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    Lithuanian LNG terminal future may be gloomier without Baltics’ unity

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Summary

Lithuanian LNGT's future is hinged on the other Baltic States' willingness to use the facility, but Estonia and possibly Latvia, too, have different plans.

by: Linas Jegelevicius

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Top Stories, , Gas Interconnection Poland–Lithuania (GIPL), News By Country, Lithuania, Poland, Baltic Focus

Lithuanian LNG terminal future may be gloomier without Baltics’ unity

Lithuania has taken pride in establishing the Baltic regions first liquefied natural gas terminal and expects to be supplying nearby countries for years to come.

The Lithuanian FSRU unit is said to provide capacity to satisfy 90% of the regions need for LNG.  But experts contacted by Natural Gas Europe have cautioned that the chord Lithuania has taken might just be too triumphant. What happens if other players in the neighbourhood are able to offer cheaper gas through their LNG facilities, not only to the region, but Lithuania, too? This is what possibly looms ahead of the liberalization of the European gas market and that of the Baltics?

Land-based and offshore LNG facilities, most notably in Poland and a more modest LNG installation in Estonia to be completed by 2019, along with others in neighbouring Sweden and Germany and other countries is the future that Lithuania's LNG terminal is faced with.

Poles are cheesed off over Lithuania LNGT launch

Poland, Lithuania’s next-door-neighbor, is visibly irked: “Though Poland had to have such an off-shore installation first in the region and therefore was supposed by now to be divvying the natural gas cards for the entire region and beyond, the Lithuanians have outstripped us, alas,” Polish media commented after the Klaipeda LNG terminal became operational on December 3, 2014.

The Poles note the delivery of the €250 million liquefied natural gas terminal in the Baltic port of Swinoujscie has been behind schedule for two years and now planned to launch next summer. In late September, it was said its completion was at 93.7%. In its current form it has two gas storage units, with an annual import capacity being 5 billion cubic meters of LNG. When extended, the terminal will have an import capacity of 7.5 billion cubic meters of gas annually. This stands for 50 percent of Poland’s annual natural gas needs. Operator Polskie LNG has already signed of a letter of intent with PGNiG on cooperation in the construction of an extension of the terminal.

Polish LNGT beats Lithuania's facility

Behind the lag in the construction lie differences of “the regulatory origin” for the country’s land-based and offshore facilities, commented Robert Zajdler, an expert at Poland’s Sobieski Institute, to Natural Gas Europe.

“But when put in operation, they will be the ones - not the Klaipeda LNG facility- that will be shaping the regional LNG market. Look, the Lithuanian facility’s capacity is 1.5 million cubic meters of gas, meanwhile of the Polish LNG terminal, it will be 5 million cubic meters of gas and will go up to 7.5 million cubic meters,” Zajdler said.

He emphasized that Poland already has its gas interconnectors with Western Europe.

“Sure, Lithuania would like to expect to trade its Klaipeda LNGT gas through Poland to it, but Poland will be able to do it already in the coming years, when the Swinoujscie facility and the gas interconnectors with Slovakia and Czech Republic, and possibly with Ukraine thereafter, are launched. Lithuania can’t come anywhere close in that striving,” he said.

So according to Zajdler, despite the lag, Poland is the one who is securing the fast direct entry into Europe’s LNG market.

“From that perspective, the Polish LNG facility seems to be more capable of impacting the market regionally as well,” he noted.

In addition, because of the quotas of gas that Lithuanian companies are contractually obliged to buy from the Klaipeda LNG Terminal, it makes the facility subject to the state’s regulatory requirements.

“In that sense, the Polish LNG facility will be subject only to the market conditions,” Zajdler noted.

The completion of the planned gas interconnector between Lithuania and Poland in 2020-2024 will prep up the two neighbors’ cooperation in LNG market, but, the Polish expert insisted, Lithuania is the one that needs the project more.

“Just because Poland’s gas infrastructure is developed significantly better than Lithuania’s,” the expert said.

Estonia is set to catch up with Lithuania

Meanwhile, Estonia and Finland have also struck an accord on building liquefied natural gas terminals in each country and having gas interconnector laid by 2019.

Much like Lithuania, Estonia hopes to decrease dependence on Russian gas. The Finnish government also sees the agreement as a win for the country.

