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    Covid-19 and the Baltic States: Feature


The five Baltic states – Poland, Lithuania, Latvia, Estonia and Finland – are weathering the storm in different ways.

by: Linas Jegelevicius

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Covid-19 and the Baltic States: Feature

The fall-out from the highly contagious Covid-19 pandemic is threatening to cast a longer shadow than the oil output stand-off earlier this year between Saudi Arabia and Russia.

“Covid-19 is exacerbating the unpropitious long-term trends in gas markets, depressing demand in the short term, and this will put a further downward pressure on gas prices,” Alex Barnes, director of Alex Barnes & Associates, a London-based business consultancy, told NGW.

He says Europe is benefiting from an influx of low-priced LNG, as demand in other markets, such as Asia, has grown more slowly than anticipated at the same time as a new supply from countries, such as the US, has come on stream.

“To sum up, global LNG prices are now so low that some LNG producers are not covering their full costs. This may cause shut-ins of US LNG production and delay a new supply coming on stream, leading to an increase in LNG prices in the future. Covid-19 has exacerbated these long-term trends,” he said.

According to Barnes, gas nevertheless continues to offer a long-term solution for combating climate change, by replacing higher polluting coal in the short term, and as a feedstock for low carbon hydrogen in the long term. "The market is working, both in the helping European consumers in the long term, and dealing with the impacts of Covid-19 in the short term,” Barnes pointed out.

Jakub Wiech, a Polish energy expert and deputy editor of Energetyka24.com, told NGW that the impact of the coronavirus pandemic on the Polish gas market was for now difficult to assess.

“The largest fuel companies in Poland take into account the losses associated with reduced demand for their products. In addition, many of them, like PGNiG, have become financially involved in the fight against the pandemic. The most important question is whether the coronavirus will threaten the Poland-Lithuania gas interconnector (GIPL), but for the time being, there is no indication that this project has any problems related to the pandemic,” the analyst said.

But the disease may lead to less money being available for the energy transition, thus slowing decarbonisation.

“This is particularly dangerous in Poland, which has set itself ambitious investment goals, such as its first nuclear power plant. It is no secret that funds for such a unit would come, among others, from state-owned companies. Therefore, any problems that these entities face will directly impact the realisation of these projects,” Wiech said.

The director of Lithuania’s natural gas transmission system Amber Grid, Nemunas Biknius, cautioned in remarks to Lithuanian media that there could be some disruptions to the supply of some equipment for the GIPL pipeline, which is produced in Italy. He said however that this was not “key” to the pipeline.

Faced with the Covid-19 outbreak, Amber Grid has decided not to pay out dividends after earning almost €14 ($15)mn last year. 

A former chairman of Lithuania’s National Commission for Energy Control and Prices, Vidmantas Jankauskas, who is now an independent energy analyst, says the oil rift and Covid-19 share some similarities.

“Oil profiteers and coronavirus-spooked people act similarly now – the former are buying up and stockpiling oil and the others are hoarding groceries. It will take quite some time for the markets to go back to normalcy. Until then, we will see market jitters. In addition, demand for gas has been edging down in most of the Baltics for quite some time,” he said.

Klaipedos Nafta (KN)'s LNG director Arunas Molis told NGW that, despite the extraordinary circumstances, KN was continuing its operations as usual: several LNG cargoes were delivered to the Klaipeda LNG terminal in the last month.

According to him, switching from coal and diesel to gas in the power generation and transport sectors had significantly contributed to the European Union's increased emissions reduction target.

Estonia could have run into serious problems owing to the virus, but it got off lightly. In early April, it had to shut down one of its 800-worker oil shale mines after one miner was tested positive for Covid-19. But this did not affect the production of either electricity or of oil, Eesti Energia, operator of the mines, said.

Electricity and gas system operator Elering told NGW that the virus had had no direct impact on the Estonian gas market. The company was more concerned about the planned maintenance of the Balticconnector pipe, he said.

Meanwhile, Ignitis (formerly Lithuanian Energy (LE) pointed out that the pandemic emerged as the main shock to natural gas markets in March, as lower energy demand triggered a decline in gas prices, which was further exacerbated by the oil price war.

“Even though China, which is called the workshop of the world, reports the reopening of its factories and the return of people to work and the consumption of liquefied natural gas (LNG) in Asian countries is growing, experts do not anticipate a substantial increase in gas demand in the near time,” the company said.

In early April, natural gas storage inventories in Europe were nearly 54% full, a very high level for the start of the injection season.

The CEO of gas trading platform GET Baltic Giedre Kurme told NGW that leading gas consumers, trading on the gas exchange, had been forced to change their maintenance plans, which would affect the demand side. “Demand reductions from such customers will be rolled over to the following months,” she said.

The exchange's first quarter's results were above expectations though. Between the beginning of the year and April 1, the traded volumes grew by more than 85% and the number of transactions concluded increased by roughly 92%, year-on-year, while the number of active exchange participants grew from 32 in 2019 to 47 by late March.

Conexus Baltic Grid, Latvia's gas transmission system operator that also manages the Incukalns storage facility, told NGW there was no observable influence of Covid-19 on the gas supply business in Latvia and the Baltics on the whole.

“All three gas transmission system operators have their emergency action plans for organisation of the work in emergency situations,” it said. While the Covid-19 pandemic will “certainly” leave its footprint on economy and gas demand, it does not mean that the deficit of gas will arise due to incapability of operators to perform duties entrusted on them, it said.

The combination of warm winter and the start of direct supplies have resulted in higher reserves of gas in the Incukalns storage at the end of withdrawal season than expected.

 Finnish state-owned Gasum told NGW that the  restrictions set by all the governments, as well as the challenges in supply chains as a result “are starting” to impact the demand as some of the gas consumers are forced to reduce their production or even close factories temporarily.

“Another indirect impact is also the gas price in European hubs, which is historically low, affecting also the gas markets in Baltics and Finland,” the company said.

In a best-case scenario, if the current restrictions are removed by June, the impacts of Covid-19 will be only temporary. In the worst case, the recession would be prolonged and the Covid-19 pandemic would have a more disastrous outcome.

“We will likely be seeing a continued oversupply situation, as the demand side would not grow as fast as we expected to happen in the beginning of the year. Regional gas markets would follow the global, although locally there might be differences depending on what actions do governments take to mitigate the Covid-19 impacts on their economies,” it said.