Gas talks between Gazprom and Baltic states reportedly stall

By bne IntelliNews November 9, 2015

Talks between Gazprom and its Baltic clients Lithuania and Estonia on new gas supply contract have stalled, according to unconfirmed media reports on November 9.

The claim adds to confusion over the negotiations on the contracts. While ICIS reports talks launched in August have now broken down, last week it was said that Lithuania had only just launched negotiations to replace its current contract - which will come to an end this year.

Estonia and Lithuania are now said to have started talks on new gas contracts with chief supplier Gazprom in the summer. The Russian company’s position has weakened through 2015 due to Lithuania’s launch of an LNG terminal, which currently covers about a fifth of the domestic demand. The terminal's capacity of 4.5bn cm could cover Lithuania’s consumption in full, as well as supply gas to Estonia. Some Estonian companies are taking advantage already.

Vilnius has been leveraging the terminal by hinting throughout 2015 it is in no hurry to sign a new contract, even if the current contract expires at the end of the year. Gazprom offered a cut of 23% to its current contracted price in 2014. But the Russian supplier - which has lost its monopoly of the Lithuanian and Estonian markets after the pair wrestled control of their grids from it in recent years - has also some points of leverage. 

The demand in the Baltics is falling, which is a danger to the economics of the Lithuanian terminal. The facility is expected to supply just 300mn cubic meters of gas in 2016, down from 500mn cubic meters this year. To support the terminal, Vilnius has levied charges on gas users to support the facility, angering companies. Gazprom’s pipeline gas is assumed to be slightly cheaper.

What the Russian giant is offering is not clear, however. Lithuania and Estonia are yet to see it on the table, despite talks having been underway since August, ICIS reports.

“We have suggested our price, we know our needs. [But] we don’t have any official price proposal from Gazprom, the whole Baltic doesn’t, it’s not normal,” a source from fertiliser producer Achema, Lithuania's largest consumer, told the news service.

Gazprom's sloth in tabling an offer to Lithuania and Estonia might owe to falling oil prices, which have dragged down the company’s oil-indexed gas contracts, hurting profit margins, ICIS suggests.

 

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