STUDY ON POTENTIAL ROLE AND BENEFITS OF LIQUIFIED NATURAL GAS IMPORT TERMINAL IN LATVIA
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LATVIAN JOURNAL OF PHYSICS
AND TECHNICAL SCIENCES
2022, N 2
DOI: 10.2478/lpts-2022-0010
STUDY ON POTENTIAL ROLE AND BENEFITS OF
LIQUIFIED NATURAL GAS IMPORT TERMINAL IN
LATVIA
A. Ansone*, L. Jansons, I. Bode, E. Dzelzitis, L. Zemite, A. Broks
Riga Technical University,
Faculty of Civil Engineering, Institute of Heat,
Gas and Water Technology,
6B/6A Kipsalas Str., Riga, LV-1048, LATVIA
*e-mail: ansoneance@gmail.com
Natural gas is relatively clean energy source, which emits less greenhouse gases (here-
inafter – GHG), compared to other fossil fuels, such as hard and brown coal, and therefore
it may be the most feasible resource to ensure smooth energy transition towards Europe’s
climate neutrality by 2050. Traditional natural gas can be easily transported and used in lique-
fied (hereinafter – LNG) or compressed form. As for biomethane, in future it also can be used
in liquefied (hereinafter – bioLNG) and compressed form, as well as transported by means of
the current natural gas infrastructure. It can also significantly enhance regional and national
energy security and independence, which has been challenging for the European Union (here-
inafter – EU) over at least several decades.
Issue on energy independence, security of supply, alternative natural gas sources has been
in a hotspot of the Baltic energy policy makers as well. Now, considering Russia’s invasion in
Ukraine, since late February 2022, a problem of the EU natural gas dependency on the Russian
Federation has escalated again and with force never before experienced. The European natural
gas prices also hit records, as the natural gas prices in the Netherlands Title Transfer Facility
reached 345 euros per megawatt-hour (hereinafter – EUR/MWh) in March 2022.
Therefore, LNG import terminal is the only viable option to reduce national dependency
of the so-called pipe gas which in some cases, due to the insufficient interconnections, may
be delivered from very limited number of sources. The European policy makers and relevant
institutions are currently working towards radical EU natural gas supply diversification, where
LNG deliveries coming from outside of Russia will certainly take a central stage.
37
In case of Latvia, the potential benefits of the LNG terminal development in Skulte were
evaluated in order to reduce energy independence of the Russian natural gas deliveries in the
Baltic region and to introduce new ways and sources of the natural gas flows to the Baltics.
LNG terminal in Skulte could ensure significant capital investment cost reduction comparing
to other projects proposed for Latvia in different periods, due to already existing natural gas
transmission infrastructure and the relative closeness to the Incukalns underground gas stor-
age (hereinafter – UGS). Various aspects, such as technical, political and economic ones, were
analysed to assure that Skulte LNG terminal would be a real asset not only to customers of
Latvia, but also to those of the whole Baltic region, where in future it would be possible to
use biomethane for efficient utilisation of existing and developing natural gas infrastructure.
Keywords: Biomethane, energy independence, energy policy, energy security, gas storage,
gas transmission, LNG, security of supply, SoS.
1. INTRODUCTION
The European Green Deal is a set of the fossil gas related activities, should switch to
EU policy initiatives, which was approved renewable gases (hereinafter – RG) by the
in 2020, with the main goal to reach end of 2035 [2]. In the future, where fos-
Europe’s carbon-neutrality by 2050. This sil natural gas might be fully substituted by
requires major changes in energy sector the RG biomethane, potential biomethane
as well, especially considering Fir-for-55 supply could be arranged not only by using
legislation package, which was published current natural gas transmission and distri-
in July 2021, setting policy measures to bution systems, but also by sea in a form of
reduce EU’s GHG emissions by 55 % com- bioLNG [3].
paring to year 1990 [1]. Any LNG can be used in several crucial
Natural gas is also considered to be sus- sectors of the national economy in order
tainable under the EU’s Taxonomy Regula- to provide reliable and clean energy: for
tion delegated act, published in February example, it can help imeet energy needs of
2022, which classifies economic activities freight and maritime transport sectors and
that are sustainable, to help investors and provide environmentally sound and afford-
any other party better shift investments able fuel for electric energy and heat gen-
towards sustainable development. Accord- eration [4]. Especially, in regions where
ing to the European Commission (herein- renewable energy sources are less available
after – EC), the natural gas facilities have or cannot meet high energy demand in win-
to comply with strict rules and, in case of ter season [5]–[7].
