gE Blog Series: The Baltic Countries Part 4 - Energy Independence from Russia

Over the last 30 years, Russia has been the only gas supplier to the Baltic countries of Estonia, Latvia, and Lithuania. As the gas price and demand has dramatically increased in the Baltic States, the European Union (EU) is has made plans to subsidize a regional liquid natural gas (LNG) terminal in the Baltic States. These plans are designed to decrease the Baltic countries' energy dependence on Russia and to meet the continually increasing gas demand. However, two issues aroused along with the project: where to build the LNG terminal and how to ease the relationship with Russia.

Considering the requirement that the terminal should be built where it could benefit two or more EU member states, Finland and Estonia have been designated as the best places to build the terminal. Since the project provides significant domestic advantages, it creates substantial competition between Finland and Estonia. The future host country will gain direct asses to global markets, which means that it does not need to transport gas via pipelines from Russia. Therefore it could reduce the huge transaction costs and lower the gas price for its people. Also, it could improve the security of gas supply and strengthen the relationship with other EU countries.

Finland and Estonia both claim that the terminal should be built in their respective country. Finland argues that, because it consumes the most gas in the Baltic Sea region and has the most at stake in terms of energy security, it is more necessary to build the terminal in Finland. However, Estonia shows that it has a better geographical location and it could provide more benefits to the other Baltic States, compared to Finland. As of now, answers to the question of where to build the LNG terminal have not been resolved.

The Russian-owned gas giant Gazprom is now seeking to construct its own LNG terminal at its border to increase the gas supplies for Baltic States. This will become a source of tension between EU and Russia as this terminal will compete with the EU subsidized LNG terminal. Alongside this tension, the EU is also filing antitrust charges against a large Russian gas company, which will further stress the relationship between the EU and Russia.

The LNG terminal is necessary for improving Baltic interconnections and benefiting the people of the Baltic States. The EU should therefore carefully consider its decisions on building the LNG terminal and look to resolve its problems with Russia.