New transmission service tariffs for natural gas sellers become effective from 1 July
The Council of Public Utilities Commission (Regulator) approves new natural gas transmission service tariffs for JSC "Conexus Baltic Grid” (Conexus) that become effective from 1 July. This means that the charge for the supply of users in Latvia will be 2.53 EUR/MWh. The new tariffs apply to the sellers of natural gas and it is planned that they remain effective till the moment when the unified regional natural gas market of Latvia, Estonia and Finland starts working - from 1 January 2020.
In the new tariff cycle, many costs positions are considerably reduced, e.g., the capital costs are reduced by 4% and staff costs - by 13%. The total costs included in the common tariff project are reduced also during the assessment period by 6%.
Despite these reductions, the total costs when compared with the valid tariff calculation have increased. This is related with the Cabinet Regulations adopted last year that puts an obligation on Conexus to ensure a particular amount of active natural gas during winter period. These costs form 24% of all transmission system costs.
According to Cabinet Regulations, Conexus as the transmission system operator must ensure that at least 2 845 000 MWh natural gas must be ensured at Inčukalns storage during the whole pumping season. Co implement this, Conexus arranged several auctions the costs whereof are included in the transmission tariffs.
Despite the fact that the approved tariffs of Conexus are higher than the existing ones, this is for a short term and with a small influence on the final payments of Latvian natural gas users. For example, an average household that used natural gas to cook food, the increase after 1 July due the transmission tariff could be ca. 0.01 EUR/monthly, but for a household that uses natural gas for heating the increase could be ca, 0.60 EUR/monthly. At the same time, it must be emphasised that the transmission tariff is only a small part of the total payment for natural gas (2-5% depending on the connection). The natural gas sales price has a much larger proportion in the total final payment (on average 30-40% of the final payment) which due to the warm winter and increase of competition in the West-Europe market has materially dropped during the last 6 months. When compared with October 2018 when the natural gas exchange price to which the natural gas market product is attached most often, reached a record high price in Latvia - 27.81 EUR/MWh, the exchange price in April 2019 dropped to 16.19 EUR/MWh.
Besides there are already several factors that show that in future, i.e. from 1 January a reduction of tariffs is expected - auction for the next season is completed and its costs are considerably lower; from 1 January the unified regional natural gas market of Latvia, Estonia and Finland starts working. All three countries have already agreed on establishing a unified entry-exit tariff area from 1 January 2020. This means that tariffs are applied only on external border of the united area when transporting natural gas through natural gas systems of Latvia, Estonia and Finland, but no tariff is applied to cross-border flows among Latvia, Estonia and Finland.