Lithuania sees new LNG terminal easing dependence on Russia

By MILDA SEPUTYTE
Bloomberg

Lithuania is declaring natural-gas Independence.

After less than three years and spending of 350 million litai ($128 million), an off-shore liquefied natural-gas vessel is anchoring on the former Soviet republic Baltic coast today and will convert LNG into natural gas and pump the commodity to the mainland.

The aim is to free the country from its dependence on Russia’s OAO Gazprom, the world’s largest gas supplier and the sole source for Lithuania.

Years before the Ukraine conflict renewed fears of another winter gas shutoff from Russia, Lithuania requisitioned the Independence, a South Korean-made ship the length of three football fields.

It is docking in the port of Klaipeda and may replace all Russia’s annual 2.7 billion cubic meters of gas supplies.

“Lithuania made a bold, yet timely, decision to begin an independent and fast construction of the LNG terminal,” Lithuanian President Dalia Grybauskaite said. “Lithuania now has a choice.”

The terminal gives the country of 2.9 million ammunition in price negotiations with Gazprom when a long-term supply contract ends next year. Lithuania says it pays the highest price for Russian gas in the 28-member European Union.

Cheaper Price

The Baltic state now “can very seriously consider the option of not having any agreements with” Gazprom when the gas supply contract expires, Grybauskaite said. Still, Lithuania doesn’t “strictly reject Russian gas, especially if it comes at a cheaper and competitive price for us.”

Lithuania paid 36% more for the Russian gas than the German border price in the first four months of 2014, according to a quarterly report on the European gas markets published by the European Commission on Oct. 8. Gazprom sold Lithuania 0.6% of its total output in 2013, according to the company’s financial report.

“We’ve suffered very high energy prices,” said Energy Minister Rokas Masiulis. “Finally, we have our energy independence. And this independence can be shared” with “our neighbors.”

Lithuania got a 23% price reduction for Gazprom’s supplies, which will more than cover the construction costs of the jetty and pipelines at the Klaipeda terminal, Masiulis said.

“A new source of gas gives competition at the wholesale level,” said Karen Sund, the founder of Sund Energy AS in Oslo. “The more gas from other sources, the lower the reliance on current supply source will be.”

Independence Capacity

The Independence, with a capacity of 170,000 cubic meters, is leased by Klaipedos Nafta AB, the state-owned energy terminal operator, from Norway’s Hoegh LNG Holdings for 10 years with an option to buy the regasification unit. Hoegh will also provide maintenance and the crew.

Norway’s Statoil has a contract to supply the terminal with LNG for five years to cover its minimum operations with the first delivery scheduled tomorrow. Statoil’s supplies will come “in the same price-range” as Gazprom’s exports to Lithuania after this year;s price-reduction, Masiulis said.

If running at full-capacity of almost 4 billion cubic meters, the terminal could cover 80% of demand of the entire Baltic region, including Latvia and Estonia. The Independence would be able to cover 90% of Baltic needs “should our neighbors need this,” said Grybauskaite.

Geopolitical Project

“This is a strategic geopolitical project that may decide the future of the whole region,” she said in a speech in Klaipeda today. Lithuania “will become an energy-security guarantor for the whole Baltic region.”

Any move on the Russian side to cut gas flows for a month would cause “important” gas shortages for some customers in Estonia and Lithuania, the European Commission said in its Oct. 16 report.

“In the absence of the Klaipeda LNG terminal the situation would be more dramatic in Estonia as there would be no gas in their system, including for protected customers, within 4-5 days,” the commission said. Once the LNG terminal is up and running, “the supply for the protected customers would be ensured in the three Baltic States in all scenarios.”

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