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Latvenergo considers entering the gas market

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RULatvijas Gaze continues limiting the interests of other gas traders by not allowing them to access Incukalns gas storage facility. Previously the monopolist denied doing that. The excuse mentioned then was that there was no room in the storage facility. The gas monopolist continued making life harder for others even after major amendments to the law were added. Now Latvenergo considers competing with Latvijas Gāze, as reported by Nekā personīga.

The load on Incukalns gas storage facility has declined by more than half. Nevertheless, LG manages to find new reasons why other gas owners are not allowed to store gas there. Latvian consumers still pay the highest price in Europe for gas. LG says the costs of storing gas in Incukalns are high, but the company allegedly does not wish to make money off it.

Up until now, LG and Russian Gazprom Group companies were the only ones using Incukalns. There were also reserves for Estonia and Lithuania, as well as consumers of Pskov Oblast. Once amendments were approved to permit the liberalization of the gas market, discussions commenced about storing gas of other suppliers in Incukalns. LG responded that it is not possible because there is no room in the storage facility.

Everything is different now. Incukalns gas storage facility is less than half-full. This was mentioned by Itera Latvija manager Juris Savickis at the last shareholders meeting. He frightened consumers by saying that heating may be disrupted in winter because of the low gas volume and low pressure needed to pump gas.

An interesting incident took place last year. Lithuania wished to pump 100 million m3 of gas from Klaipeda terminal to Incukalns. LG said no, that would not be possible. LG explained that by saying it was pump-out season for gas, and that Lithuania would have to wait six months before the matter could be discussed. Then Lithuania lost interest. «Last year, Latvia agreed to store 300 million m3 of gas from Lithuania. We received nothing at the beginning of the season. It seems they had reasons not to deliver,» – said LG Chairman Aigars Kalvitis.

At the beginning of 2016, Latvenergo procured five million m3 of gas from Gazprom without LG’s mediation. It is stored in Incuklans but cannot be used. It is necessary to wait for 2017 first. «We’ve had three opportunities to buy and transport gas from Lithuania, from LitGas. LG declined the request to be provided access to networks twice. The regulator’s decision applied to that. Another opportunity we used was Gazprom’s export auction in March. We had procured five million m3 of gas there. We had requested access to use networks in May and December. LG declined that request,» – says Latvenergo board member Maris Kunickis.

Latvenergo complained to the public utilities regulator and the latter expressed a warning to LG, saying its restrictions are illegal. But it seems Kalvitis is not at all bothered: LG does not intend to provide Latvenergo with access to the company’s transmission networks. Economy Minister Arvils Aseradens believes behaviour of LG contains not so much petty nuisances as it does the inability to work under new economic conditions. «The regulator has warned LG about the illegality of putting obstacles in the way of other businesses like that. Latvenergo considers the possibility of procuring gas if it comes across a good offer. What we hear from our Lithuanian colleagues is that Latvians find it hard to understand different ways of cooperating with other gas storage companies. We see LG’s current behaviour is not very flexible,» – says Economy Minister Arvils Aseradens.

The ministry and public utilities regulator believe that LG’s arguments on seasonal restrictions for intake and pump-out of gas are laughable, because it is possible to make additional transactions online and organize the supply of gas for later date.

LG’s tariffs are also the highest in Europe. Lately the company has been known to move away from tariff-calculation methods. The gas price is closely tied to oil and crude price. It is a formula LG has to use to calculate prices for consumers. Tariffs should change alongside oil and crude prices. Crude price had unexpectedly decline by one quarter in January 2016 in comparison with November 2015. The price dropped from EUR 1.22 to EUR 0.82 per gallon. The gas price, on the other hand, remained unchanged – EUR 206 per 1,000 m3.

«We check the data from LG on the gas procurement price from Gazprom every month. We have noticed that until now LG has not mentioned mark-up higher than the one it would have paid Gazprom. It is a different case of whether or not LG could have performed its procurements in a more optimal way. The most likely answer is yes,» – comments Public Utilities Commission Chairman Rolands Irklis.

Talks about the sale of Incuklans gas storage facility have commenced. According to Nekā personīga, talks are held with two companies. LG co-owner Marguerite Fund, which represents multiple European banks, and Open Grid Europe, one of the largest gas companies in Germany. One conditions that has been put on the table is that Incukalns infrastructure will be bought if the Latvian state participates in the deal. This could happen with Latvenergo’s mediation. Latvenergo plans to become a direct competitor to LG. «Yes, we will not hide our plans to progress in this direction. We are one of the largest consumers in Latvia. We could also become a gas trader,» – said Kunickis.


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