a risky activity,” said the politician about the wishes of investors.
After the government’s decision, there is a possibility that another terminal project will appear that would not require such guarantees, and the government will also consider the possibility that the state could build an LNG terminal itself, Kariņš explained, while refusing to assess how likely it is to end up with a state-built terminal .
However, Kariņš emphasized that security considerations argue in favor of the country having such a terminal, but security needs must be balanced against costs.