“With the implementation of the planned measures, Finland will become integrated into the European gas network and be able to improve the country's gas-based energy security,” commented Finnish Prime Minister Alexander Stubb.

Though the two countries’ Prime Ministers are convinced that each country’s natural gas facility will secure its own share of the market, some in Lithuania wonder whether the Finnish and Estonian LNG facilities are not just a mere response to the Lithuanian LNGT.

Former Latvian Economy minister Daniel Pavlut noticed quite ambiguously in a recent energy forum in the Lithuanian capital Vilnius that words of some politicians sometimes don’t go along with the works.

Few doubted the ex-Minister had in mind the Latvian Government’s inability to open up legislatively the route for the Lithuanian LNG flow from the Klaipeda LNG terminal to the underground liquefied natural gas repositories in Incukalns, as well as the other regional government’s pledges of support for the Lithuanian floating storage and re-gasification unit.

“We can have a common gas market if we endeavor to work shoulder-to-shoulder, not separately. Otherwise, the objective will be tantamount to utopia. Maybe now is Latvia’s turn to start talking of its own liquefied natural gas terminal?” the ex-minister wondered, addressing the Baltic States’ inability to speak on energy issues in a single voice.

LNG exports to Lithuania?

Many in the Lithuanian energy sector have been expecting that the entire Baltic region would be relying on the Klaipeda terminal, but Estonia’s LNG terminal intentions and the Latvians’ indecisiveness on the gas imports from Lithuania, may compel Lithuania to significantly trim its optimism.

“Already from 2016, with the construction of the Klaipeda-Kiemenai natural gas link complete, the Latvia-bound capacity of the Klaipeda LNG terminal will be fully exhausted. Then the Estonians will be able to take the gas from Latvia. The only question that we feel uneasy here about it is the implementation of the European Union’s Third Energy Packet in Latvia.  With the Latvian gas market liberalized, the gas should be allowed flow free through the Latvian gas network,” said Rokas Ministras, the Lithuanian Energy Minister.

He told the Latvian Government has given assurances it won’t impede the gas transit, but the neighbors have been lackadaisical legislatively.

On the other hand, with the other LNG terminals around, Lithuania will have to abide by the EU Third Energy Package rules and allow LNG imports.

“Retaining the status quo - operating the only LNG facility in region - would be in Lithuania’s best interests. But it is evident that is already out of the question.  Other LNG terminal operators in proximity will logically seek gas exports to Lithuania. But will Lithuania allow that? I still haven’t heard the answer yet,” Zilvinas Silenas, president of Lithuania’s Free Market Institute, focusing on energy issues, told Natural Gas Europe.

Baltic States lack unity

Mikhail Krutikhin, founder independent energy consultancy RusEnergy, is convinced that launching the Klaipeda LNGT has been “a right thing” and it will justify itself as far as diversification of energy suppliers and reducing reliance on a single gas importer, Gazprom.

Krutikhin doesn’t think that other regional liquefied natural gas facilities will be an economic threat to the Lithuanian LNGT.

“I believe that those terminals in Estonia, Finland and Poland can successfully get their share of the market- there’s glut of liquefied natural gas in the market. But, definitely, the foothold of the Klaipeda facility in the market would be firmer if the three Baltic States of Lithuania, Latvia and Estonia worked out a deal in sharing it. For example, would agree on towing the Lithuanian FSRU to Latvia, where the underground LNG reservoirs in Incukalns could be replenished from it,” Krutikhin commented.

That scheme, if used, would be “a very interesting” and would significantly boost the Klaipeda LNG terminal’s competitiveness, he said.

“But, perhaps unfortunately, I don’t see unity on that between the Lithuanian and Latvian authorities,” he concluded.

Krutikhin is not alone in pointing to the lack of political dialogue between the Baltic neighbors, who share much in common.

“The problem is, certainly, Latvia’s political will to fully liberalize it gas market…For now, it seems that Latvian authorities tend to speak a lot about energy independence, but, practically, they seem to be acting in  opposite,” Reinis Aboltinsas, a Latvian energy expert, told the BNS news agency.

For liberalization, a set of legislation has to be passed, as well as “Latvijas gaze”, the country’s only natural-gas transmission, storage, distribution, and sales operator, has to be unbundled by 2017 to meet the EU Third Energy Package requirements.

“Alas, none has been done in the regard as of now,” the Aboltinsas said.