Discussions continue regarding the development of new operation model of Inčukalns Underground Gas Storage

The unified natural gas transmission and storage system operator JSC Conexus Baltic Grid has commenced discussions regarding the development of sustainable operation model of Inčukalns Underground Gas Storage (Inčukalns UGS). If no new operation regulation is introduced, there is a risk that in future the storage cannot implement its functions of national strategic object by ensuring the energy security and independence of Latvia.

The industry experts and decision-makers discussed last week regarding the necessity of sustainable solution during the conference “Investment of underground natural gas storage in solving the supply security issues” arranged by the initiative of JSC Conexus Baltic Grid. During the conference, the current situation in Latvian market was discussed and international experience from France, Hungary, Poland was listened where natural gas storage operators have encountered similar problems that are currently in Latvia. The conference participants were of the same opinion that a solution must be found.

Zane Kotāne, Chairperson of the Board of JSC Conexus Baltic Grid informs: “It’s natural that the discussion is started now, because after opening the natural gas market in spring 2017 we have made the first conclusions. Although the storage in Latvia is a regulated form of activity, no obligations to use the storage are determined in the country and its filling is left for the market. In the result, the storage has 60% load not covering the infrastructure maintenance costs.”

Z. Kotāne explains, the demand for storage services increases if difference between winter and summer prices occurs in the market that has materially reduced over the last years. For example, the difference of summer/winter prices 2018 was on average 0.5 EUR/MWh, that in the current storage filling allows to cover only 30% of the storage costs.

“These are significant signals that urge to make nationally responsible and decisive decisions, answering clearly the question whether we want that Inčukalns UGS also further is a resource ensuring the energy security and independence of Latvia and of the whole Baltic Region? Do we want also further be sure of the security of natural gas supply in Latvia and the whole region also in case of lasting cold or in case of problems with external natural gas deliveries? The international experience shows that Latvia with its choices in not in a unique situation. Other countries also have experienced such reforms and out most important task is to agree on creation of model that is binding for everyone and sustainable in long-term. It must be emphasised that the conference marked a positive trend – market players are interested to continue the negotiations and search for a solution that is best for Latvia because such advantages of storage as supply security, ability to react flexibly on the price fluctuations and peak hours, product balancing offered by the sellers are invaluable,” Z. Kotāne is satisfied with the initiated discussion.

Situation is similar in the whole Europe – Gas Infrastructure Europe (GEI) has implemented a study regarding sustainable natural gas storage market, pointing to the causes of the problem and illustrating the possible solutions. Countries have chosen different ways – Hungary has introduced national strategic reserves that ensure the financial operation of storages and national energy security; in Poland, sellers obligations are introduced to ensure the natural gas supply from the storage expect if supply is anticipated from LNG terminal, but in France a complex solution is introduced to recognize the storages with governmental decision as an integral part of a transmission system and ensure the covering of storages’ costs from transmission tariffs.

It’s planned that Conexus Baltic Grid, considering the experience and suggestions of other countries continues the discussions with industry experts and market players to give soon suggestions regarding a solution that is suitable for Latvian situation that ensures also further stable operation of Inčukalns Underground Gas Storage. One of the further ways is initiation of amendments in the Energy Law.