Baltic nations search for LNG to replace Russian supply

(Bloomberg) – Baltic utilities are stepping up their search for LNG cargoes to replace Russian fuel after prices slumped in the past few months.

Estonia’s Eesti Gaas AS will in the next few weeks issue a tender to buy seven LNG cargoes for delivery from April through September into Inkoo, a new floating terminal in Finland, a spokesperson said. The firm has already bought fuel for the first three months of the year, while neighboring Lithuania stocked up in tenders.

Gas prices have dropped more than 80% since a peak in August, increasing LNG’s appeal compared with alternatives such as coal or fuel oil. The Baltic states have added infrastructure quickly to diversify away from the pull of their neighbor’s cheaper pipeline supplies.

“Several customers on our different markets, who used alternative fuels in the meantime, are already returning to natural gas,” Margus Kaasik, CEO of Eesti Gaas, said in a statement.

While demand in the Baltics is small compared with major consumers such as Germany or France, the increased buying activity may be a sign that the uptick in demand is here to stay.

Europe has been lucky with mild weather this winter, which means that gas stockpiles are 68% full, compared with an average of 48% for this time of year. Utilities are now shifting their focus to restocking for the summer season.

Eesti Gaas also secured three slots at the Klaipeda LNG terminal in Lithuania, with one cargo delivered in January by Equinor ASA, and two more to follow in March.

The company is now preparing a tender for the seven slots it has booked at Inkoo. The floating terminal arrived at the end of last year and by mid-January, the facility was ready to receive shipments.

The Baltic nations, as well as the UK, have banned Russian LNG. Finland is still buying small volumes from its eastern neighbor under a long-term contract.

Estonia, Lithuania and Finland were relying on Russia for about three-quarters of their gas imports before the war, said Leo Kabouche, an analyst at Energy Aspects Ltd. The region is not connected to the rest of Europe by pipelines, which makes it LNG-dependent to replace the lost Russian volumes.

“Several Estonian utilities last year applied for exemptions to burn fuel oil given high gas prices, but these will expire at the end of the winter, which may further raise the call on gas,” he said. “LNG is much more competitive than it was last year for both power generation and industrial consumption following the price declines observed in recent weeks.”