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Market Report: Oil and Gas - Baltic States

July 2019

Sector Overview

The Baltic States are part of the greater EU market and could serve as a gateway to Europe. The EU is the world’s largest importer of oil and gas products. Its imports totalled $336 billion in 2016, and supplier diversification is one of the EU’s top energy priorities. Entry and engagement in the small energy market in the Baltic region promise Canadian companies access to a larger, augmented regional market of Scandinavia and Western Europe— that includes:

The Baltic States are considered “energy islands” in the EU given their lack of proper connections to the common European energy market. They are largely dependent on Russia for their supply of electricity and natural gas. Energy dependence is the extent to which an economy relies upon imports to meet its energy needs. Estonia is least dependent on energy imports, as it has gradually reduced its dependence from 26% in 2005 to 7.4% in 2015. Latvia has also moved to reduce its dependence from 63.9% in 2005 to 51.2% in 2015. Lithuania, in contrast, has increased its dependence from 56.8% in 2005 to 78.4% in 2015.

Energy consumption in the Baltics is growing at a slow pace. In 2014, the Baltic nations collectively consumed 17.9 million tonnes of oil equivalent (Mtoe), a 1.1% share of EU total, compared to 15 Mtoe in 2000. While increased energy demand is not an issue, finding energy alternatives and energy security remains significant.

The energy markets of Estonia, Latvia, and Lithuania still lack adequate energy connections, both between themselves and to other parts of the EU. Connecting the three Baltic power systems to neighbouring EU Member States synchronous area and to the internal energy market is a current regional priority. The scope of prospective solutions includes natural gas pipelines, liquefied natural gas (LNG) terminals, and underground gas storage facilities.

The best opportunities for doing business related to energy distribution are with those areas that require immediate or medium and long-term maintenance. In addition, large-scale projects under construction in the region have high potential. Nevertheless, priority is given to partnerships and co-operation with Scandinavian and Western European nations and their companies for future expansion and maintenance considerations.

Market opportunities by subsector

Natural gas – In the natural gas sector, Latvia’s geographical location is good for business operations targeting the EU’s developed economies and its eastern neighbours’ emerging markets. The recently liberalized natural gas market, together with the Inčukalns gas storage facility and Klaipeda LNG Terminal, form the basis for gas co-operation in the Baltic region. The up-and-coming regional gas hub also supports transmission infrastructure projects such as GIPL pipeline and Baltic Connector that will connect and integrate the Baltics with the networks of neighbouring EU countries in 2020-21. The overall project would allow the Baltics to become a regional market with an annual turnaround of approximately 25 BCM of natural gas and expected total investment of over €1 billion by 2020.

Liquefied natural gas (LNG) – The Baltic region is currently experiencing a boom in LNG demand, with a total annual consumption of 5 BCM of natural gas. The 1.5 BCM Klaipeda floating LNG Terminal in Lithuania is the only operating LNG facility in the Baltic States. Lithuania continues to look for alternative LNG suppliers in North America. Lithuanian authorities have indicated an interest in learning more about Canada’s export capacity of LNG in an effort to secure a possible supplier. The nascent LNG initiatives in the Baltic region encourage a promising gateway to EU markets for Canadian companies active in this sector. Similarly, the efforts to connect the Baltic States with the rest of Europe promise Canadian companies a closer interaction with the increasingly interconnected Western European electricity and energy markets.

Shale oil – Estonia holds significant reserves of oil shale and its oil shale extraction industry is the most developed in the world. Oil shale represents approximately 70% of Estonian total primary energy supply. The production amounts to 176,544 terajoules (TJ), or 49,040 GWh per year, with 30,159 TJ exported to neighbouring energy markets. Although technologies used to extract and refine oil shale differ between Canada and Estonia, there is some potential for bilateral co-operation and investment. Canada and Estonia share similar views on ensuring non-discriminatory regulation of these industries. While shale oil production is increasing, the long-term development perspectives largely depend on the environmental policies pursued by the European Union over the coming decades.

Market and sector challenges

CETA opportunities for oil and gas companies

Tariffs – The EU market holds significant potential for Canadian energy companies. EU tariffs, which can be as high as 10% for Canadian oil and gas companies, will be eliminated on all Canadian energy products. This will have immediate effect following provisional application, providing Canadian exporters have a competitive advantage over many competitors that do not have a preferential trade agreement in place with the EU. We encourage businesses to take advantage of the new Canada Tariff Finder. It will allow exporters to look up and compare tariffs across markets where Canada has a free trade agreement, including CETA

Certification – Under CETA, energy firms will be able to have certain goods tested to EU standards by a certification body in Canada. The results of the tests will be recognized by the EU. This is a significant innovation that will help Canadian oil and gas companies, particularly SMEs, avoid testing duplication and reduce costs. CETA’s conformity assessment mechanism will first require the completion of an agreement between the Standards Council of Canada and European Accreditation. Once arrangements have been established, certification bodies will be able to seek accreditation and test standards.

Temporary entry – CETA simplifies requirements for short-term business visitors, intra-company transferees, investors, contract service suppliers, and independent professionals to conduct business in the EU. While variations exist across EU member states, CETA allows temporary entry commitments related to activities such as technical testing, analysis services, scientific and technical consulting services potentially related to energy. For processed oil and gas products, CETA allows access to advance rulings on the origin or tariff classifications of products.

Government procurement – Under CETA, Canadian energy companies will have, for the first time, guaranteed access to supply goods and services to all levels of EU government. This includes thousands of regional and municipal entities, as well as European public utilities. Preferential access to the EU’s estimated $3.3 trillion government procurement market will open new opportunities for Canada’s energy sector. In addition to goods, CETA’s government procurement provisions also offer new market access in a broad range of oil and gas services. This includes: exploration, engineering, consulting, maintenance and repair services. For procurement opportunities, suppliers will be able to access tender notices for all CETA-covered procurements using the Tenders Electronic Daily portal (TED, at ted.europa.eu).

Investment – CETA will have a positive effect on Canada-EU bilateral investment by providing investments greater certainty, stability, and protection for their investments. CETA encourages investment by prohibiting Canada and the EU from applying undue restrictions on investors. It will ensure Canadian and EU investors receive fair and non-discriminatory treatment in each other’s markets.

Useful links

The TCS and its services

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Contacts

Embassy of Canada in Riga
Baznicas 20/22, Riga LV1010, Latvia
Tel: (371) 67813946
Fax: (371) 67813960
Contact: Irena Cirule, Commercial Officer
E-mail: irena.cirule@international.gc.ca
Website: www.balticstates.gc.ca

Office of Embassy Canada in Tallinn
Toom-Kooli 13, 10130 Tallinn, Estonia
Tel: (372) 6273316
Fax: (372) 6273312
Contact: Kairi-Liis Ustav, Programs Officer
E-mail: Kairi-Liis.Ustav@international.gc.ca

Office of Embassy of Canada in Vilnius
Business Centre 2000, Jogailos 4, 01116
Vilnius, Lithuania
Tel: (370) 52490951
Fax: (370) 2497865
Contact: Egle Jurkeviciene, Programs Officer
E-mail: egle.jurkeviciene@international.gc.ca

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