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Good afternoon. My name is Anna Bulakh.
I am a junior research fellow at the International Centre for Defence Studies.
It's an Estonian based think-tank and we gladly and happily want to share our expertise on
energy security in the Baltic region and broader European.
So I'm happy today to share our thinking -- local thinking on more global issues, I would say.
Could you please explain why infrastructural isolation of Baltic States can be problematic?
Well, the term isolation is really not a positive, in my perspective at least, and European Union
recently started like rise to the priority of energy security in the region.
Like if you would trace back into the 2000s, energy security wasn't a term commonly used
or being hot-sexy topic on news events and news briefs.
But, however, today the situation has changed and the focus of European Union also traced
back to the Baltic region and here we understood it's isolated.
Isolated in terms that there are no sufficient interconnectors and that countries like Estonia,
Latvia and Lithuania are heavily dependent on supplies of natural gas for instance just
from Russia and since for instance Lithuania is 50% dependent on natural gas as a primary
energy source to fuel its economy, we have to emphasise the importance of this energy
resource in the region. So, we already referred to the region as the
energy island and it's a broadly spoken terminology already.
Why is it isolated and why is it a priority today, because it brings a huge economic impact
on national economies of these countries. It's all about the price we pay and the price
such as Estonia, Latvia and Lithuania are paying today for natural gas: in Lithuania
30% higher than average European Union average price for natural gas and in Estonia and Latvia
it's 15% less than in Lithuania for instance. So bringing the percentage to national GDP,
Lithuania pays 2% of national GDP and Estonia and Latvia 1% and it's quite considerable.
It's quite considerable for countries that are actually smaller and as we see they are
isolated. So the importance of bringing more interconnectors: so we have to bring here
LNG terminals, liquefied natural gas, interconnectors inland and develop storage facilities.
All these projects can bring the free market trading here into the region. Free market
trading of natural gas for instance can generate more fair price on an energy source. The fair
price will already be beneficial for national economies.
So in this sense you see this cause and effect and it's not just highly politicised question
today. Today we already use the term pipeline politics.
Now today we have to understand that the final consumer, the households and industries, are
those who are paying this price that is actually undermining.
What are the current projects to interconnect with other European countries?
Pushing from the perspective that we are here on an isolated island, energy island, in Estonia,
Latvia and Lithuania, it's really important to develop the connection of these islands
to the common European Union energy market. So how we are doing it is by means of new
projects. And to develop the liquidity of the market,
we have to understand that it is not enough to just to build inside interconnectors but
to bring interconnection of the Baltic region to the whole European market.
That is why it is very important to bring here the perspective of Poland and to build
an interconnector between Poland and Lithuania. Then going further into focusing on the region
we have to bring into focus Finland and a Baltic connector and to bring LNG terminals.
Why is it important that LNG terminals are in the region, because liquefied natural gas
is bringing other sources of energy. And if we build an LNG terminal on the territory
of Estonia we can easily build an interconnector between Finland and Estonia so the gas will
flow easily starting from Finland crossing all Baltic region and bringing an interconnector
already to Poland. Another standard we have to focus on is also
storage facilities and expanding them as the one in Latvia.
So we have to understand that all these projects already on the PCI list of European Union,
they already have a green light and this green light will be really highly dependent on cooperation
in the region, on cooperation and political will.
Of course we have to understand that they are economically viable, but we also have
to focus today on BEMIP project as a whole and tracing back to electricity market there
has been some drawback in cooperation and accusation of Estonia that Latvia and Lithuania
are dumping prices. We should avoid such a situation in the future
in natural gas market. Therefore here the cooperation is really on
a top priority list aside of actually putting your money on the table. This is shortly how
I see this. What could be the barriers? For example, did
the pipeline interconnector Poland-Lithuania got a TPA exemption?
Well, the barriers are secure in a process of liberalization of the whole market.
As we already stressed it's really important for the whole region to develop a more coherent
energy market and to bring it into connection with the whole European Union energy market.
So to proceed the process of liberalization, de jure it's really simple, it's an implementation
of the whole package. But de facto it's more tricky business because
the final result sometimes cannot be felt by the final consumer on the prices if the
liberalization is not fully implemented. And how liberalization can be fully implemented
is to construct all the interconnectors and to bring all the rectification to the region:
the rectification used to construct interconnectors, develop storage facilities, and to bring LNG
terminals into the region. Well, in example of Polish-Lithuanian interconnectors
are really important from my perspective, from our perspective, to construct actually
the interconnector between Poland and Lithuania. Why it's important, because actually it's
one of the priority links that actually will bring the whole Baltic region and connect
it to the broader European Union region. If we only construct an LNG terminal in Estonia
or Finland, because the discussions are still ongoing, it will only be a connection inside
the Baltic region. If we go more towards the centre of the map
and connect directly Poland and Lithuania this will already solve the isolation question
here. Why the question of TPA exemption is not that
important, because Polish market is more developed, there are more companies that can invest into
projects. TPA exemption is really important when the
market is so underdeveloped like an example of Estonia, Latvia and Lithuania, that there
is still a big risk of underinvestment. So in this case it's not the barrier.
The barrier can be in cooperation, in political will. This JPL project is already on PCI list
of European Union and we already see the green light.
I don't see this one; I see other ones and the others are further harmonization and bringing
those interconnectors here in the region. Hypothetically: if Russia de-monopolizes exports
will the energy security priorities be reassessed? In that case what could be possible scenarios?
In this question I see the priority and what we need to emphasize here is the word de-monopolization
is the reduction of monopoly from the market. It's actually the main problem here and motivation
for the whole Baltic region actually to pursue the third energy package implementation and
to be integrated in the European Union energy market.
Why monopoly is not beneficial is because it brings economic losses on the national
level. So the higher the price you pay, the more you lose.
And why monopoly has not been efficient is that you cannot bargain and you cannot choose
different suppliers. Whether Russia will de-monopolize the exports
of natural gas and will allow other companies in domestic levels to export natural gas,
except of Gazprom. It can be beneficial for the region in the
sense that you can choose a contractor and choose a supplier. It can influence the final
price you will pay. On another level, that concerns the security
level, we have to admit that here in the Baltic region countries sometimes have bilateral
tensions with Russia and these bilateral tensions on a political level are not beneficial at
all. Therefore if we reduce monopoly of Gazprom
from this market and we can see that sometimes it's one of the foreign policy tools of Russia
and implemented its soft power here in some cases.
So yes, I can see that inside a security strategy here in the Baltic region the whole security
perception of Russia will be reassessed. But we have to understand that we don't have
to demonize Russia. They bring us the gas that fuels our economies and all the countries
here always had good economic relations and this gas is good.
In a sense today the whole de-monopolization liberalization of the market is to generate
free economic atmosphere to generate fair prices on energy resources.
That's the whole point when we talk about energy security.
It's not about the perception of Russia or the Baltic region, it's about the price we
pay.