Gazprom joins LNG debate

  • 2010-10-13
  • From wire reports

RIGA - It would not be cost-effective to build a separate liquified natural gas terminal (LNG) in each of the Baltic States, so it is important to decide which project is the most rational, the cheapest, and most economically beneficial, said the director of the Gazprom representative office in Latvia, Evgeny Roldugin, in an interview, reports Russian gas giant Gazprom, which has built LNG terminals in other regions, does not see this type of project as particularly advantageous in the Baltic States. The region already has sufficient gas supply; moreover, opportunities exist for increasing supply volumes, says the director.

Regarding geographical position, Roldugin notes the advantages held by Latvia. “Latvia is located in the middle [of the Baltics], and if gas was delivered from Estonia to Lithuania or vice versa, it would have to cover a great distance. With this, the most rational option is probably to deliver gas from the center, which would provide the least expensive transportation costs. As far as I know, the European Union gives preference to projects which in a geographical sense are in the center of a region. However, at present it is difficult to predict how things will go forward, as discussions are still taking place,” said Roldugin.

He also indicated that money for the terminal would most likely come from the EU or from an EU member state.
Concerning the LNG terminal project put forward by Latvijas Gaze shareholder Itera Latvija, Roldugin stressed that this company would build the terminal with its own money or money attracted by it, and that this would not be provided by Latvijas Gaze or Gazprom. “As far as I know, the project foresees the use of gas in electricity production. At present, I have not heard how the gas is planned to be delivered. This would probably be by ship, as this is the simplest and cheapest way; however, it cannot be ruled out that this could be done by pipeline from Russia.”

Roldugin, turning to gas price discussions, believes that a compromise on gas prices can be reached with Latvian utility Latvijas Gaze. Latvijas Gaze wishes to reach agreement on a reduction in gas prices. 

Roldugin expressed the opinion that there is hope that an agreement could be reached, and that he feels optimistic about the matter. “We have agreed that these talks will take place. This is already quite an optimistic sign, because if there is a wish to talk, the result could obviously be that some kind of compromise could be reached,” said the energy company representative.

He added that Gazprom also understands well the need to preserve its market here and ensure that this is not reduced. “For people to use Gazprom’s product, they have to pay for it, but in order to pay, they have to have money. There may not be enough money to pay high prices. It is not in our interests to maintain an excessively high price,” said Roldugin.
According to Roldugin, price levels are dependent on many factors, each of which has its own influence on the overall picture. “If one side reduces something, there has to be an awareness of what this will achieve,” he indicated. He was not able to say whether it would be possible to agree on a reduced gas price for Latvia; the result could not be a change in figures, but in another area of the conditions of supply.

Roldugin also admitted that Germany was currently paying lower prices for gas than Latvia. “It is all very simple. If you go to a shop and buy one loaf of bread, you will pay 20 santims (0.30 euros). When you buy 20 loaves, you can pay 19 santims per loaf. Secondly, in business there are also coefficients, which take into consideration economic, political, trade and other parameters. Relations with a large, long-term player and a smaller, new player are different. In actual fact we sell gas for one price, but in Germany a different coefficient is used. This is beneficial for Gazprom, as they buy more and more, and also develop in a direction which further increases gas consumption,” indicated Roldugin.
According to him, Gazprom is ready to talk about a change in prices, but not in the pricing formula, as this is recognized around the world.

Latvijas Gaze previously announced their hopes that an agreement on new prices for Latvia could be signed this November. The company’s board have expressed an optimistic approach to the forthcoming talks; however, skeptical opinions have also been expressed in the public space.