Eesti Gaas extends Gazprom contract until 2015

  • 2003-09-18
  • Kristjan Teder
TARTU - Last week the Estonian natural-gas monopoly Eesti Gaas extended its
long-term supply contract with Russian giant Gazprom until 2015, pledging
stability and reasonable retail prices.
According to Aarne Saar, chief executive officer of Eesti Gaas, gas prices
for individual consumers should remain at current levels until 2006, and a
planned price hike should not exceed 5 percent even then. Households and
local heating account for the lion's share of the company's sales.
"The supply contract concluded with Gazprom until 2015 is our longest-term
and highest-volume contract to date," Saar noted at a Sept. 11 press
conference. "This framework agreement enables us to compete with other fuels
and protect the consumers."
Eesti Gaas' current supply contract had been scheduled to end 2005. Gazprom
is Estonia's sole supplier and holds a 37 percent share in Eesti Gaas. Other
shareholders are Germany's Ruhrgas, Gazprom's leading foreign partner, with
33 percent, Finnish Fortum with 18 percent and Itera Latvija with 10
percent. The remaining share remains in the hands of small stock holders.
In 2002, Eesti Gaas posted an 84 million kroon (5 million euro) profit on a
turnover of just over 1 billion kroons. Net sales were at 743 million cubic
meters, down from the previous year as some major consumers at Ida-Viru
chemical complex went out of business in early 2002. Eesti Gaas has,
however, stated its long-term annual sales goal to be 1 billion cubic
Such growth should be achieved through increased natural gas use in local
heating and coproduction of heat and energy. Pipeline gas is currently
available in more than 20 Estonian towns and cities, and bottled gas is
still widely used in many rural areas.
Some consumers have worried that Estonia's EU accession could result in
higher gas prices. Eesti Gaas, however, has assured that no such hike is in
the near future given the tough competition on European energy markets.
Speculations that gas prices could be influenced by the EU's plan for
compulsory reserves equaling two months' consumption have not proven true,
as the union is nowhere near a consensus regarding this costly program.
Estonian reserves are currently stored in the underground reservoirs of
Incukalns, Latvia, which could satisfy the country's consumption for one
In the long term, gas prices could also be influenced by the ever-stricter
environmental laws, as natural gas is a relatively low-emission and
efficient energy source viable to replace oil and coal in many fields,
including power generation. Today, natural gas prices are kept under control
by competition from electricity, heating oil, coal and wood. Global gas
prices are tied to the price of heating oil and fluctuations are therefore
simultaneous. Eesti Gaas' contracts with individual consumers are concluded
at a fixed price, while notable fluctuations are allowed for commercial
The natural-gas consumers of Estonia include 120,000 households, 900 public
and commercial establishments, as well as 200 industrial users, 60 heat
producers and six co-producers.
The local gas prices are up to 10 times higher than across the border in
Russia, where retail customers are paying as low as 20 euros per 1,000 cubic
meters. On the other hand, Estonians receive the resource at a relatively
cheap rate compared with EU countries. In Germany, for example, retail
prices are above 400 euros per 1,000 cubic meters. Eesti Gaas has long
stated that prices in Estonia would never reach such levels due to lower
transportation costs and heavy competition from wood or electricity among
Meanwhile, the Russians are currently debating massive price hikes to
satisfy Gazprom's investment needs and boost budgetary revenue. The higher
prices, also demanded by the WTO to cut what is seen as heavy dumping for
Russian industry, should not influence Estonian supply in any way.
The EU's leading gas suppliers are Russia, Norway and Algeria, who make up
for about a half of the bloc's gas consumption. Potential suppliers include
Iran, Azerbaijan and other countries around the Caspian Sea. Such
developments should, however, leave Estonia largely uninfluenced. Occasional
discussions on creating alternatives for Russian gas have so far been
unfruitful as new pipeline connections ­ to, for example, Norwegian
Statoil's network ‹ would be too costly, considering the country's
relatively small consumption potential.
There have been occasional findings of natural gas in northern Estonia and
coastal waters, but neither the quantity nor quality would ever justify any
commercial production, according to scientists. However, as oil has recently
been struck at several Baltic Sea locations, optimists have said that more
surprises could be on the way.