2. THE NATURAL GAS SUPPLY RISKS IN THE BALTIC REGION
2.1. Import and Supply Sources
More than a decade ago, the Baltic mise on LNG terminal construction loca-
States asked the EC to help find compro- tion in the Baltic region, but the initiative
38failed to find a common ground on develop- meters (hereinafter – BCM; around 36.64
ment and cost sharing [8]. The only one of terawatt-hours (hereinafter –TWh)) per
the Baltic States, which actually developed year. Unfortunately, 90 % of the Europe’s
its own national LNG import terminal proj- natural gas is imported [9]. Share of each
ect, was Lithuania, and the Klaipeda LNG exporting country in the EU’s natural gas
terminal was commissioned in 2014. Its import is shown in Fig. 1.
import capacity reaches 3.75 billion cubic
Fig. 1. The EU natural gas imports [10].
In 2021, around 140 BCM (around the LNG import from the USA and Qatar,
1367.72 TWh*) of natural gas were while in a longer run, it is working towards
imported to the EU by pipelines, while 15 additional alternatives, including locally
BCM (146.54 TWh*) were delivered as produced RGs, such as biomethane or
LNG [11]. The Baltic States and Finland hydrogen. In March 2022, the International
still relied mostly on the natural gas sup- Energy Agency also revealed a plan to
plies from Russia, while Lithuanian natural reduce the EU’s dependency on the Russian
gas supplies were more diverse due to the natural gas supplies, where one of the key
ever-growing natural gas imports though suggestions was to replace Russian pipe-
Klaipeda LNG terminal [12]. line natural gas supplies with non-Russian
Once again, a question on the natural LNG ones. In comparison to 2021, it would
gas supply and Europe’s dependency on be possible to increase LNG import to the
Russian gas has escalated, considering Rus- EU by 50–60 BCM per year, but since sup-
sia’s invasion in Ukraine, which started in pliers were more or less the same, it might
February 2022. The European natural gas result in higher LNG prices worldwide [11].
prices also hit records, as the natural gas On 8 March 2022, the EC introduced com-
prices in the Netherlands Title Transfer munication on a new plan “REPowerEU:
Facility reached 345 EUR/MWh in March Joint European Action for more affordable,
2022 [13]. secure and sustainable energy” to become
In a short-term period, the EC plans independent of Russia’s fossil fuel, which
to minimise Russian natural gas depen- includes LNG import diversification, using
dency by means of increasing the share of a wider range of potential suppliers, includ-
39ing but not limited to Qatar, the USA, Egypt ties of its type in Europe with a capacity of
and West Africa [10]. 2.3 BCM. It can ensure safe storage of the
While diversifying the EU’s natural gas large amounts of natural gas that has been
supplies in a form of LNG, the role of UGSs imported to Latvia and the whole Baltic
is tend to grow in foreseeable future. The region. Therefore, LNG terminal in Latvia
Baltic region has only one such a storage – could not only increase security of supply
Incukalns UGS located in Latvia, which is in our country, but also in the remaining
also one of the most modern UGS facili- Baltic countries and Finland.
2.2. Main Aspects of Analysis of the Baltic Natural Gas Supply Risks
At the end of 2021 and beginning of tions from Russia in March coupled with
2022, the EU natural gas market was under insufficient natural gas reserve in Incukalns
tension, where atypically high natural gas UGS. Among others, it was concluded on
demand was observed. However, at that the national level that the limiting factor of
time it was translated as global economic the natural gas transmission system is the
recovery from the pandemic. While Russia’s cross-border interconnection capacity. The
war against Ukraine escalated, in March amount of active gas stored at the Incukalns
2022 the natural gas flows from Russia via UGS is the most important factor in guaran-
Yamal pipeline (via Belarus and Poland) to teeing both the Latvian and regional secu-
Germany declined sharply. Possible reason rity of the natural gas supply. Lithuania’s
is that keeping Russia’s supplies low would support to Latvia in some crisis scenarios
highlight a need for additional routes, such is limited by the potential volatility of the
as commissioning of currently banned the LNG cargos due to LNG logistics [18].
