Latvian government abandons Skulte LNG project

Market: Natural gas
29/08/23

Plans to build an LNG terminal in the port of Skulte "should be left in the past", Latvian energy minister Raimonds Cudars said last week.

"Our previous discussions on the Skulte terminal or the necessity to build it should be left in the past," Cudars said, noting that the Incukalns storage facility is well filled and its capacity fully booked for this year, which ensures energy security not only for Latvia but the entire Baltic region. Incukalns also holds roughly 1.8TWh that the Latvian state owns as a strategic reserve, which prime minister Krisjanis Karins said in May had not been touched over the winter and remains in storage.

Cudars sees no further risks to gas supply either in Latvia or the wider region, as existing infrastructure is sufficient, making Skulte unnecessary. In case of an emergency, the Paldiski LNG terminal in Estonia, for which Latvia and Estonia signed an agreement on the terminal's joint use in May, is ready to receive gas when needed, he said.

The Paldiski terminal was purchased by the Estonian state in March, but remains unused at present and without a floating storage and regasification unit (FSRU) attached. An auditor's report in May raised several criticisms of the legal status of the quay, which mean there is "no reason to believe that, even in a crisis situation, ships or gas suppliers can afford to take risks and operate in a port that is not legally authorised".

The Latvian government decided on the need to build a terminal in April last year, and the Skulte project attracted a 20pc stakeholder in May, but Latvia was unable to reach an agreement on forming a joint venture with Estonia and Finland. Subsequently, Finland built a terminal at Inkoo and leased its own FSRU, which entered commercial operations in January.

The Latvian government in September designated the Skulte project as one of national interest, after deciding to ban the import of Russian gas from the start of 2023. Construction was due to start in the second quarter of this year, but the project stalled and eventually the government rejected the terms presented to it by the developer in February.

Skulte LNG's chief executive Renars Mikelsons accused politicians of slowing the progress of the terminal's construction and "scar[ing] away" a potential investment. Japanese trading firm Marubeni showed some interest in the project, but no further progress has been made. Many market participants view Skulte as unnecessary now that Inkoo is fully commissioned.

By Brendan A'Hearn

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