Natural Gas Transmission System Operators of the Baltic States Sign Cooperation Agreement on Implementation of Implicit Capacity Allocation Model

Date

2017 01 24

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On 23 January 2017, the Baltic States natural gas transmission system operators (TSOs), AB Amber Grid (Lithuania), AS Conexus Baltic Grid (Latvia), Elering AS (Estonia), signed a Cooperation Agreement on the Implementation of the Implicit Capacity Allocation Model. The introduction of this model marks a concrete step towards the integration of the national gas markets of the Baltic States. The transmission system operators are introducing the innovations to the capacity allocation model in order to enhance the competitiveness of the Baltic States gas markets and in order to promote cross-border trade in gas.

The implicit capacity allocation method means that short-term cross-border transmission capacities will be allocated on the gas exchange platform simultaneously with the quantities of gas traded on the Baltic States markets through the gas exchange. Not only will the implicit capacity allocation model improve the efficiency of transmission capacity allocation and enable the optimisation of any associated costs, but it will also interconnect the short-term gas markets of Lithuania, Latvia and Estonia, help improve their liquidity, and competitive ability. The implementation of this model will result in direct competition among the suppliers of all the Baltic States, which will in turn reduce the level of gas prices for consumers.

To implement this model the TSOs will need to amend the Rules for the Use of the Transmission System and to acquire the capacity allocation services from a service provider organising trading on the exchange. The implicit capacity allocation model is expected to be operational already in the summer of 2017.

Another important project is the one for the development of a single regional gas market. In December of 2016, the prime ministers of the Baltic States signed a declaration on the development of a single regional gas market which aims to integrate the national markets and to provide for specific actions and outline the gas sector reforms that must be carried out so that a single market could become operational in the Baltic States.

In the process of the development of a single gas market of the Baltic States, AB Amber Grid, together with the other Baltic gas transmission system operators will coordinate the principles and rules of balancing and trade as well as other principles and rules of importance to the wholesale market. Later, these documents will be made available for public consultation with market participants and other stakeholders, and will be subject to approval by respective national regulatory authorities or other public institutions.

It is planned that a single Baltic States gas market will become operational in 2020. It is expected that following the construction of a gas pipeline interconnection between Estonia and Finland, the single gas market will be also joined by Finland.

The process of the development of a regional market is coordinated by a special working group consisting of the Baltic Region transmission system operators, the ministries in charge of energy, and the national regulatory authorities.