6. NATURAL GAS
With no domestic gas production, Estonia has until recently been fully dependent on imports of Russian gas, either directly through interconnections with the Russian Federation, or from its connection to the Inčukalns storage facility in neighbouring Latvia, where Russian gas is typically stored in the summer for use in the winter. With the connection to the Klaipeda liquefied natural gas (LNG) terminal in Lithuania via Latvia at the end of 2014, Estonia has opened the possibility to diversify its gas supply sources. In 2017, 88% of Estonia’s gas imports came from Russia, while the remaining 12% was gas sourced on the GET Baltic gas exchange in Lithuania.
In efforts to improve its natural gas security, Estonia promotes indigenous production of biogas/biomethane, in line with the country’s low-carbon energy transition, and is developing cross-border gas projects with neighbouring Baltic countries, such as the Balticconnector with Finland. Improved market competition followed by the complete unbundling of the natural gas market in 2016 is commendable achievement that has contributed to enhancing the competitiveness of the natural gas sector in Estonia.
Supply and demand
Consumption of natural gas
Over the last decade, Estonia’s total gas consumption has halved, to 0.50 bcm in 2018. The country’s declining gas demand is due to a combination of factors, including the economic crisis of 2008, perceptions of gas as an at-risk fuel due to geopolitics, and increasing fuel-switching from gas to renewable fuels for district heating, the largest gasconsuming sector in Estonia.
Power and heat generation, mostly heating, accounted for 41% of the total gas consumption in 2017, which although still the largest by share, has been declining sharply since 2007 (Figure 6.2). By absolute volume, gas demand for power and heat generation has fallen by 60% in the last decade. In 2014, several district heat suppliers, including major ones like Kiviõli Soojus AS and Kuusalu Soojus OÜ, converted to biofuels, which are estimated to have reduced annual gas consumption by about 10 million cubic metres (mcm) per year. Tallinna Küte, the main operator of district heating in Tallinn, committed to decrease its share of gas consumption to 20%, from 65% in 2013, equivalent to a reduction of 60 mcm gas consumption per year (Competition Authority, 2016). A new biomass fired combined heat and power plant, coming on-line in 2020, will help to meet this commitment by reducing its gas consumption by 20 mcm per year.
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6. NATURAL GAS
Figure 6.2 Natural gas consumption by sector, 2007-17
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IEA 2019. All rights reserved.
The decline in total gas consumption over the last decade has been driven by reductions in gas use in power and heat generation and the industry sector.
* Not visible on this scale.
Notes: bcm = billion cubic metres. Other energy includes the energy sector’s own consumption and losses in oil and gas production and refineries. Commercial includes commercial and public services, agriculture and forestry. Industry includes non-energy consumption.
Source: IEA (2019b), Natural Gas Information 2019, www.iea.org/statistics.
Industry is the second-largest gas-consuming sector, accounting for 24% of total consumption in 2017. Similar to the decline in gas use for heat generation, industry’s gas consumption has fallen by 67% over the last decade. A substantial reason for this decline is the role of Nitrofert AS, a major fertiliser producer that accounted for nearly 40% of industrial gas consumption in Estonia prior to the 2008 financial crisis. Nitrofert AS suspended production of fertilisers, and thus its gas use, in 2015. The share of gas demand in the commercial sector grew strongly (by 47%) over the same period, accounting for 19% of the total in 2017. Gas demand for the residential sector was relatively modest with 10% growth, accounting for 14% of the total gas demand in 2017.
Gas consumption in the energy industry and transport sectors is minor in Estonia, each with around a 1% share of the total. Natural gas was first used for transportation in 2012 at less than 1 mcm. Over the last five years, gas consumption in the sector has jumped to 5.7 mcm, which is a rapid growth rate, but remains very marginal in the total share of both gas consumption and transportation fuels. The increase is due to the development of compressed natural gas (CNG), which is seen in Estonia as a potential area for growth in gas use, particularly with respect to biomethane.
Estonia is seeking to promote the use of biomethane in vehicles as a cost-effective means for meeting the target set for the transport sector under the EU Renewable Energy Directive (2009/28/EC). Estonia established a 10% biofuel blending requirement by 2020 for oil products (see Box 4.1 in Chapter 4 and Chapter 8).
Nevertheless, the Estonian Competition Authority foresees a continuous drop in gas demand in the coming years, as the reductions due to converting to renewable energy sources for heating and more efficient use of heat by consumers will outweigh any
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ENERGY SECURITY