ESTONIAN GAS SUPPLY SITUATION 11.01.2012 Tallinn
AGENDA 1.History review. 2.Security of supply. 3.Investments in gas system 2006-2011. 4.Future development plans. 5.Tariff regulation. 6.Draft Natural Gas Act. 7.Conclusion.
1. HISTORY REVIEW 1-st of November, 1990, Eesti Gaas the first Estonian state enterprise was created. In period 1993-1998 all shares was sold to foreign companies. During the year 2005 Eesti Gaas was reorganised into a group, comprising of the subsidiaries AS EG Ehitus and AS EG Võrguteenus.
AS EG VÕRGUTEENUS AS EG Võrguteenus is the combined system (transmission and distribution) operator. The cost of transmission, distribution of the natural gas and ancillary services are separated and disclosed. AS EG Võrguteenus started its economic activity on January 1, 2006.
AS EG VÕRGUTEENUS AS EG Võrguteenus rents and is responsible for both gas networks, totaly 2 314 km, incl: - transmission gas network (> 16 bar 878 km), - distribution gas network (0,1-16 bar - 1436 km). On the 01. of January 2006 we had 177 employees, On the 01. of January 2012 we have 155 employees.
2. SECURITY OF SUPPLY Transmission network 878 kм, MOP 38/55 bar 36 GRS, 3 GMS*
ESTONIAN GAS SUPPLY SYSTEM CAPACITY Total capacity is 11,0 mil m 3 per day. Karksi connection with Latvia 7,0 mil m 3 per day; Värska connection with Russia 4,0 mil m 3 per day; Narva connection with Russia 0,5 mil m 3 per day. As a rule, only the Värska and Karksi connections are operational. Criterion N-1 = 59,7%.
ACTUAL PEAK FLOW FOR EACH CONNECTION Narva connection with Russia Värska connection with Russia Karksi connection with Latvia mil m 3 per day mil m 3 per day mil m 3 per day MW MW MW 2008 0,94 365 3,11 1209 4,61 1792 2009 0,23 89 2,48 964 4,35 1691 2010 0,29 112 2,62 1014 4,45 1722 2011 0,36 139 1,70 650 4,00 1536 26.09.2010 24.11.2010 22.01.2010 12.10.2011 3.01.2011 18.02.2011
Total peak load 1000 m 3 per Year day MW 2005 5 200 2 021 2006 6 700 2 604 2007 6 400 2 488 2008 5 200 2 021 2009 4 350 1 684 2010 5 300 2 060 2011 5 200 2 021 2012 prognosis 4 800 1 866 2013 prognosis 5 000 1 944 2014 prognosis 5 200 2 021 2015 prognosis 5 200 2 021 2016 prognosis 5 300 2 060 TOTAL GAS PEAK CONSUMPTION OF TRANSMISSION SYSTEM maximum minimum 20.08.2011 min consumption - 560 000 m 3 per day The Estonian gas transmission system today has sufficient pass- through capacity and until 2016 there will be no capacity deficit.
GAS SUPPLY SCHEME FROM APRIL TO OCTOBER During this period the necessary pressure level in the Estonian gas system is maintained by the Russian transmission system s compressor stations (in Irborska).
GAS SUPPLY SCHEME FROM NOVEMBER TO MARCH During this period Estonia and NW Russia depend on underground gas storage facility at Inčukalns. The necessary pressure level in the Estonian gas system is maintained by the Inčukalns underground gas storage. In our history we had not significant problems with supply.
NATURAL GAS SUPPLY FROM INČUKALNS UGS Capacity Distribution between countries, mil m3/year UGS volume in Russia in Latvia in Estonia in Lithuania mil m 3 mil % m 3 mil m 3 mil m 3 mil m 3 % % % % 2005-2006 2139 100 396 19 1180 55 558 26 5 0,2 2009-2010 2150 100 355 17 1234 57 409 19 17 0,8 Average used by: UGS max output capacity mil m 3 per day 24 4,32 18 13,44 56 5,50 23 0,24 1 There will be a need to further increase for underground gas storage capacity for security of gas supply.
SUPPLY DEPENDS ON THE INLET GAS PRESSURE Technical flow capacity Inlet pressure Värska connection with Russia Karksi connection with Latvia Total capacity Mil m 3 per day Mil m 3 per day mil m 3 per day bar 40-42 4,0 7,0 11,0 34-36 3,5 6,1 9,6 30-32 2,4 4,8 7,2
GAS INLET PRESSURE BEFORE VÄRSKA AND KARKSI GMS The problem for Estonia is not the limitations of the transmission capacity, but in the case of peak load of gas consumption the inlet pressure on the Estonian border may drop below the agreed limit (35 bar).
