Postponement of FinEstLat and Lithuanian gas market merge

Natural Gas

On 1 January 2020, the single entry tariff zone of Finland, Estonia and Latvia (FinEstLat) started operating. The merger of FinEstLat means the linking of the Finnish, Estonian and Latvian markets, removing the internal tariffs in the region and setting the entry tariffs in the region at the same level, by applying the inter-TSO compensation (ITC) mechanism. The results of the operation of FinEstLat single entry tariff zone are greatly positive.

Further market integration, merging FinEstLat and the Lithuanian gas market is a clear opportunity for the Baltic States and Finland to reap all the benefits of their existing and future infrastructure, such as gas storage facilities, LNG terminals, the Balticconnector and the Gas Interconnection Poland–Lithuania (GIPL). Furthermore, the expansion of the single entry tariff system will further integrate four relatively small national markets and significantly increasing competition. To achieve this, at the beginning of 2020 Energy ministries, national regulatory authorities (NRAs) and gas transmission system operators from Estonia, Finland, Latvia and Lithuania agreed to a Roadmap establishing a process for the future regional gas market integration, with FinBalt single entry tariff entering into force from 1 October 2023.

However, changes in the geopolitical situation in 2022 have resulted in significant changes in the fundamentals of the region's gas market. FinBalt market is going through challenges that have not been encountered before and the turbulence is not over yet. Consequently, the ITC mechanism, which was developed on the basis of other assumptions about the functioning of the market, no longer corresponds to the current situation and may not provide benefits to all parties involved.

Therefore, on 12 October 2022 the chairs of FinBalt NRAs agreed to postpone the merger, determining that a merger could happen no sooner than October 2024.

The FinBalt NRAs and gas transmission system operators continue to strongly support and look forward to a common regional gas market which would further strengthen the security of supply in this region. Working towards this ambitious goal will continue after the market turbulence has settled and more clear understanding on the new regional market conditions is acquired. FinBalt NRAs will continue to provide regular updates on the market regarding the status of the FinBalt development.