Lithuania's Independence: "An Island No More"

“An island no more” is the slogan being used by the Klaipeda LNG terminal “Independence,” a EUR 128 million project designed to diversify sources of natural gas for Lithuania, which used to pay the highest price for natural gas from Russia's Gazprom among the 28 member states of the European Union.

That was the case until last October, when the offshore liquefied natural gas vessel anchored off the Baltic coast, there for converting LNG to natural gas for Lithuania and its neighbors in the Baltic states.

While a single cargo arrived at the end of that month, it was not until December 2014 that Independence received the first supply of commercial gas from Norway's Statoil for the region; the gas flowed into the Lithuanian grid on 23 December, and the country's reliance on one source of gas was no more.

The Klaipeda LNG terminal was the winner of “Project of the year” at the European Gas Conference in Vienna, Austria, where Natural Gas Europe caught up with Mr. Mantas Bartuska, CEO at Klaipedos nafta AB, the company that runs this groundbreaking project.

Natural Gas Europe (NGE): Could you talk a bit about Lithuania and its energy security situation in view of the realization of this project?

Mantas Bartuska (MB): A short while ago, Lithuania was supplied by one gas supplier through a pipeline, as the whole of the region – what you might call an “isolated energy island.”

Having this situation, Lithuania was forced to pay up to 30% higher gas prices compared to other European countries, so the government made a decision to change the situation and implement an alternative source of supply, an LNG terminal.

After 3 years of hard work we've finalized it at the end of 2014 and successfully commissioned a shipment. As a result, Lithuania has received a 20% discount from the gas pipeline, which is one of the rationales why the project was implemented.

Furthermore, it increases security of supply for the country and the Baltic reigon.

NGE: Given the interesting outcome of this gas discount, how much business do you expect to do in the end? Or, does it solely count on the lower-priced Russian gas?

MB: It is very important to understand that the LNG terminal is a strategic project for Lithuania, though it is 100% regulated , which means that we receive the tariff independent of the regasification volumes, whether they are zero or the maximum. So we have a guaranteed scheme and we receive only the regulated return on investments, which is supervised by our national regulator.

So we provide open access for third parties, which means everyone can come and book and make their own business, but as it relates to our company, we own and operate the facility and provide the opportunity.

In the end, the goal is to have as cheap gas prices as possible – this is one of the solutions.

NGE: What, then, happens to the gas deliveries from Statoil when they are not delivered to Lithuania? Are these diverted and sold elsewhere?

MB: Natural gas supplier and trader UAB LITGAS, part of Lietuvos Energija energy company group, has signed a LNG supply contract with Norwegian company Statoil ASA which offered the most favourable conditions. This contract helps to ensure continuous operation of the terminal and establish a new natural gas pricing policy linked to the natural gas price movements on the international markets. The contract also covers possibilities of LNG reloading – a new commercial activity in the Baltic Sea region.

Starting in 2015 Statoil is supplying an annual volume of 540 million cubic meters of natural gas (approx. 950 thousand cubic meters of LNG) to ensure the continuous operations of the Klaipėda LNG terminal. LITGAS has an obligation to ensure this supply volume as the designated supplier approved by a decree of the Ministry of Energy.

NGE: What will it cost to run the LNG facility per year?

MB: The LNG facility cost per year should be approx. EUR 60 million.

NGE: How have Lithuania's neighbors reacted to this opportunity?

MB: They've celebrated together with us. Now we're happy to announce that the first gas flows from Lithuania have reached Estonia, which was an historic occurrence for Lithuania and the region.

These are the first steps to building the gas market and, of course, there are a lot of challenges for the future, but we'll work together to make this a gas market in the future.

NGE: How do you see the prospects for deliveries of US LNG landing at the Lithuanian terminal?

MB: There is an open tender for LNG. I know that we received many bids and chose the most economic. At the end of the day, Statoil won a 5-year contract for 0.5 BCM/year, which shows that this is very transparent and anyone can participate.

This is one of the goals, to have an opportunity to get LNG at global market prices, which was not the case just a few years ago.

We received a lot of speculation during the project: whether it's necessary, whether the business model is viable, etc. but the government has made a very decisive decision – a strategic one – to diversify their energy portfolio and, as we see from the current position, it was the right decision, because we can feel benefits today, that the gas prices have gone down, which was one of the reasons – also keeping in mind that now we have security of supply – a 100% alternative source of natural gas.

NGE: There are many small countries in Europe that also struggle with being dependent on a single source of natural gas. Given Lithuania's experience, what would you advise them?

MB: It depends on the motivation that the stakeholders have. In our case, it was very clear from the beginning, so it helped us a lot and we see some strategic projects which are struggling that need the agreement of several countries because they are big.

So maybe it helped that this was quite a simple one, basically for Lithuania's needs, but our suggestion is to have a very clear motivation and purpose from the beginning, and if you have that goal and can organize your team, then anything is possible.

-Drew Leifheit