3. INVESTMENTS IN GAS SYSTEM FROM 2006 TO 2011 All investments in the period 2006-2011 - 48 mil incl: Transmission - 12,0 mil, Distribution - 9,0 mil, Cathodic protection - 1,5 mil, Measurement of gas - 2,5 mil, New pipelines - 23 mil, incl Pärnu transmission pipeline 50 km - 5,4 mil. More than 2 000 new customers have been connected. We invest in new projects if it is technically and economically justified.
PIPELINES INSIDE INSPECTIONS In 2006-2008. was carried out the inside inspection on transmission pipelines: Vireši-Tallinn, Dn700 (202 km), Izborsk-Tartu-Rakvere, Dn500 (219 km), Pskov-Riga Dn700 (2x21 km), Tallinn Kohtla-Järve will be prepared for inside inspections in 2013
PERFORMANCE OF REPAIR WORK In period 2006-2011 over 480 transmission pipelines were replaced (~ 6 000 m)
LINE VALVES STATIONS 15 new LVS were built and 11 existing LVS were reconstructed
ESTONIA - LATVIA CONNECTION before Karksi GMS new bypass line valve station after
GAS REGULATION STATIONS Kohtla-Järve GRS, 2009 Roiu GRS, 2011 2006-2011 4 new GRS were built and 5 old ones reconstructed Pärnu GRS, 2006
4. FUTURE DEVELOPMENT PLANS Balticconnector - gas pipeline between Estonia and Finland. Kiili-Paldiski transmission pipeline - Estonian transmission system connects with planned Balticconnector. Reconstruction of the Tallinn Kohtla-Järve Narva transmission pipeline.
BALTICCONNECTOR Project started in 2004 by Gasum in order to gain access to the gas storage facility in Latvia. The connecting pipeline is an instrument for ensuring security of supply of the whole region, primarily in Finland and Estonia. The final decision concerning the Balticconnector project will be made in 2013-2014.
KIILI-PALDISKI TRANSMISSION PIPELINE Started in 2004 by Eesti Gaas as the underground part of the Balticconnector project. New cities, Keila and Paldiski, and planned Paldiski LNG terminal would be connected to gas system. Currently we are carrying out a planning procedure, necessary for the construction of Kiili Paldiski transmission pipeline.
TALLINN KOHTLA-JÄRVE NARVA Reconstruction of the Tallinn Kohtla-Järve Narva transmission pipelines (old pipe 38 bar change to new pipe 55 bar) and 10 GRS. Russia is going to do the same - replace the pipe from Narva to St Petersburg. Opening the direct connection between Estonia and Russia from St. Petersburg side and that would enable us to comply with the N-1 criterion of gas network. Estimated construction period in 2015-2022.
THE ESTIMATED COST OF FUTURE DEVELOPMENTS Project mil year Paldiski Kiili pipeline DN700 PN55, 47 km 28 2014-2016 Gas Metering Station (Paldiski) 3 2015-2016 Loo GRS rek. (55/38) 4 2015-2016 Balticconnector, 80 km 100? Compressor station (Paldiski) 22? Karksi GMS (reverse metering) 5? Tallinn-Kohtla-Järve-Narva pipeline (200 km) and 10 GRS Sum: 317 EU grants %? 155 2015-2022
LNG TERMINAL All four countries of the East Baltic area have shown their strong interest in offering the location for the LNG terminal, but it is clear that only one LNG terminal is feasible in the region according to limited annual gas consumption.
PALDISKI AND MUUGA LNG TERMINALS Today we are constantly holding constructive negotiations with all investors planning construction of an LNG terminal in Estonia.
WHERE TO CONSTRUCT LNG TERMINAL? LNG terminal in Finland (alternatively Estonia) (Ramboll 2009 - Future Development of the Energy Gas Market in the Baltic Sea Region). The Estonian LNG terminal infrastructure project seems to be more mature (BEMIP - Entry/Exit Model for the East-Baltic Gas Market, June 2011). Paldiski would appear to be a good solution as it sits next to the proposed interconnector with Finland, the largest of the four gas markets and close to the potential demand centre of Tallinn (PÖYRY 2011: Liberalisation of the Estonian gas market).
LNG FOR SECURITY OF SUPPLY Only with an LNG terminal located in Estonia or Finland, the current gas pipeline with Balticconnector can be used as an additional reserve in high season winter periods and would improve the security of supply in the gas systems of Finland and Estonia and, if necessary, in that of Latvia. If the location of LNG terminal were in Latvia or Lithuania, current gas network could be used only for conventional supply of gas to Estonia or Finland (not in high season winter periods).