Nord Stream 2 pipeline project [14]–[16]. An important role in the Baltic natural
There was a hope that the natural gas gas supply is dedicated to the Polish–Lithu-
supply risk plans that were developed under anian natural gas interconnector (hereinaf-
Regulation (EU) 2017/1938 of the Euro- ter – GIPL), which will be commissioned
pean Parliament and of the Council of 25 in mid-2022, ending isolation of the Baltic
October 2017 concerning measures to safe- States from central European natural gas
guard the security of gas supply and repeal- transmission systems, but unfortunately
ing Regulation (EU) No. 994/2010 (here- no plan predicted limited natural gas sup-
inafter – Regulation 2017/1938) would not plies from Russia to the whole Europe
be used in real life, while ongoing war in at the same time, as it is happening now.
Ukraine and the EU sanctions proved that With high geopolitical tensions in relations
scenarios from the preventive action plan with Russia for at least midterm perspec-
and emergency plan could actually came tive, the only viable option for the natural
true in foreseeable future [17]. gas supplies to the Baltic States and Fin-
In a preventive action plan, one of the land is Klaipeda LNG terminal and GIPL.
scenarios simulates a situation where, due In accordance with early warning in the
to the geopolitical crisis, the flow of natu- natural gas supply sector of Latvia that was
ral gas from Russia stops completely within announced on 9 March 2022, the natural
two weeks of peak demand and eight aver- gas deliveries from Klaipeda LNG and via
age winter weeks. The most significant GIPL are regarded as prioritising gas flows
risks identified in the preventive action plan by the Latvian natural gas transmission sys-
are related to the natural gas supply disrup- tem operator (hereinafter – TSO) Conexus
40Baltic Grid [19]. However, before finishing Baltic region in the shortest possible terms.
enhancement of the Latvia–Lithuania inter- A number of traders may seek to diver-
connection (ELLI project) in 2024, current sify supply risks in the market as well.
interconnection capacities and operating However, there is a significant market
pressures are limited between Lithuania power, currently on the part of supplies
and Latvia (known as the bottleneck effect), from Russia, as well as on the part of the
therefore making it challenging to provide Baltic region industrial energy companies,
absolutely sufficient natural gas supplies to which maintain a high level of concentra-
Latvia, Estonia and Finland from the Lithu- tion. Market power discourages invest-
anian and Polish side [20], [21]. ments by private investors, relying solely on
The necessary natural gas reserve of expected demand for the natural gas import
capacity in the region is provided by Incu- capacity. Also, high volatility of the energy
kalns UGS, which allows fully compensat- prices with construction and development
ing for seasonal fluctuations (except for time delays discourages private investors.
Finland, which has to adjust the demand for Markets with high levels of concentration
maximum hours to the capacity of Balticco- and/or with signs of market power, show a
nnector). Nevertheless, the total amount of significant increase in risk, which discour-
available capacity at the Klaipeda LNG and ages private capital from making signifi-
GIPL entry points per year may be lower cant investments [22]. Therefore, the Bal-
than demand, depending on climate condi- tics States and Finland, since having high
tions and industrial demand. It addresses an market power from Russia’s gas, have low
important question of necessity to create at chances of fully-private investment in the
least one more LNG import terminal in the natural gas supply diversification projects.
3. TECHNICAL ASPECTS OF LNG TERMINAL
BUILDING PROJECT IN LATVIA
3.1. Site Selection Evaluation for Potential LNG Terminal in Latvia
Latvia, as all the Baltic countries and In general, it is believed that Skulte is
Finland, is located on the shores of the Bal- the best of the three possible locations with
tic Sea, with the coast line more than 450 several significant benefits:
kilometres long. When planning LNG ter- • geographical closeness to Incukalns
minal construction, various aspect should UGS;
be considered, such as closeness of the port • easy access and safe maneuvering of
cities, accessibility of the infrastructure the LNG vessels;
(transmission pipelines) and distance to • adequate terminal and pipeline routing
Incukalns UGS. Therefore, originally three separation from the residential areas;
potential locations of the LNG import ter- • lacking interference with the existing
minal were reviewed in Latvia: Ventspils ship traffic;
(with existing oil pipelines and port), Riga • ice-free port for most of the year;
(port) and Skulte (port). The comparison • no urgent need for LNG storage tanks
of the three chosen locations is shown in (with regard to closeness of Incukalns
Table 1. UGS) [23].
