Lithuania calls for more urgency in shedding energy dependence on Russia

By bne IntelliNews March 6, 2014

Tim Gosling in Prague -

Lithuania on March 5 called for efforts to build energy links across the Baltic region that are plugged into European networks to be sped up in light of the crisis in Ukraine. While Brussels insists there is little threat of disruption to oil and gas, the lack of diversity of supplies from Russia has helped stymie EU reaction to Russia's military deployment.

The revolution that put a new government in Kyiv, and the subsequent de-facto takeover of Crimea by Russia, has raised questions over Russian energy supplies to Europe, the bulk of which are transported via Ukraine. However, while there is little expectation currently that supplies will be interrupted, the EU's reliance on Russian energy is one factor that has held back calls for strong economic sanctions against Moscow.

"The situation in Ukraine has us all worried," Lithuanian Energy Minister Jaroslav Neverovic said in a statement, reported Bloomberg. "We have to take measures to ensure security of supply, first of all by speeding up the building of links among ourselves."

The Baltics' recent history inside the Soviet Union has left the region as an energy island in Europe. Without infrastructure linking up with European networks, Lithuania and Latvia are heavily dependent on Russian oil. Estonia has significant shale oil reserves, but joins its two peers in being 100% dependent on Russia for gas. However, the trio has been arguing for years over joint projects - such as a regional LNG terminal or a joint nuclear power station - to help diversify energy supplies.

In recent years, Lithuania has pushed out on its own. It is developing a project to have a floating LNG platform up and running by the end of the year, and has used EU regulations as a stick with which to fight a highly confrontational battle with Russian state gas giant Gazprom. Prime Minister Algirdas Butkevicius visited the site of the LNG terminal at the port of Klaipeda on March 5 to encourage faster work on the project, his office in Vilnius said in a statement.

The country is financing the project itself, after running out of patience with delays to regional EU-backed projects. After years of bickering over the location of a Baltic LNG terminal, Estonia and Finland announced last week that they would both build facilities, linked by pipeline across the Baltic Sea.

Back to the surface

Meanwhile, Neverovic also called for projects to plug the Baltic region into European networks to be accelerated. Power lines linking Lithuania to the Polish and Swedish electricity grids are due for completion next year. However, a proposed gas pipeline linking to Poland is still being studied.

"At this moment, there's no reason for concern" about security of gas supply as regards the "critical situation in Ukraine," Energy Commissioner Guenther Oettinger said. He also pointed out that thanks to the mild winter the EU has adequate gas reserves, adding that Brussels has not received any signal of looming disruptions.

However, the drawn-out talks in the EU over potential economic sanctions against Russia due to its occupation of Crimea, and the threat of military action elsewhere in Ukraine, has brought the bloc's heavy reliance on Russian energy back to the surface. Due to that lack of diversity, even the member states at the eastern end of the EU - which are highly sensitive to any hint of Russian military action in the neighbourhood - have baulked at unleashing a hard hit on Moscow, in line with the likes of Germany and the UK.

Indeed, while both Lithuania and Latvia announced asset freezes against members of the former government of Ukraine on March 4, both stated clearly that sanctions against Moscow are not on the agenda. In an opinion piece published the same day, Estonian newspaper Ohtuleht remarked: "What government would dare to suggest to its voters to spend the next winter in a cold apartment just because of a peninsula nobody can point out on the map?"

Yet Brussels has been trying to loosen Russia's grip on the bloc's energy supplies for years, with little progress. While it has recently upped the ante, threatening a fine of up to €11bn against Gazprom for anti-competitive behaviour and piling on pressure against the planned 63bn cubic metre South Stream gas pipeline, it has failed to secure alternative sources of gas. The failure of the Nabucco pipeline last year, which was planned to run over 4,000km to tap Caspian reserves, appears to have halted major initiatives for the meantime.

LNG boom

The marked contrast between the EU's approach to potential sanctions and the much more strident language coming out of the US has seen the LNG industry launch lobbying efforts to claim the Ukraine crisis will expand the use of the frozen gas in Europe. Officials in Washington are reported to be pushing for the country to ease export restrictions on its huge gas output.

With the US building terminals to ship the fuel, global annual supply will grow by about 40m tonnes in 2017, from today's 250m, claimed Sveinung Stoehle, CEO of Hoegh LNG Holdings - which is supplying the Lithuanian platform - reported Bloomberg.

The Ukrainian crisis "illustrates how the US can almost get a new foreign-policy instrument by eventually being over-supplied with energy, both gas and oil," Jarand Rystad of consulting firm Rystad Energy told the same newswire. Energy exports "can put more strength into some of the sanction policies," he noted.

The Ukrainian crisis may push others to follow suit, Stoehle added. "It will start a political thought process. It can create possibilities that we didn't foresee just a short time ago." The potential for exports from the US is already creating demand for import terminals and tankers that will extend to European nations such as Ukraine, Belarus, Romania, Italy and Croatia, he said. "It will create an extra push in demand. It will put even more focus on energy independence, especially on gas. The only way you can be independent on gas is to import LNG."

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