Finland and the Baltics without the Balticconnector: market impact and outlook for the rest of winter 2023-24

On 8 October 2023, the Balticconnector pipeline connecting Finland and Estonia was ruptured by an anchor dragging along the seabed, and has been offline since then. According to the Finnish and Estonian transmission system operators (TSOs), the Balticconnector will be offline for repairs until at least April 2024. Despite losing access to Finland’s two LNG terminals, the Baltic countries of Estonia, Latvia, and Lithuania remain relatively well supplied given their continued access to gas storage in Latvia and the Lithuanian LNG terminal at Klaipeda; the Finnish market, conversely, has required quick and drastic changes to adapt to the new supply situation.

This paper explores the impact of the outage on the Finnish and Baltic gas markets, focusing on Finland as the most-affected country in the region. The paper’s main contention is that through the quick actions of both traders and infrastructure operators, a worst-case scenario in which gas supply is so scarce that customers are cut off has likely been averted, as the sendout capacity at Finland’s Inkoo LNG terminal is sufficient to cover peaks in demand. That said, there is very limited flexibility in the Finnish gas and power markets, meaning events such as ice buildup impeding the delivery of LNG or a nuclear outage straining the power system are likely to result in a sharp increase in prices, potentially forcing marginal users out of the market in order to bring the system back into balance.

By: Brendan A’Hearn