Paldiski FSRU

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Paldiski FSRU is a floating storage regasification unit (FSRU) terminal for LNG import under construction in Estonia. Under a cooperation agreement, the FSRU is to be jointly leased and managed by Estonia and Finland's gas system operators.

Location

The map below shows the location of the Paldiski LNG Terminal project which has been proposed in Paldiski, Harju County, since 2015. The proposed FSRU terminal would be located offshore.

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Project details

• Operator:
• Owner: Estonian Stockpiling Agency
  • Formerly Alexela and Infortar
• Parent: Government of Estonia
• Location: Offshore of Paldiski, Harju County, Estonia
• Coordinates: 59.38445, 24.07494 (approximate)
• Capacity: 3.7 mtpa (5 bcm/y)
• Cost: €500 million (government estimate); €40 million for construction of the jetty
• Financing:
• Status: Construction
• Type: Import
• FID Status: FID
• Start year: 2024
  • Originally 2022, 2023
• Associated infrastructure: Paldiski FSRU Pipeline, Inkoo FSRU

Note: mtpa = million tonnes per year; bcm/y = billion cubic meters per year

Background

In March 2022, amidst the Russia-Ukraine war, Upstream reported that the Estonian government was "analysing the options on how to replace Russian gas," and that chartering and installing a floating storage and regasification unit (FSRU) offshore of Paldiski was being explored. According to reports in Estonia, the government was aiming to have the temporary FSRU in place by the third quarter of 2022. However, the timeline for taking a decision on the project remained unclear and, according to a spokesperson from the Ministry of Economic Affairs and Infrastructure, no details of the plan would be disclosed before all necessary decisions were made. Estonia's Minister of Economic Affairs and Infrastructure, Taavi Aas, was reported to have submitted a proposal for a temporary FSRU facility to the Estonian government. Aas floated the possibility of the Estonian state financially supporting the FSRU's development, noting also: "It may be the case that the terminal is entirely economically justified, but it may also be the case that the economic justification isn't all that great ... It is, however, significant specifically from a security perspective, which is where the state naturally has its role to play."

At the beginning of April 2022, it was reported that the Estonian government had mandated Taavi Aas to start preparations for constructing a mooring jetty in Paldiski to receive LNG offshore and to connect it to the Balticconnector Gas Pipeline, with a view to the FSRU terminal being set up "as early as November" to primarily serve the greater gas supply needs of neighbours Finland and Latvia. Prime Minister Kaja Kallas talked of an "investment volume" of €500 million for the project, with funding to come from the state budget, though a precise project cost had yet to be determined by the economy ministry. A larger LNG terminal to serve the Baltic, potentially the proposed onshore Paldiski LNG Terminal, still had to be discussed with and negotiated among the Baltic countries.

On April 7, 2022, as part of efforts to end dependency on Russian gas, Estonia and Finland announced they were partnering to jointly charter a FSRU for LNG importing which would be shared between two jetties to be built at Paldiski in Estonia and Inkoo in Finland. Estonia's state-owned energy grid company Elering and Finland's state-owned gas transmission system operator Gasgrid were reported to be working on the joint FSRU charter plan. On April 18, the Estonian energy company Alexela announced it was developing the Paldiski FSRU Terminal in partnership with Estonian investment firm Infortar. The planned capacity of the terminal was not disclosed and the Estonian companies confirmed the aim of commissioning the offshore terminal by November 2022. Alexela also confirmed that the FSRU project would be the first phase in the wider effort to build a "permanent solution for the terminal" in the second phase, referring to the onshore Paldiski LNG Terminal which the company has been proposing for several years. Heiti Hääl, chairman of Alexela’s supervisory board, commented, "In our opinion, the Paldiski LNG terminal must be a public terminal and other market participants and investors are also expected to join it". The Latvian government opted to join the Paldiski project as discussions about a possible Latvian LNG terminal remained unresolved. Latvia's Economics ministry estimated that, based on consumption, it was looking at a 30% stake in the project requiring an investment of €30-40 million.

In early May 2022, the Estonian and Finnish gas system operators Elering and Gasgrid signed a cooperation agreement for the joint lease and management of the FSRU. The rental costs for the FSRU were agreed to be split in line with Estonian and Finnish gas consumption levels, meaning Elering will cover 20% of the costs and Gasgrid 80%. The companies foresaw the FSRU arriving in Estonia by the end of the year, with the vessel to subsequently relocate to Finland when the jetty at Ingoo is ready and to supply both countries from that location. Disputes between Elering on one side and Alexela and Infortar on the other also emerged over both how to finance the construction of the new jetty at Paldiski and its ownership. Elering claimed on May 6, as negotiations between the two sides broke down, that it was being asked to pay the entire €40 million in construction costs for the jetty as a rental fee, while Alexela would retain ownership of the jetty.

On May 12, 2022, Estonia's Ministry of Economic Affairs and Communications, Elering and Alexela reached agreement on the project's development, with Alexela and Infortar to construct the quay and rent the FSRU. Minister of Economic Affairs and Infrastructure Taavi Aas said the two private companies would be going it alone: "They are doing it under market conditions, without any additional state contribution, and not even state guarantees. The only task of the state is to ensure the connection of the quay to the mainland and to ensure that the gas reaches the Estonian gas network." Construction work at the Paldiski jetty was reported to be under way.

In June 2022, Elering began construction work on the 1.2 km pipeline connecting the proposed FSRU to the grid.

In late July 2022, Estonian media reported however that a form of state guarantee for the Paldiski FSRU's construction had been granted by the government. In order to provide investment security for Alexela and Infortar, the private developers constructing the quay at Paldiski, the Estonian government announced a €38 million boost to the share capital of the Estonian Stockpiling Agency. According to a spokesperson for the state-owned agency: "The private company is currently constructing the quay using own assets. We know that Finland is constructing its mooring infrastructure. In short, there is not enough business in the region to cater to two locations where LNG can be received as gas consumption is modest and there is considerable risk that one of the locations, the quay in Paldiski in this case, might not be economically feasible".

In August 2022, it was reported that Finland's Gasgrid was leasing the Examplar FSRU from the U.S.-based company Excelerate Energy on a ten-year contract. The vessel was to sail to the Baltic Sea to provide LNG regasification services to both Finland and Estonia.

As of October 2022, work on the mooring point and the connection with the Balticconnector pipeline were complete.

In March 2023, the Estonian Stockpiling Agency and Pakrineeme Port agreed for the state to purchase the LNG loading quay in Paldiski along with related infrastructure and port property for a total value of €31,500,000 excluding value-added tax (VAT).

In May 2023, Estonia's Auditor General Janar Holm wrote in a memo to the climate minister that clearer information was needed regarding the terminal's timeline, and that the project required a central coordinator and financing model. "The National Audit Office deems it necessary to address the matter because approximately €60 million of taxpayer funds have been invested in the construction of the port and gas infrastructure in Paldiski, but the LNG receiving capacity has not yet been achieved," Holm explained. The same month, it was reported that Estonia and Latvia are planning an agreement to jointly purchase LNG in the event of a shortage.

As of June 2024, the annual GIIGNL report said that the terminal was on the verge of completion, but that no FSRUs had been secured. The terminal's sponsor said that it did not make sense to rent an FSRU as of the end of 2023 given the limited supply of such vessels available and that the country had enough access to gas.