41Table 1. Comparison of Potential Locations of LNG Import Terminal in Latvia
Location Ventspils Riga Skulte
Solution/costs Port infrastructure is suit- Port infrastructure is suitable only
Port location is suitable
able only for onshore solu- for onshore solution, which has for FSU, which is the most
tion that has high CapEx high CapEx effective cost solution
Consumption Potential new consumption Location close to the biggest end Close location to Incu-
by port companies and city consumers in the country kalns UGS that is the key
infrastructure element in
the region
Ice conditions Ice free port Port has the biggest ice coverage Port has average ice cover-
in Latvia age in winter months
Grid Investments are required to Residential area around the port Pipeline distance to Incu-
connection upgrade existing oil trans- makes the pipeline routing to kalns UGS is 30– 35 km.
portation pipeline (200 km) grid (16 km) difficult. Distance to The route is crossing rural
and connection to the grid Incukalns UGS is 50km areas
Vessel traffic Terminal location is in the Terminal location is in the navi- Terminal is located outside
navigable area of the port gable area of the port that makes navigable area
that makes interference with interference with the main traffic
the main traffic
Flexibility Long distance to the Incu- Absence of direct connection to Very high flexibility
kalns UGS makes the low UGS lowers flexibility of supplies. because of direct connec-
flexibility in supplies In winter period, it is possible to tion to Incukalns UGS
absorb the regasified gas in the
natural gas distribution system
Other Process of land rent agreement Substantial support from
allocation lacks transparency port authorities
3.2. Evaluation of Potential LNG Terminal Concepts
Various LNG terminal types were com- Latvia and the Baltic region, and provide
pared in order to find the most suitable LNG relatively low operational costs of the ter-
import terminal solution that could ensure minal. The general estimate is shown in
both security of the natural gas supply for Table 2.
Table 2. Comparison of Potential LNG Import Terminal Concepts
Criterion Onshore terminal Floating Storage Regasifi- Floating Regasification Unit
cation Unit (FRSU) (FRU)
Costs Highest CapEx because of Relatively high CapEx Low CapEx because of simple
extensive ground building because of vessel use and technical solution – floating
(infrastructure and storage storage tank placement on platform with regasification
tanks) the vessel equipment
Operational High operational costs because Relatively high operational Low operational costs because
costs of extensive onshore storage costs because of storage of simple technical solution. No
and infrastructure maintenance tank and vessel maintenance costs on standby mode
Flexibility Low flexibility because of Low flexibility because of High flexibility because of direct
limited storage capacity limited storage capacity connection to Incukalns UGS
Freight It takes 2–3 days to unload the It takes 2–3 days to unload It takes about 6–8 days to
speed LNG vessel LNG vessel unload LNG at planned capac-
ity (can be increased)
Timing The building of such a terminal The building of such a ter- The project execution time is
takes 6 or more years minal takes 4 or more years estimated to be less than 2 years
after final investment decision
42Floating regasification unit (hereinaf- the floater is low compared to the conven-
ter – FRU) could ensure the lowest costs to tional ship shaped or barge solution and thus
the energy consumers, due to the low opera- low steel weight; this has a direct positive
tional costs, relatively simple technology impact on the construction and maintenance
and no need to store the natural gas on site. cost of the floater. Mooring of the floater at
FRU consists of a tubular structure where site could be conventional spread mooring.
the columns contribute most to the buoy- The visiting LNG carriers could be moored
ancy required. Due to the small and distrib- to the floater with conventional ship-to-ship
uted water plane area the floater will have mooring methods. These methods are in
very stable sea keeping characteristics. Due accordance with the tried and tested industry
to the tubular structure the displacement of practices.
3.3. Technical Aspects of Potential LNG Terminal in Latvia
For the Skulte LNG import terminal, that LNG shall be pressurized, vaporized
natural gas storage is considered to be at the and sent-out to a medium pressure sub-
Incukalns UGS. This, in principle, makes sea gas pipeline and onshore gas pipeline
the requirement for on-site LNG storage to Incukalns UGS. The project also would
redundant and thus brings down the project include the subsea pipeline and the onshore
capital expenditures (hereinafter – CapEx) pipeline carrying natural gas from the ter-
to as low as 1/3 to 1/4 of the other projects minal to either existing gas transmission
proposed in the Baltic Sea region. system or the UGS facility. The general
Implementation of Skulte LNG import technical information of Skulte LNG termi-
terminal, using FRU solution, will mean nal is summarised in Table 3.
