In October, Estonian and Finnish gas companies, with the support of the national governments, jointly applied to the European Commission for financing of the construction of Balticconnector – the transmission pipeline network that would connect the gas networks of the two countries. Reaching an agreement and submitting the application marks a very important intermediary stage, writes the Chairman of the European Union Affairs Committee of the Estonian parliament Kalle Palling (Reform Party).
Kalle Palling

This shows that the two countries remain firm believers in increasing the security of gas supply and improving competitiveness, as well as in finding alternative sources of supply.

Less than a year ago, the two Prime Ministers Taavi Rõivas and Alexander Stubb reached an agreement to merge the gas markets and to build the required infrastructure by 2019. Elering, the owner of the Estonian natural gas transmission network, has been the main leader of the project, and has also prepared it for the European level. Another symbolic aspect of the cooperation is the fact that the Finnish side founded the company Baltic Connector OY especially for the project at the eleventh hour before submitting the application, because the Finnish gas company Gasum, which is partly owned by Russia, withdrew its participation from the investment application.

Common market reduces dependence

The energy security strategy of the European Commission sees Balticconnector as an important European-level security project. The financing application is also connected to the strengthening of the Estonian-Latvian gas connection, which includes the building of a compressor station in Puiatu, and the reconstruction of the new gas metering station in Karksi, both in Estonia. Estonia's objective is to be part of a larger, ideally EU-wide gas market.

At a common market, no Member State would depend solely on a single source of supply. This would prevent countries from being unplugged from the gas supply because of the political whims of the sole supplier. This would exclude the repeat of the scenario where the Russian Gazprom attempts to influence the government policy of a consumer country through its pricing. Such pressure methods are something that Ukraine is currently struggling with, in conjunction with military pressure.

However, Estonia's gas market is still clearly too vulnerable at the moment. It is at risk from the single supply chain, the energy security, and the pricing policy based on administrative logic.

Balticconnector would play an important role in improving the energy security of our region by doing away with the sole supplier and the sole supply chain risk for good, from Finland’s perspective. This will also have an effect on Estonia, but to a lesser extent because we already have access to the LNG terminal in Lithuania. An integrated market together with an increased demand will attract new suppliers and consumers to the market. This will bring new investments to industries that use gas for energy production, because price competition and the existence of multiple sources of supply precludes the price from depending on good relations with Gazprom. In addition, the gas link would ensure that Finland could access the underground gas storage facility in Latvia.

Gas has untapped potential

Important links in setting up the common Finnish-Baltic gas market and connecting the Baltic-Finnish energy island to the European gas network include, on the one hand, Balticconnector, and on the other, the improvement of the Estonian-Latvian connection along with other Baltic projects, particularly the GIPL gas connection between Lithuania and Poland. From that point forward, however, we could consider developing European gas market more broadly. It would be impossible to achieve a completely unified European domestic market without investing in Balticconnector.

Year by year – mainly thanks to increased production from renewable sources – the importance of gas in our district heating has been falling. This has meant a quiet phasing out of the use of natural gas, which has dropped around two times over the past 15 years. The potential of gas has remained largely untapped in Estonia, while the global gas market has been developing rapidly and the importance of gas has increased. I am convinced that Balticconnector and other gas projects would help to repopularise natural gas as a source of energy in Estonia.

The accessibility of natural gas is also important for achieving the EU climate goals. In view of the biogas production potential of Finland and Estonia, the connection would be an important engine driving the development of the sector, which means that it would have a huge positive impact on both the transport and the agricultural sectors, in addition to the energy and industrial sectors. In future, Nordic biogas could become an important transport fuel in Europe, representing the green way of life.

Future goal – free from the pressure of Russian gas

The next milestone awaits us in January, when the European Commission is set to reply to the application. The total cost of Balticconnector is EUR 250 million, with Elering seeking financing for 75 % of this. In order for the project to succeed, its importance must be understood by local consumers as well as the other Member States.

On the one hand, the development of the gas market will result in an actual liberalisation of the market, which means the creation of a competitive environment where the consumer could freely choose the supplier. This requires physical connections between the different areas of the market. On the other hand, it will results in guaranteed supply and security, which will disconnect gas market and gas price from any political agenda. After all, breaking free from the pressure of the Russian gas could eventually prove vital for the interests of the whole Europe.

Something which is by no means insignificant about this project is that nothing but success can result from putting the interests of the region above purely national interests.

The progress of the last year was in fact a double success which we achieved by going all out and putting all our cards on the table. Had we failed, we would probably still be arguing today whose project is mature enough to move on. And in doing so, we would have wasted the development potential of gas.

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