Lithuania's hunt for LNG investors to hinge on unbundling

By bne IntelliNews April 19, 2012

Tim Gosling in Prague -

Lithuania may look to recruit foreign investors to help its drive for greater energy independence by offering them a 20% stake in its planned floating LNG terminal. However, Vilnius will need to solve its scrap with Gazprom over the unbundling of its pipelines before anyone is willing to take a punt.

Citing Energy Minister Arvydas Sekmokas, Baltic News Service reports that shares in the terminal, which is due to start operations in late 2014, may be offered to suppliers of equipment, technology and gas.

State-controlled Klaipedos nafta announced on March 2 that it had signed an agreement with Norway's Hoegh LNG on a ten-year lease of the maritime platform, as well as regasification devices. The deal is part of Vilnius' drive to break the total dominance of Russia's Gazprom on its market, with officials forecasting that it will drop the prices the country pays for gas significantly.

Alongside Hoegh, Sekmokas mentioned US company Cheniere Energy as another potential investor. Lithuania has a preliminary agreement with Cheniere which is to guarantee gas supplies to Lithuania from 2015 at a price 30% below Gazprom's pricing.

Meanwhile, Vilnius is also looking closer to home for other gas suppliers. Sekmokas is reported to have discussed a deal with Norway's Statoil during a visit to Oslo last week, whilst President Dalia Grybauskaite is due to talk LNG during a visit to Qatar in late April.

The LNG unit will have a daily storage capacity of 170,000 cu m and 11m cu m of regasification capacity. The government claims that this should potentially be able to cover the country's total gas demand of 3bn cu m annually. The country's major gas consumers will be required to buy a minimum of 25% of their annual consumption via the new terminal.

Lithuania is set to pay $689m over the ten year lease, and plans to operate the facility for a total of 40 years, which is no small outlay for a country still recovering from the devastation wreaked by the ongoing crisis. As analysts at OSW wrote in early March: "The decision to make this investment entails a financial risk for Lithuania," especially as the country is not applying for funds from the EU to help out.

However, Lithuanian officials from the president down have insisted that diversifying energy supplies is the government's top priority. It has also been pushing a plan to build a Baltic nuclear power station, and is locked in a bitter fight with Gazprom to unbundle its gas market.

"The government argues that the investment is cost-efficient owing to the gas purchase agreement with the US company," OSW writes. "For the investment to achieve the goals expected from it, it is vital that Lithuania finalises the unbundling procedure by the end of 2014 in line with the guidelines provided in the EU's third energy package with regard to the Lithuanian gas monopoly, Lietuvos dujos (controlled by E.ON Ruhrgas and Gazprom), which owns the gas pipelines in the country. It is expected that when Gazprom loses control of the gas pipeline system in Lithuania, gas from the LNG terminal will enter the network without any problems."

Any potential investor is likely to want to see that issue definitively solved well ahead of making any commitment to take on a slice of the LNG terminal.

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