Lithuania delays award of shale gas licence to Chevron

By bne IntelliNews February 28, 2013

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The Lithuanian Environment Ministry on February 27 delayed confirmation of US energy major Chevron as the winner of a tender for shale gas exploration rights due to ongoing protests. The move illustrates the slowdown in the country's drive for greater energy independence under the new government.

The ministry said in a press release that it had cancelled a meeting of the Commission for Hydrocarbon Resource Exploitation scheduled for the same day, at which Chevron was to be announced the winner of the tender. The US company was the only bidder for the licence in January.

The move follows protests against the proposed deal, with critics objecting to fracking - the controversial method of injecting water and chemicals into rock at high pressure to extract the gas it contains - as well as displaying skepticism over the real potential benefits for domestic gas consumers.

However, it's also another sign that the government elected in October is easing off on its predecessor's aggressive drive to reduce dependence on Russian imports, which currently constitute 100% of Lithuania's gas consumption. The protestors received a huge boost last month when the Environmental Protection Committee (EPC) called for a moratorium on shale gas drilling and an investigation into Chevron's local subsidiary.

In the statement canceling the award of the tender, Environment Minister Valentinas Mazuronis asked Prime Minister Algirdas Butkevicius to express the government's opinion regarding the next move of the commission, which was formed by the previous government. The parliamentary panel is set to make a final decision on whether to award the licence to the US company.

"I would once again like to say, and I have said it more than once before, any decision on shale gas will not be made hastily. We need to not only await the results of research by a group of scientists, but also keep in mind the possible environmental impacts and assess the experience of other states," Mazuronis says, according to the Kyiv Post.

Around 100 opponents of shale gas exploration gathered in Vilnius on February 26. Butkevicius, who met with the protestors, said that shale gas exploration and production will not take place without the approval of the locals. At the same time, in an apparent contradiction, he stressed that the tender will not be scrapped.

According to estimates by the National Geological Service, Lithuania could have 50-60bn cubic meters (cm) of shale gas reserves. That would supply the country with 20 years of gas at current consumption rates, and reverse the leverage Russia has in its in gas relations with Lithuania.

The country currently satisfies its full demand of around 3bn cubic metres (cm) via imports from Gazprom, but says that it pays inflated prices due to its lack of options. The previous centre-right government provoked anger in Moscow with an aggressive drive to develop alternative energy sources. It fought a bitter battle for control of the country's gas pipelines in a bid to develop an LNG terminal, which is set to go into operation in late 2014, and Lithuania has an international arbitration case claiming it has been overpaying for gas for years pending.

Andrius Kubilius, the previous prime minister, trumpeted Chevron's arrival in October as it bought a 50% stake in local firm Investicijos, clearly hoping the US company's experience in opening up the US shale gas rush - which has dropped global gas prices substantially in the last few years - could help Vilnius wrestle control of its energy market back from Russia. "Chevron is such a company that is not afraid to step into Gazprom's field (of influence)," the then-PM insisted.

That same month, Kubilius lost a general election to the Social Democrats and their cohorts. The new, left-leaning coalition has long said it would look for a less confrontational relationship with Moscow. One the administration's first moves was to cancel a plan to build a new pan-Baltic nuclear power plant in Lithuania, which would have lowered the country's reliance on power imports from the east.

However, Butkevicius insists that he is merely toning down the rhetoric and opening up to discussion, rather than giving up on Lithuanian ambition to take greater control of its energy markets. Following a visit to Vilnius by a senior Gazprom official in early February, the PM denied speculation that the new government had promised to pull the plug on projects aimed at expanding Lithuania's options for gas purchases, and that it was already in negotiations with Gazprom on a gas price discount.

"The conservatives would not talk with anyone, therefore today we have the highest gas prices in Europe," the PM told Leta. "I think that such talks have been going on earlier, so it was not the first meeting. There will be more of such conversations and they will take place not because of energy reform or suspension of liquefied natural gas terminal but in order to reach agreement with Gazprom so that Lithuania could purchase cheaper gas."

Yet the focus in Vilnius certainly appears to have shifted somewhat in the last few months, as illustrated by the call to halt shale gas exploration. The EPC insisted on February 6: "The government should halt shale-gas exploration and production until competent European Union institutions give an opinion" on the safety of related technologies. The talk in Vilnius now is of a potential referendum on the issue.

It also seems unlikely that Vilnius would make a decision to delay the formal award of the tender to Chevron on the strength of a protest that struggled to reach triple figures. On the other hand, its notable that Brussels remains very unsure of the environmental impact of extracting shale gas, and many EU states have a moratorium in place while the issue is researched.

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