Table 3. General Technical Information of Skulte LNG Terminal [23]
Terminal capacity Up to 3 million tonnes/year
Regasification capacity 600 million standard cubic feet of gas per day
Storage Existing UGS at Incukalns Latvia with capacity of 2.3. BCM
Supply LNG carrier size 40 000 m3 to 170 000 m3
Carried offload time 4 to 8 days at full capacity
The key element of the Skulte LNG capacity and gas transportation pressure in
import terminal concept is direct pipeline to the grid. The preliminary technical param-
Incukalns UGS, whose technical parameters eters for pipeline are provided in Table 4.
must be in line with terminal regasification
Table 4. Preliminary Technical Parameters for Pipeline Connecting Skulte LNG and Incukalns UGS
Transmission capacity 15–20 million m3/ day
Pressure 55 bar
Diameter 0.7 m
434. SITUATION EVALUATION IN THE BALTIC REGION
4.1. The Overview of Natural Gas Market
In the Baltic region, the natural gas fluctuations. The natural gas consumption
demand is historically dominated by power in the Baltics between 2015 and 2020 is
and heat generation and industrial con- shown in Fig. 2.
sumption, thus creating sensitivity to price
Fig. 2. The natural gas consumption in the Baltic States (2015–2020) [24].
Source: Eurostat
The largest natural gas consumers in increase and penetrate brand new sectors
the Baltic States are AB Achema (latgest of the national economies. There is a large
fertilizer producer in Baltic States, located potential for LNG to be used as truck fuel
in Lithuania), JSC Latvenergo (state-owned – a cleaner alternative comparing to diesel
energy company that generates about 70 % [4].
of the electric energy in Latvia), AB Lietu- It is not easy to assess the future posi-
vos Elektrinės (the owner of the Elektrėnai tion that natural gas will play in the energy
Power Plant in Lithuania), JSC Nitrofert mix of the Baltic States. The trends of natu-
(the only fertilizer producer in Estonia), ral gas consumption are influenced by the
JSC Rigas Siltums (the district heating overall development of the national econ-
company of Riga, Latvia), and other district omy, building energy efficiency develop-
heating companies. However, future trends ment, the use of modern and economical
of the natural gas consumption in the Bal- gas burning equipment and gradual replace-
tics could be affected by increased LNG ment of the natural gas with RGs [25].
use. Namely, the usage of natural gas could
444.2. Evaluation of LNG Projects in the Baltic Region
According to various sources, at least • an onshore storage tank costs are 1 mil-
ten potential LNG import terminal loca- lion EUR per 1000 m3 of storage capac-
tions were considered throughout the Bal- ity;
tic region: Liepaja, Ventspils, Riga, Skulte/ • regasification unit costs are 50 million
Lilaste (all in Latvia), Paldiski, Muuga, EUR;
Sillamae (all in Estonia), Inkoo and Turku • mooring costs are 10 million EUR
(both in Finland). Five projects (Skulte, regardless of type of technology used;
Paldiski, Talinn, Muuga and Inkoo) have • transmission network upgrades and
reached a certain development maturity connection to UGS are covered by sys-
stage to foresee a possibility to be actually tem charges and EU financial instru-
implemented [26]. ments (with 50 % gap) and not by LNG
Some projects are dependent on the terminal operator;
EU funding, therefore, need to meet Proj- • unloading freight time is included in
ects of Common Interest criteria. From case of floating regasification unit tech-
these potential projects, only Skulte LNG nology;
terminal has an immediate effect on the • 20-year period is used for financial cal-
natural gas supply portfolio of the Baltic culation, except for Klaipeda (10-year
region, both in terms of security of supply lease);
and supply diversification. It is located in • 8 % annual return rate for investments
the middle of the Baltic region, and it can is used for all terminals;
supply natural gas to its neighbouring coun- • 10-ship scenario is used as a base sce-
tries immediately after its commissioning nario for regasification cost comparison
without major investments in the additional and 20–5 ship scenario is used to dem-
natural gas pipeline infrastructure. onstrate flexibility cost of the terminal
In order to outline competitiveness of (penalty for low utilisation compared to
Skulte LNG terminal project, four existing high utilisation);
and planned LNG terminal projects were • Freight cost is assumed to be 60 000
compared in accordance with several cri- EUR per day.
teria, summarised in Table 5. These termi- Based on assumptions explained
nals are: floating storage and regasification before, Table 1 indicates that since Skulte
terminal in Klaipeda, onshore terminal with LNG terminal would not need storage tank
lowered storage capacity in Riga, float- (since it is possible to efficiently use Incu-
ing regasification terminal in Skulte and kalns UGS, if transmission interconnection
onshore terminal with full storage capacity is built), it would reach total costs of about
in Paldiski/Inkoo. EUR 60 million, while other projects would
Since three different technologies are cost from EUR 260 to 430 million, making
involved, for clarity purposes the following Skulte LNG significantly cheaper and more
assumptions are made: cost-effective than other LNG terminal
projects under review in the Baltic region.
