Latvia considers options for Baltics' only gas storage facility

Latvijas Gaze AS

17/10/2016 13:49

* Latvia to liberalise gas market next April 
    * Latvijas Gaze utility to spin off storage, grid assets 
    * Gazprom, Uniper expected to sell their stakes 
    * Incukalns' gas storage levels the lowest since 2000 
 
    By Gederts Gelzis and Nerijus Adomaitis 
    RIGA/OSLO, Oct 17 (Reuters) - A number of companies, 
including Germany's Open Grid Europe (OGE), are considering 
buying a stake in Latvia's future gas grid and storage operator 
Conexus Baltic Grid, the country's economy minister said. 
    Latvia's gas utility Latvijas Gaze  GZE1R.RI  is set to 
transfer part of its assets - including one of Europe's largest 
underground gas storage facilities, Incukalns - to Conexus ahead 
of a planned market liberalisation next April.  urn:newsml:reuters.com:*:nL8N1BE1H0 
    The current owners of Latvijas Gaze - Russia's Gazprom 
 GAZP.MM , Germany's Uniper  UN01.DE  and Latvia's Itera Latvija 
- which have a combined stake of slightly over 68 percent, will 
have to divest shares in Conexus by the end of 2017 due to legal 
requirements. urn:newsml:reuters.com:*:nL8N1463YZ 
    Latvijas Gaze's restructuring is a part of wider gas market 
reforms approved by the Latvian parliament in February. They are 
aimed at meeting EU regulations and reducing dependence on 
energy supplies from Russia, Latvia's Soviet-era overlord. 
    Latvia's government, which is first in line to buy shares in 
Conexus, has hired Deloitte, a New York-based consulting 
company, to advise on whether it should buy the stakes itself or 
stay out. urn:newsml:reuters.com:*:nL5N1714ZY 
    "The potential investors are trying to find out whether the 
government would not object to them becoming shareholders of the 
new company," Latvia's Minister of Economics Arvils Aseradens 
told Reuters in an interview last week. 
    "(OGE) is among the companies which have shown interest," 
Asaradens said. He did not name any other companies. 
    A spokesman for OGE, formerly the gas transportation arm of 
Germany's E.ON, declined to comment.         
    The European infrastructure fund Marguerite, which holds a 
28.97 percent stake in Latvijas Gaze, plans to stay in Conexus 
after the restructuring, it told Reuters in an email. 
    The fund declined to say whether it might want to increase 
its stake in Conexus. 
    Latvijas Gaze has said its gas transportation and storage 
assets were worth 343 million euros ($384.19 million) at the end 
of 2015. 
    Incukalns, which has a storage capacity of 2.3 billion cubic 
metres (bcm), could meet Latvia's gas needs for almost two 
years, and until now it has also been supplying neighbouring 
Estonia and northwestern Russia. 
     
    NORD STREAM 2 IMPACT? 
    As Incukalns ownership is set to change, however, the 
outlook for its utilisation is becoming uncertain. 
    The storage facility, built during Soviet times to meet the 
needs of the wider region, including northwestern Russia, is 
entering this winter season one-third empty.  
    Gazprom and Estonian utility Eesti Gaas have not injected 
any new gas at Incukalns this year. Total injections have 
dropped to 1.25 billion cubic metres (bcm) from 1.6 bcm a year 
ago and 1.9 bcm in 2014. 
    At the end of the injection season, which runs from April 
until October, it had 1.53 bcm of gas in storage, the lowest 
level since at least 2000.  
    This includes 0.2 bcm of gas Gazprom injected for Russia's 
needs during the previous year. 
    Estonian customers told Latvijas Gaze they could meet their 
needs by direct imports from Russia, while Gazprom said it also 
had no need to store more gas.  
    While the drop in injections coincides with the Latvian 
parliament's decision to end Gazprom's supply monopoly, both 
Latvian officials and the Russian supplier said the reasons were 
economic. 
    Russia has spare capacity to deliver gas to its St 
Petersburg region, previously also supplied from the Latvian 
storage facility, as it prepares to build the Nord Stream 2 
pipeline to Germany across the Baltic Sea, Ivars Scerbickis, 
head of Incukalns gas storage, said. urn:newsml:reuters.com:*:nL8N1BS2X7 
    "As a result, an additional corridor of natural gas 
transportation and supply has emerged, affecting the region," he 
told Reuters. 
    Gazprom and its partners aim to launch Nord Stream II by the 
end of 2019, despite concerns that it will increase the European 
Union's dependence on Russian supplies.  urn:newsml:reuters.com:*:nL8N1BS2X7  
    Latvian officials have said they expect Gazprom to use 
Incukalns after market liberalisation to ensure security of 
supplies, especially during cold winters when demand spikes. 
    In the future the storage facility could also seek customers 
in Finland and Poland when new gas links are built from Estonia 
and Lithuania by around 2020, Scerbickis said.  
 urn:newsml:reuters.com:*:nL8N1AR3XO urn:newsml:reuters.com:*:nL8N1BJ2YS 
    "Historically, Incukalns' role has been indisputable in the 
region," he said. "Now it's a challenge for us to keep it the 
same." 
($1 = 0.8928 euros) 
 
 (Additional reporting by Christoph Steitz in Frankfurt; Editing 
by Gareth Jones) 
 ((nerijus.adomaitis@thomsonreuters.com; +47 9027 6699; Reuters 
Messaging: nerijus.adomaitis.thomsonreuters@reuters.net)) 
 
Keywords: LATVIA GAS/RESTRUCTURING