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Conexus: 2018 was a year of strategic decisions

Working in open natural gas market conditions, ensuring continuity of gas supply for the needs of Latvia and neighbouring countries by strengthening the use of Inčukalns underground gas storage facility (Inčukalns UGS), the work started on the development of the single natural gas market are the most significant events in the Latvian natural gas market in 2018, according to the published annual assessment report of the single natural gas transmission and storage operator Conexus Baltic Grid (Conexus). It also includes a 10-year forecast for natural gas consumption in Latvia, which recognises that sustainable market development should aim at carbon neutrality of energy resources.

The volume of the Latvian natural gas market reached 15.1 terawatt-hours (TWh) in 2018, with the total volume of natural gas transmitted reaching 30.2 TWh. Compared to 2017, the demand for natural gas has increased in 2018. The major natural gas flows in the Latvian natural gas transmission system can be observed in summer, during the injection season, in winter - in January and February. During the winter months, the supply of natural gas is primarily organised from the storage facility, reaching up to 100% of the total amount entered into the natural gas transmission system per month.

Zane Kotāne, Chairperson of the Board of JSC Conexus Baltic Grid, provides information about the work in 2018: “Working in open natural gas market conditions has been a new experience for the entire industry, revealing not only unprecedented opportunities but also challenges. One of the challenges for Conexus has been to promote the use of the Inčukalns storage facility, recognising that, under current market conditions, the reliability and stability of the transmission system depend on the appropriate gas pressure in the Inčukalns UGS. It is for this reason that we have begun organising an auction for the provision of natural gas at the interconnection of the transmission system with the storage facility, an ambitious project for modernisation of the storage facility has been started, creation of a single natural gas market will also have a positive impact on the storage facility and the entire transmission system. I am pleased that Conexus has been able to make strategic decisions and, most importantly, to manage the gradual implementation of these decisions. Each year of our operation contributes to the next working period.”

The single natural gas market will strengthen market stability and energy independence

In the autumn of 2018, a significant step was taken towards the establishment of a single natural gas market from 1 January 2020, with the Memorandum of Understanding concluded between the transmission system operators from Finland, Estonia and Latvia. This could become the first single market area of this kind in the European Union (EU) and it will be an important step in the development of the gas supply infrastructure in the region, promoting market stability and strengthening energy independence.

The process of establishing the regional gas market envisages the creation of the Baltic single tariff area and gradually a single balancing area by initially creating two balancing areas - the Finnish one and Latvia and Estonia balancing area. Integration of the natural gas market requires free access to be ensured to the natural gas infrastructure in the region, including Inčukalns UGS. The single natural gas market will promote competition between natural gas traders, will help establish and achieve a stable and predictable tariff regime, avoiding hidden, unpredictable payments between transmission system operators.

Based on the signed Memorandum of Understanding, the transmission system operators from Finland, Estonia and Latvia, in close cooperation with the public utility regulators of each country, have submitted applications regarding the principles for defining the single entry tariff, the indicative value of the single entry tariff and the proposal for the applicable model of the inter-operator compensation mechanism (ITC). It has been developed based on principles that would help in avoiding complicated ITC settlements.

Forecast of natural gas consumption for 10 years

The ten-year forecast of natural gas consumption in Latvia has been prepared using the scenarios of forecasting guidelines of the European Network of Transmission System Operators for Gas (ENTSO-G), in which the European climate targets and energy policy interact.

The most favourable scenario for the Latvian national economy in the medium-term, or 10+ years, would be a sustainable development scenario, which envisages the gradual reduction of carbon intensity of energy resources, primarily replacing coal and oil products with (natural) gas and anticipating that the consumption remains at the level of recent years.

The Global Climate Action scenario, which envisages promoting projects and investment to increase the use of renewable energy sources, thereby contributing to the reduction of CO2 emissions, could lead to significant tariff increases. The country needs to develop new technologies for the production of natural gas from renewable resources (for example, biomethane and Power to Gas technology), as well as alternative use of natural gas, by mentioning replacing petroleum products in road transport as the area with the greatest potential.

 

You can research the Conexus Baltic Grid (Conexus) annual assessment report for 2018 here.

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