45Table 5. Evaluation of LNG Projects in the Baltic Region
Location, Technol- Storage Unload Supply agree- Financial Total gap Total cost at 1
Annual ogy tank costs ments structure BCM scenario
regasifica-
tion capac-
ity (50 %
utilisation
rate)
Klaipeda, FSRU 170 000 Indirect – ToP agreements 10-year finan- NA Total cost:
2 BCM shutdown are crucial – no cial lease with EUR 430 million;
of other flexibility available a mandatory regasification cost:
terminals in for the terminal market share 46 EUR/1000m3
the port (additional storage
capacities of flex-
ible consumption)
Riga, Onshore 200000 No costs To achieve reason- Not defined 195 million Total cost:
2 BCM associated able capacities ToP but consid- EUR EUR 260 million;
agreements are erable gap regasification cost:
needed for opera- (75 %) of 26.4 EUR/1000m3
tion but partly it financial Regasification cost
could be operated resources with covered gap:
on the opportunis- should be cov- EUR 11.85/1000m3
tic basis ered by public
funding
Skulte, FRU N/A Unloading Opportunistic Commercial 20 million Total cost:
2 BCM freight costs trade mainly, due offtake cover- EUR EUR 60 million;
to low cost of flex- age with lim- regasification cost:
ibility and ability ited (33 %) or EUR 12.4/1000m3
to operate with favourably no Regasification cost
irregular shipment market gap for with covered gap:
schedule optimal level EUR 10.6/1000m3
of utilisation
Inkoo, Onshore 300000 No costs ToP agreements Not defined, 120 million Total cost:
2 BCM associated mainly and limited but existing EUR EUR 360 million,
amount of oppor- available regasification cost:
tunistic trading market for EUR 35.4/1000m3
power genera- Regasification cost
tion, industrial with covered gap:
and trans- EUR 24.6/1000m3
port sector;
nevertheless,
gap (33 %)
of financial
resources
should be cov-
ered by public
funding
5. POLITICAL AND REGULATORY
PERSPECTIVES OF LNG DEVELOPMENT IN LATVIA
5.1. Energy Market Regulation
Most of energy market activities are heating industries shall obtain license from
regulated businesses in Latvia. Market the Public Utilities Commission. LNG ter-
operators in power, natural gas and district minal operation, the natural gas transmis-
46sion and the natural gas trade are among market [27]. Framework of the natural gas
licensed activities. Currently there are 28 market in Latvia is shown in Fig. 3.
natural gas traders in the Latvian natural gas
Fig. 3. Framework of the natural gas market in Latvia [28].
Source: JSC Conexus Baltic Grid
If developed, Skulte LNG terminal will the cooperation capability of several neigh-
need to acquire LNG operation license and bouring countries. The common natural gas
the natural gas transmission license to oper- market is characterised by unified entry-exit
ate FRU and connector pipeline to Incu- tariff area, and single Estonian–Latvian bal-
kalns UGS. Since 2020, when the single ancing zone, while continuously cooperat-
natural gas market in the Baltics has been ing would ensure deeper integration with
launched, it unites the natural gas TSOs prospects of Lithuania joining the market as
of Finland, Latvia, and Estonia – Gasgrid well [29].
Finland, Elering, and Conexus, confirming
5.2. Access to the Infrastructure
The Energy Law (hereinafter – EL) pro- Due to a high level of infrastructure
vides non-discriminatory, tariff-based third- integrity and importance of security of
party access to the natural gas infrastructure the natural gas supplies for the national
[30]. Capacity allocations, congestion man- economy, prices for the natural gas infra-
agement and different capacity reservation structure services are regulated by tariffs in
products are provided by the national trans- accordance with the Law On Public Utili-
mission and storage network code. Selling ties Regulators [31]. Tariff structures are
capacity reservation products in secondary changing from cost plus to revenue cap pat-
market is allowed. For the time being short- terns with numerous variations.
term capacity reservation products (up to The EL also provides an exemption
one year) are the most popular in the mar- from general third-party access regime for
ket. However, long-term capacity reserva- new infrastructure projects. Conditions for
tion products can be designed by the TSO such an exemption are as follows:
should there be interest from market partici- • the investment must enhance com-
pants. petition in the natural gas supply and
enhance security of supply;
47• the level of risk attached to the invest- The national regulatory authority grants
ment must be such that the investment the exemption, if ex ante verification from
will not take place unless an exemption the EC is received. Detailed procedure and
is granted; evaluation criteria for the exemption are
• the infrastructure must be owned by a stipulated in Directive 2009/73/EC of the
natural or legal entity that is separate at European Parliament and of the Council
least in terms of its legal form from the of 13 July 2009 concerning common rules
system operators, in whose systems that for the internal market in natural gas and
infrastructure will be built; repealing Directive 2003/55/EC [32].
