Lithuania to launch new shale gas tender

By bne IntelliNews October 30, 2013

bne -

Lithuania will launch a new tender to sell shale gas expiration rights, the government announced on October 29. The hunt for a new investor comes after the only bidder in a previous tender pulled out, complaining of regulatory and tax changes.

Officially cancelling that earlier competition, the environment ministry said in a statement on its website that the Lithuanian Geology Service has been instructed "to assess the changed legal and tax environment and present the documents to organize a new tender."

The rights to explore and produce shale hydrocarbons in the western Lithuanian region of Silute-Taurage were first put up for tender in Jaunary. US energy major Chevron was the sole bidder, but the final decision on awarding the rights was delayed in February. Officials blamed local small-scale protests at the time.

However, despite promises from the prime minister down to quickly deal with the situation, the process was drawn out over several rounds of committee and research meetings. By the time Chevron was officially given the nod in September, the Lithuanian parliament was discussing taxing unconventional oil and gas at 40%, compared with the 16% for conventional hydrocarbons. Strengthened environmental restrictions have also been implemented.

Chevron pulled out of the tender on October 8, insisting in a statement: "Significant changes to the fiscal, legislative and regulatory climate in Lithuania have substantially impacted the operational and commercial basis of the investment decision."

Prime Minister Algirdas Butkevicius admitted the same day the need for regulatory clarity. Meanwhile, reports in mid-October revealed that the EU is planning to publish a muscular legislative package for shale gas operations by the end of January.

However, pushing through a deal would clearly be in the interests of Vilnius as it struggles to negotiate a new gas supply contract with Russian giant Gazprom. The original tender was part of an aggressive programme driven by the previous centre-right government designed to diversify energy supplies, with the country currently 100% reliant on its former Soviet master for the gas it consumes.

The government led by PM Butkevicius came into office in December pledging a more "pragmatic" stance towards Moscow. It appears to have backfired however, with Lithuanian officials complaining earlier this month of unreasonable demands from the Russian side.

Since then the news flow seems to have dried up, suggesting a stalemate, whilst Vilnius is now highly vocal in complaining that it pays the highest gas prices in Europe. That Moscow is also waging an "economic war" - as the PM called it this month - against Lithuania in an apparent bid to disrupt the forthcoming EU summit it will host, at which the likes of Ukraine and Moldova are set to seal pacts with the bloc, hardly helps the process.

"This is a good decision," Environment Minister Valentinas Mazuronis said in the statement. "Refusing to explore for shale gas or oil would be unfair to Lithuania as a whole."

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