5. TARIFF REGULATION According to law the Authority approves separately the following network services and methodologies: - price of transmission service, - price of distribution service, - methodology of calculation of the charge for connecting to the network
TARIFFS FROM 01.07.2009 Pressure / 1000 m 3 part of the final gas price (average %) Transmission > 16 bar 8,79 3,0 % Distribution 0,1-16 bar 17,66 4,0 % 0,1 bar 53,01 11,0 % AS EG Võrguteenus has a market share of about 90% and the number of its customers is 43 500. Annual turnover 13 mil. Only!
Arguing issue - regulatory asset base (RAB) RAB comparison 1000 CA Resolution 7.1-7/09-0023 31.03.2009 base year 2009/2010 EGV declared depreciated cost of fixed assets of gas network 99 018 CA determined as RAB 49 457 EGV declared depreciation of fixed assets of gas network 5 256 CA determined depreciation Reasonable profit, WACC 7,57 % Reasonable profit + capital cost 4 402 3 746 8 148
GAS CONSUMPTION IN ESTONIA The overall size of the gas market is small, 70-75% of gas used for heating. Estonia must transform National Energy Policy by switching power generation from oil shale to gas and to end support for renewable energy sources. This is the key issue of increasing the use of gas! If the National Energy Policy will not change for gas, consumption will reduce even more.
6.NATURAL GAS ACT DRAFT Natural Gas Act Draft requires full ownership unbundling from 01.01.2015. If the EG owners are not agree is the Estonian state going to court against shareholders from Russia, Finland, Germany, Estonia and Latvia??? If then the owners are agree - EG shareholders agrees to sell the transmission grid. Price? The new transmisson grid owner shoud establish new company/tso - NewCo.
WHATS HAPPENING WITH EG VÕRGUTEENUS? Now one company (155 employees) is maintained both gas grid the transmission and distribution networks (2314 km). Efficiency ratio: 2 314/155 = 14,9 In EU gas companies average efficiency ratio is 7,6. We have the same professionals for transmission and distribution network.we have a one common (transm. and distrib.) operation center and common different functional appliances, cars, etc. We are confident that for Estonia the one combined system operator is the most effective way to maintain the small existing gas networks efficiently and at minimal cost. And this is proven by our experience of 6 years.
EG VÕRGUTEENUS AFTER 01.01.2015 AS EG Võrguteenus continue as distribution company. 90% of current employees should be to continue in the distribution company to meet all technical and safety standards and rules.
NEWCO FROM 01.01.2015 A NewCo needs to purchase all the special equipment and cars, to build a new operation center (with SCADA and GIS and other IT programms) and the most important thing to find around 70 highly qualified professionals who would be able to safely maintain the gas transmission network accordance with the technical standards and rules. How will NewCo/TSO be certified and licensed without their staff?
QUESTIONS How much is EG Võrguteenus restructuring costs and the NewCo establishment costs? What is the transmission system sale price which goes into the transmission tariff? How many and what investments are made at the expense of the tariffs? If Parliament adopted the existing Draft Natural Gas Act, the Competition Authority must approve the all those costs. How much will the transmission tariff increase after that? Today an independent and complete analysis does not exist.
UNBUNDLING STRATEGY FIRSTLY ITO Our suggestion is to use ITO transmission unbundling model (in Chapter IV of Directive 2009/73/EC). Pöyry recommends the same - may be desirable as an intermediate step to move to an ITO model, which would enable the current ownership structure of Eesti Gaas and EG Võrguteenus to continue with stricter ring fencing requirements. Full ownership unbundling is recommended but only as a part of the wider package of liberalisation measures ( developing a regional approach, increasing demand, national gas policy, especially in power generation). Source: LIBERALISATION OF THE ESTONIAN GAS MARKET (PÖYRY, nov 2011)
7. CONCLUSION The Estonian gas transmission system today has sufficient pass-through capacity. We are strongly supporting LNG terminal in Estonia or Finland (with Balticconnector) because they increase our security of supply. Today we have the law of non-discriminatory access to transmissions pipelines. None of the investors has pointed to the ownership of the transmission network as a factor hindering construction of an LNG terminal. Planned reorganization (full ownership unbundling) will bring additional costs to be sure that, in view of today's income and the amount of gas, a very large and require considerable value to the tariff increase.
THANKS FOR YOUR ATTENTION! Sergei Jefimov CEO AS EG Võrguteenus