• charges must be levied on users of that Skulte LNG Terminal operator may
infrastructure; need to secure third-party access to the ter-
• the exemption must not be detrimental minal and the natural gas transmission via
to competition or the effective function- a connector pipeline. Therefore, it is to be
ing of the internal market in natural gas, decided whether Skulte LNG terminal proj-
or the efficient functioning of the regu- ect operator will apply for derogation from
lated system, to which the infrastructure third-party access or not.
is connected.
5.3. LNG Project Characteristics and Risks
LNG projects possess characteristics depend upon the long-term stability and
and risks that tend to amplify the poten- predictability of regulatory, political and
tial for high value disputes. Such projects economic environments [33], [34].
are highly technically challenging (includ- For liquefaction and regasification proj-
ing floating LNG technology) and require ects in particular, the risks associated with
a myriad of sub-contractors, often based them include: project economics, environ-
across multiple jurisdictions. They are envi- mental approvals and regulation, political
ronmentally sensitive and subject to strin- risks, joint venture risks, technical engi-
gent regulatory requirements. LNG projects neering, procurement and construction
are often politically sensitive and subject challenges, feedstock challenges and end
to significant public scrutiny. LNG proj- product marketing and contracting. All of
ects involve very significant upfront capi- the above risks can affect heavily an LNG
tal expenditure, with essentially no income project and lead to disputes. Successfully
generation prior to project commissioning addressing project implementation chal-
[33]. Moreover, the overall viability of an lenges on all levels can be critical to pros-
LNG project, which may have an expected pects of every LNG import project [35].
lifetime exceeding 30 years, will often
5.4. Construction of the Infrastructure Objects
There are a number of stages (phases) • construction of related infrastructure
to any LNG terminal project, which com- (connecting pipelines);
monly include, but are not limited to: • commissioning and handover;
• planning and regulatory approvals; • post-commissioning operations [35].
• front end engineering and design
(FEED); However, in many cases, they can be
• construction; reduced to only two general phases – the
48exploration / engineering and construction therefore, it is expected that it will be sub-
phase (also associated with pre-final invest- jected to, at least, an initial assessment of
ment decision (FID) and post-FID phases environmental risks. Positive conclusion of
[36]). Execution of both phases is regulated initial or full environmental assessment is a
by specific laws, and Skulte LNG terminal prerequisite for further project implementa-
project implementation shall include both tion.
phases. Building of the natural gas transmission
Exploration phase for the LNG termi- pipeline is an activity with a material envi-
nal and underwater floating regasification ronmental impact according to the EIA.
unit connection to pipeline begins with the At the same time, the EL confers to
acquisition of seabed exploration permit. energy infrastructure operators a right to
The National Sea Environment Protec- use third-party land to set up an infrastruc-
tion and Management Law [37] provides ture object. It prescribes two options on the
that right to exploit and, consequently, to acquisition of such a right. The first option
explore seabed that shall be tendered. How- is to contract with landowners on the right
ever, according to Ports Law [38] no ten- to use their land. The second option is the
dering is applicable if seabed exploitation acquisition of the right to use the land irre-
is planned within sea territory allocated spective of landowners’ consent, if one of
as territory of the port. Location of Skulte following requirements is met:
LNG terminal is planned within territory • building of an infrastructure object is
of Skulte Port subject to an agreement with provided in a zoning plan of a respec-
the port authorities. It is expected that no tive municipality;
tendering procedures will be necessary to • municipality has confirmed that an
gather seabed exploration permit and fur- infrastructure object is of public interest
ther exploitation of a respective area. and particular land plots are necessary
Construction and operation of the LNG to build it;
terminal may have a direct and material • an infrastructure object has status of an
impact on the environment. Environmen- object of the national interest. The EL
tal Impact Assessment Law (hereinafter – provides that in all above cases land-
EIA), provides two types of environmental owners shall get compensation from
impact assessment, initial assessment and infrastructure developers for use of their
full assessment [39]. The EIA provides a property [30]. Amount of remuneration
list of activities that are subject to a par- is calculated according to regulations of
ticular type of assessment. However, fur- the Cabinet of Ministers.
