Lithuania to use LNG terminal to replace Russian gas with US imports

By bne IntelliNews January 24, 2012

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Lithuania has taken a step towards lessening its total dependence on Russian energy, and stolen a march on its fellow Baltics, with an agreement to lease an offshore liquified natural gas (LNG) platform that will receive imports from the US.

Majority state-owned oil terminal Klaipedos Nafta said in a statement on January 23 that it has agreed to lease a floating terminal from Norway's Hoegh, with the storage regasification unit due to go into operation by the end of 2014, reports Reuters. The company first outlined the plan for the offshore facility - which is cheaper and faster to build than an onshore terminal - in summer 2010.

Vilnius has been bickering with Tallinn and Riga for some time now over the location of a permanent Baltic LNG terminal, with all three claiming to offer the best conditions for hosting the facility. The argument has become so long drawn out that the trio asked the EU to decide on the best location.

At the same time, Lithuania has been pushing to break Russia's dominance of its energy sector - Gazprom currently supplies 100% of its gas - having passed legislation in the summer that will force force Gazprom to give up its ownership of the country's gas pipelines.

That move saw Lithuania adopting the most far-reaching option of the three available under the EU's Third Energy Package, which infuriated Moscow. Vilnius' concern over its dependence on Russian gas has risen recently because - like many others in Europe - it has failed with a request for a price cut in gas supplies from Russia. On top of that, the pair have had several energy spats in recent years and Lithuanian supplies were badly affected by recent gas problems between Moscow and Minsk.

Prime Minister Andrius Kubilius insisted that the LNG platform would address these problems. "By being a sole gas supplier, Gazprom could abuse its monopolistic position, harming consumers," Kubilius told a news briefing after a cabinet meeting on Monday. "It is the best solution to solve that problem."

Klaipedos Nafta said that the platform has been ordered from South Korea and will have a capacity of 170,000 cubic metres of LNG. "We would be able to meet demand if Gazprom halts all gas supplies," general manager Rokas Masiulis said, Reuters reported.

The contract with Hoegh, which is to be signed in February, is based on a 10-year lease period, after which Klaipedos Nafta will have the right to purchase the terminal.

Of particular irritation to Gazprom will be the fact that Lithuania plans to fill the terminal with shale gas from US company Cheniere Energy. Executives from the Russian company have spent the past few years battling customer demands for lower pricing as the rise of unconventional gas in the US has helped lowered global spot prices. At the same time, Gazprom has dismissed ideas that European shale gas can be a similar game changer that it was in the US, but they are clearly somewhat nervous about it.

Last May, Vilnius signed a deal with Houston-based Cheniere Energy to buy LNG from its Sabine Pass terminal in Louisiana, which is expected to start exports by 2015. The pricing on the deal is reportedly at spot prices, which are currently significantly cheaper than those in most long-term contracts run by Gazprom.

Reports on January 23 also said that Vilnius is deepening its cooperation with Poland - the lead lobbyist for the potential of European shale gas - with Polish state-controlled Lotos set to begin drilling at its Lithuanian fields, and ready to take on more licenses.

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