Chevron ditches plans to explore for shale gas in Lithuania

By bne IntelliNews October 9, 2013

bne -

Blaming new regulations, Chevron announced on October 8 that it is ditching plans to explore for shale gas in Lithuania. The move comes at a bad time for Vilnius, which is locked in tough talks with Russia over a new gas supply contract.

The US major said in a statement that it is abandoning plans to hunt for the unconventional gas due to regulatory and legislative changes since it bid for the exploration rights at Silute-Taurage. The company was the only entrant in the January tender. However, it has since faced several months of delay due to political changes; it was finally announced as the winner a month ago.

"Significant changes to the fiscal, legislative and regulatory climate in Lithuania have substantially impacted the operational and commercial basis of the investment decision since the company submitted its bid in January 2013," Cevron said in a statement. The company says it will remain in Lithuania, focusing on exploring for conventional hydrocarbons.

The tender was called by the previous government as part of a highly aggressive strategy to reduce the current full dependence on Russian gas. However, a new administration took over in December, with Prime Minister Algirdas Butkevicius promising a more "pragmatic" approach to Moscow.

The final decision on awarding the exploration rights was delayed in February due to protests, according to officials, and the process has since faced several rounds of committees and research. Parliament has now proposed taxing unconventional oil and gas at 40% - compared with the 16% tax currently in place for conventional hydrocarbons - while strengthened environmental restrictions accompanied the eventual announcement of Chevron as the winner in September.

Butkevicius said in a statement that he regrets Chevron's decision, but admitted the need for regulatory clarity. "The parliament still debates various amendments, which could affect the use of hydrocarbons in our country," the PM said, according to Reuters. "That means, that first of all we need to have a legal framework in place."

The decision by Chevron comes at a sensitive time for the PM. His softer approach to Russia looks to have backfired. Moscow is applying heavy pressure on the small Baltic state as part of a wider push to prevent former Soviet states from signing off on agreements with the EU at a summit in Vilnius in November.

As part of that action, Gazprom is reportedly playing hardball in ongoing talks over a new gas contract, with the current agreement - under which Lithuania claims to be paying 30% more than any other European state - due to expire in 2015. President Dalia Grybauskaite said the terms Moscow has offered are entirely unreasonable, while Butkevicius was moved to the point of suggesting Russia is close to waging "economic war" on his country.

However, Lithuania still has some aces up its sleeve, including a plan to have a liquified natural gas terminal (LNG) terminal up and running by the end of 2014. It is also closing in on taking control of the country's gas pipelines, which would hand of control over Russia gas flows to the enclave of Kaliningrad. A spokeswoman in Vilnius said: "The government will discuss whether to call a new tender for exploration of shale gas and oil."

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