Lithuania finally gives Chevron green light to explore for shale gas

By bne IntelliNews September 4, 2013

bne -

Lithuania has finally given Chevron the green light to explore for shale gas, the government announced on September 3. However, there is speculation in some quarters that the US major could yet baulk at new conditions being mulled in Vilnius, and that the announcement is little more than an attempt by the government to increase its leverage with Moscow in upcoming talks over gas supplies.

"It was decided to announce US Chevron as winner of the shale gas exploration tender in Lithuania," the government said on its Twitter account, according to Reuters. "This is the opinion of the prime minister and the whole government after the coalition meeting," the spokeswoman for Prime Minister Algirdas Butkevicius told the newswire.

Vilnius plans to formalize Chevron's win later this month, and sign the exploration contract by the end of the year, officials said. "If they act quickly, they can start drilling in half a year after the licence is granted," said Environment Minister Valentinas Mazuronis.

Chevron was the only bidder for the rights to explore for unconventional hydrocarbons in Silute-Taurage in the west of the country. The tender for the deposit - which Lithuanian experts estimate might hold up 80bn cubic metres (cm) of recoverable gas - was called in June 2012 by the former government headed by Andrius Kubilius, which ran an aggressive campaign to reduce Lithuania's reliance on gas imports from Russia. Lithuania, which wants to reduce it's total dependence on Russia's Gazprom for gas supplies, probably has about 180bn cm of recoverable shale gas, KPMG said in a report in May.

Kubilius trumpeted Chevron's arrival in the country in October, as it bought a 50% stake in local company Investicijos, which holds exploration rights to another shale gas field. "Chevron is such a company that is not afraid to step into Gazprom's field (of influence)," the-then PM insisted.

However, by the time the tender was closed in January, Butkevicius had taken over as head of a new government promising a more "pragmatic" approach to Moscow. The new PM denied on February 6 speculation that the government has 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.

By February 7, the Environmental Protection Committee was calling for a moratorium on shale gas drilling and an investigation into Chevron's local unit over contracts signed with landowners. The environment ministry delayed confirmation of Chevron as winner of the tender on February 27, citing protests against fracking.

Slow progress

However, fears that Butkevicius was ready to throw the entire energy independence strategy in the bin have not materialized. Rather, his administration has slowed the process. Through the summer, the major plank in the strategy - a plan to have an liquified natural gas (LNG) platform in operation by the end of 2014 - has been pushed through despite the evident fury of Moscow.

Yet critics complain that things are moving too slowly. The delay on the shale gas tender - as well as other projects aimed at energy independence - earned the PM a startling blast from President Dalia Grybauskaite in June. That came just a month after the EU urged Vilnius to speed up development of shale gas to help obtain better terms from Gazprom.

Indeed, Butkevicius has spent the year consistently moving the timing on the Chevron deal back. In March he said it must wait for new environmental legislation to be passed - a process he predicted would see exploration "hopefully" start in May. He promised in April that an agreement with Chevron would be signed "soon".

Minister of Energy Jaroslav Neverovich said on July 10 that he had no doubt that the contract will be signed this year. The same month, Chevron itself asked for a delay to the process, with the US company reportedly concerned that the new environmental legislation and government plans to hike royalties payments.

"I'm not ruling out that after assessing all the new circumstances, Chevron may pull out [of the shale gas tender]," Juozas Mockevicius, outgoing head of the Lithuanian Geological Survey, suggested in early August. Chevron said in a statement to the Financial Times the same month: "We continue assessing the impact of the changes to the legislative and regulatory setting which existed at the time the bid tender offer was presented."

The announcement from Vilnius that it is now ready to sign the contract comes just ahead of a planned meeting between Butkevicius and Gazprom CEO Alexey Miller on September 6.

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