Lithuania puts LNG imports from US on hold

By bne IntelliNews January 13, 2016

Lithuania has postponed plans to buy liquefied natural gas (LNG) from the US, an official from state-controlled energy company Lietuvos Energija said on January 13.

The company will not import US gas to feed the LNG terminal in Klaipeda for the meantime, spokeswoman Ernesta Dapkiene told Reuters. US gas does not meet  the techincal requirements of the Lithuanian gas grid, she claimed.

That mis-match could be a blessing in disguise, however. Lithuania's floating LNG facility has been struggling to sell the 500mn cubic metres of gas it is contracted to buy with Norway’s Statoil since it launched operations at the start of 2015.

Gas demand in Lithuania has been dropping due to the sluggish economy, mild winters and growing use of biomass for heating. The falling demand for gas in the Baltic state is expected to trim use of the terminal's 4.5bn cm capacity to just 300mn cm in 2016.

Meanwhile, gas from dominant supplier Gazprom is assumed to be slightly cheaper, although it is not yet clear what price the Russian company will offer this year, as negotiations on a new contract have reportedly stalled. Russian state-owned newswire TASS reported in late December that Gazprom will carry out an auction of gas supplies to the Baltic states early in 2016.

Russia will be delighted with the troubles at the terminal. While Lithuania could in theory cover the bulk of demand across the three Baltic states, Lithuania has only managed to sell some small volumes to Estonia. Latvia, where the Russia-controlled utility Latvijas Gaze (LG) is the gas market monopolist and controls the only gas storage facility in the region, has proved a problem. Riga is being pushed by the EU to begin the process of LG’s unbundling, which would pave the way to opening the regional market to third party supplies by 2017.

However, that leaves the Lithuanian terminal struggling to cover its costs, as the CEO of operator Klaipeda nafta told bne IntelliNews last year. Looking to ensure the economic viability of the LNG project and quell anger amongst major consumers, Lithuanian lawmakers tweaked the way that maintenance costs will be covered this year.

Lawmakers also decided that the government would set a minimum threshold for the amount of gas it will be necessary to sell to ensure the terminal’s operations. Should demand fall – as it is now – the terminal will be required to sell the gas on international markets. 

Litgas, the LNG import arm of Lietuvos Energija, has been negotiating deliveries from Cheniere Energy. The US company had said it expected to send the first shipment this month. However, Lithuania's system was built to use Russian gas. US LNG is much more calorific the spokeswoman said.

"They are still testing their liquefaction equipment, and at the moment they cannot ensure the chemical composition of gas which is needed for Lithuania," Dapkiene said. "We believe that once the testing phase is over they will be able to meet our specifications."

The test phase could take four to six months before the first shipments under a long-term contract between Cheniere and LNG shipper BG Group begin, Reuters sources said last year. However, Lithuania will likely need longer than that to source the demand for additional LNG shipments.

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