6. NATURAL GAS
prioritise the use of available gas supplies to ensure the security of supply of households
impose compulsory use of alternative fuels and compulsory transfer to other fuels
impose compulsory use of electricity from sources other than gas.
Gas distributors and industrial gas consumers subject to compulsory demand reduction measures are required to inform the Competition Authority of steps they are taking to minimise the damage caused by the proposed measures.
Assessment
Natural gas is not a major energy source in Estonia. Gas consumption has halved over the last decade, primarily due to the switching away from gas towards renewable energy sources in the heat and industry sectors, which nevertheless remain the largest sectors for gas use in Estonia. The rising demand for gas in transportation over the coming decade, related to increased biomethane use to meet the goal of 10% of renewables in transportation, will not offset Estonia’s overall trend of declining gas consumption.
As Estonia does not have any domestic natural gas production, it is fully dependent on imports. At the same time, the Estonian government has been supporting indigenous production of biomethane to promote both gas supply security and the low-carbon energy transition. The potential for biomethane production in Estonia is quite substantial. The government estimates that this has the possibility of reaching 0.37 bcm/y. However, Estonia has set much more modest goals, using state subsidies to reach 5 mcm/y in 2020 and 40 mcm/y by 2030, compared to the 2018 level of 4.4 mcm.
Connection to the Klaipeda LNG terminal in Lithuania, since 2014, has created the possibility for Estonia to develop more diversified import sources. However, higher transmission costs for gas transiting Lithuania and Latvia have made gas imported directly from Russia more attractive.
Estonia has made good progress in opening up its market since liberalisation in 2007. The complete unbundling of the transmission system was finalised in 2016, and reduced the dominance of Eesti Gaas AS, formerly the only wholesaler and main retailer in the country. To promote further market competition, starting in mid-2017, obligatory licensing was replaced with a simple registration as a supplier and Estonian companies were given access to the GET Baltic gas exchange.
The development of a regional gas market, including the connection with Finland via the Balticconnector and improvements to the interconnection with Latvia, will fundamentally transform Estonia’s gas market. Currently a “dead-end” system for gas supplies, Estonia will become an important part of a transit corridor, connecting not only the Baltic region with Finland, starting in 2020, but also to the rest of Europe with the completion, in 2021, of the GIPL project linking the network with Poland. However, in order to create an effective regional gas market, mutually agreed network rules and pricing methodology for a common entry-exit system need to be finalised. Regionally applied tariffs will help to diversify Estonia’s supply sources by removing uneven transmission costs, which currently make imports from the Klaipeda LNG uncompetitive. Moreover, a more competitive regional market will be critical for attracting additional suppliers to the existing network and for making further investments in LNG infrastructure on the network commercially viable.
94
6. NATURAL GAS
Responsibilities for security of gas supply, regulated under the Natural Gas Act, are divided between the TSO, the Competition Authority, and the Ministry of Economic Affairs and Communications. The TSO is responsible for assuring the reserves of stock necessary to meet security standards for protected customers, and for notifying the Ministry of any event having a significant adverse effect on gas supplies. The Ministry and the Competition Authority determine whether any of the measures of compulsory reduction of gas demand listed in the Natural Gas Act are necessary, and make a specific proposal to the Government.
The TSO, Elering, has developed co-operation agreements with its key counterparts, such as its industrial customers and gas distributors, to facilitate the activation of crisis measures. However, effective implementation of emergency response requires clear procedures and communication protocols throughout the process of identifying and assessing a situation, formulating a response plan, reaching and implementing a governmental decision, and monitoring its effect. A crisis handbook to formalise these procedures would be useful in Estonia and should be improved through regular emergency excercises.
Recommendations
The government of Estonia should:
Together with Finland, Latvia and Lithuania finalise the establishment of common rules for a competitive, integrated and liquid regional market for natural gas.
Together with neighbouring countries, find a market-based solution to diversify supply into the region and enhance the security of supply.
Establish a working group consisting of Elering, the Competition Authority, and the Ministry of Economic Affairs and Communications, and other relevant stakeholders to develop a handbook that clearly defines responsibilities, operational procedures and communications channels for rapid decision making in case of a gas emergency.
Conduct regular exercises, in order to test operational procedures to be taken during a gas emergency.
References
Competition Authority (2018), Electricity and Gas Markets in Estonia Report, Competition Authority, Tallinn, https://www.konkurentsiamet.ee/public/Electricity_and_Gas_Markets_in_ Estonia.pdf.
Competition Authority (2016), Electricity and Gas Markets in Estonia Report, Competition Authority, Tallinn, https://www.konkurentsiamet.ee/file.php?28479.
Conexus (2018), Investment Request: Incukalns Underground Gas Storage Enhancement, Conexus, www.conexus.lv/uploads/filedir/iugs_pci_investment_request_20181002.pdf.
Elering (2018), Estonian Gas Transmission Network Development Plan 2018-2027, Elering, Tallinn, https://elering.ee/sites/default/files/attachments/Estonian_gas_transmission_network_ development_plan_2018_2027.pdf.
95
ENERGY SECURITY
6. NATURAL GAS
Eesti Gaas (2018), Eesti Gaas Was the First to Launch Biomethane Sales in Estonia, Eesti Gaas, https://www.gaas.ee/en/eesti-gaas-was-the-first-to-launch-biomethane-sales- in-estonia (accessed on 23 April 2019).
IEA (International Energy Agency) (2019a), World Energy Balances 2019, IEA, Paris, www.iea.org/statistics.
IEA (2019b), Natural Gas Information 2019, IEA, Paris, www.iea.org/statistics.
IEA (2019c), Energy Prices and Taxes, First Quarter 2019, IEA, Paris, www.iea.org/statistics.
IEA (2018), Estonia 2018 – Bioenergy Policies and Status of Implementation, IEA, Paris, https://www.ieabioenergy.com/wpcontent/uploads/2018/10/CountryReport2018_Estonia_final.pdf.
MEAC (Ministry of Economic Affairs and Communications) (2018a), “Gaseous fuels and biomethane in transportation”, MEAC, Tallinn, https://www.konkurentsiamet.ee/public/BGMF_Tartu_17.04.2018_Biomethane_and_transp ort.pdf (accessed on 24 April 2019).
MEAC (2018b), Regional Risk Assessment of Security of Gas Supply of Finland, Estonia, Latvia, Lithuania 2018, MEAC, Tallinn.
MEAC (2017), National Development Plan of the Energy Sector 2030, MEAC, Tallinn, https://www.mkm.ee/sites/default/files/ndpes_2030_eng.pdf.
96