ther full assessment of a potential activity
may be required if results of initial assess- Possible routes of Skulte LNG connec-
ment reveal the need for that. Initial assess- tor pipeline are planned mainly through
ment is executed by the state institution, agricultural land plots. Major part of private
Regional Environmental Administration, land plots to be crossed by the pipeline is
within 20 days from the receipt of all docu- used for farming purposes and most of them
ments from activity promoters. Full assess- shall remain as agricultural land after pipe-
ment shall be executed by a licensed asses- line is built. Landowners therefore shall not
sor. Usually, it takes about 8–12 months to suffer material damages and legal restric-
complete. Operation of LNG terminal is an tions to use their property.
activity with advanced safety requirements; Design and construction of underwater
49floating regasification unit connection and gle building permit shall be issued by the
connector pipeline is subject to the Con- State Construction Control Bureau of Lat-
struction Law [40] and regulations, which via for objects of the national interest with
specify that building permits shall be issued no right for municipalities to object.
by relevant municipalities. However, a sin-
5.5. Object of the National Interest
According to the Spatial Development thus, recent geopolitical developments in
Planning Law of Latvia (hereinafter – Russia and Ukraine have exposed vulner-
SDPL), objects of national interest are ability and volatility of this source.
objects securing material public interests, Skulte LNG terminal project would
protection and sustainable use of the natural allow sourcing LNG from various suppli-
resources. Skulte LNG terminal and trans- ers worldwide, such as Norway, the USA,
mission pipeline might qualify for the status Qatar, Algeria, Nigeria, Trinidad and others.
[41]. Currently major part of natural gas for Two of the most likely routes could be from
the Baltic countries is sourced in Russia; the USA or Norway, as shown in Fig. 4.
Fig. 4. Potential import routes from North America and Hammerfest, Norway.
Source: JSC Skulte LNG Terminal
The SDPL provides that the Cabinet of land for building of an object of national
Ministers may confer status of an object interest. Such a status would ensure faster
of the national interest upon proposal of a and smoother project development, which
competent ministry [41]. For Skulte LNG would be valuable in circumstances, when
project, it is the Ministry of Economics. all the Russian gas import must be reduced
The main advantages of having this status to the bare minimum or even completely
are as follows: challenging building per- ceased. In this case, LNG import terminal
mits for such an object does not stop the development in Skulte would ensure fast
building process, energy supply companies and efficient natural gas supply routes and
acquire statutory right to use third-party source diversification for Latvia [42].
506. CONCLUSIONS
LNG import terminal would help reduce Low cost will be benefitting costumers,
dependency on the pipeline natural gas sup- while price effect will ensure flexibility of
plies which, in some cases, due to the insuf- supply provided by terminal direct con-
ficient interconnections, may be delivered nection to Incukalns UGS that will ensure
only from one or limited number of sources. direct impact on the price. In addition, it
In the context of Latvia, it was evaluated will provide possibility for potential traders
that there was a potentially beneficial role to buy LNG in spot market in the favour-
of the LNG terminal development in Skulte, able time periods.
which would help strengthen energy inde- FRU is the most suitable terminal solu-
pendence of the whole Baltic region as tion for Latvia because of low CapEx, high
well as introduce new natural gas delivery flexibility and fast project execution time.
sources in a cost-efficient way. Direct pipeline connection to Incukalns
LNG terminal in Skulte could also UGS can provide possibility to avoid build-
ensure significant capital investment cost ing LNG storage tanks onshore that is often
reduction compared to other LNG proj- the major part of import terminal costs.
ects in the region, due to already existing To sum up, there is a need for additional
infrastructure and the relative closeness of natural gas delivery sources, and LNG ter-
Incukalns UGS. It can also be characterised minal in Latvia would help the Baltic region
by easy access and safe manoeuvring of the with it. If the natural gas security of sup-
LNG vessels, adequate terminal and pipe- ply is a national priority, there is a need for
line routing division from the residential public investment in LNG import projects,
areas. which can be implemented in the shortest
The main benefits of Skulte LNG proj- possible terms, with ability to guarantee
ect are low CapEx compared to other proj- stable, secure and diversified natural gas
ects proposed in the neighbouring counties. supplies.
ACKNOWLEDGEMENTS
The research has been supported by Latvian Gas Infrastructure Development”
the National Research Programme project (LAGAS) (No. VPP-EM-INFRA-2018/1-
“Trends, Challenges and Solutions of 0003).
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