Lithuania reportedly opens talks with Gazprom on new supply contract

By bne IntelliNews November 8, 2015

Lithuania has reportedly opened talks with Russian gas giant Gazprom over a new supply contract, newswires reported on November 6. 

The Baltic state's current contract expires at the end of the year, but Vilnius has been in no hurry to renew it, seeking instead to leverage its new found ability to source gas from via its LNG terminal, as well as other irons it believes it has in the fire. At the same time, Lithuanian demand has been falling fairly rapidly.

However, the Klaipeda facility's supplied just 500mn of the country's 2.6bn cubic metres consumption this year, and that is likely to drop to 300mn cubic meters in 2016, according to importer Lietuvos Duju Tiekimas (LDT). Major consumers are also angered by special charges levvied to make them support the operation. 

That means the Russian company also enjoys leverage. Both sides have been busy through the 12 months since the LNG terminal launched claiming they are in no hurry to seal a new deal. While the tiny market is no real loss for the Russian company - Lithuanian consumption is expected to drop to just 2bn cm in 2016 - it relies on Lithuanian pipelines to deliver gas to the enclave of Kaliningrad.

It has already made concessions to Vilnius due to the opening of the LNG facility, before which Lithuania wrestled its gas grid out of Gazprom’s control in a bitter fight in 2012. With the help of an arbitration case lodged by Vilnius, and the widescale EU probe into the Russian company's suspected anti-competitive contracts in CEE - Gazprom last year agreed to reduce the price on the current contract by up to 23%.

Lithuania is now mulling the import of some 500mn cm from Russia, and will threaten to turn to other sources - such as gas stored by Latvia - should Gazprom not offer a good prices, Reuters claims. However, Latvia's Incukalns storage facility - the only one in the Baltic region - is effectively controlled by Gazprom. 

LDT also has about 300mn cubic meters of gas unused under the current contract and can carry it over to 2016, the newswire reports. On top of those options, Lithuania can further reduce demand for imported gas via power imports from Sweden, which are set to begin in 2016.

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