Defence Policy

Lithuanian LNG Terminal – Can We Treat It as a Model Investment?

Lithuanian LNG terminal, even despite the fact that it is a facility of a nature, which significantly differs from the terminal that is being constructed in Świnoujście (not to mention the ownership structure of both facilities, which is also considerably different), is often compared to the Polish infrastructure, and presented as a symbol of success. However, the on-time handing-off of the Klaipėda facility does not mean that its functioning is trouble-free. 

Lithuanian terminal not connected to the gas distribution network?

Above all, we do not really know it now, whether the leased floating storage and regasification unit (so called FSRU, also known as an LNG terminal) is connected to a fixed pipeline which is attached to the local gas infrastructure (which is a fundamental issue when it comes to safety and operation of the facility).

Back in October last year, Lithuanian former Minister of Economy, Eugenijus Gentvilas informed that the German PPS Pipeline Systems GmbH company encountered some problems in the process of creating a fixed connector. Due to these reasons the company might have had to face financial penalties. It also seemed possible that the PPS firm would withdraw from the whole investment. Gentvilas additionally suggested that the terminal opening ceremony, which had involved the Lithuanian politicians, was only possible thanks to the fact that a provisional pipeline had been created before. This pipeline was quite sensitive to the weather conditions.

On 3rd December 2014 – 1.5 months after Gentvilas had made his statement – the Lithuanian outlet, quoting a representative of the Klaipedos Nafta company, which is responsible for management of the FSRU informed that operation of the LNG terminal at the time was possible only thanks to the temporary pipeline. The infrastructure in its final shape is to be handed off for use in the second quarter of 2015.  

It seems then, that the floating storage and regasification unit has been handed-off for use, even though it is not fully operational. We cannot state it clearly, however it is worth noting that – starting from the moment when the sensational information was published by the outlet – the Lithuanians are constructing their press releases in a way, in which they would not be related directly to the issue of the above-described connector.

Rural location of the terminal has an impact on its profitability

Realistic transfer capacity of the FSRU  (which is dependent by the quality of the connecting pipeline) will be probably revealed in the nearest future. It is worth to mention it here, within that context, that the Klaipėda terminal should start to deliver the gas to Estonia, starting from 1st March 2015. A proper media publicity, related to this issue, has been created. Here we can speak of quantities close to 30 million cubic meters, which are to be achieved until the end of the year. These values are not really impressive to be honest. If we look at all that more closely, two conclusions may be created: 

  1. According to the Lithuanian PM, Algirdas Butkievicius, the gas consumption in Lithuania is getting lower. It is estimated that the consumption values will be 38% lower in 2016, than it was back in 2010. This means that external sales will become a key factor, which would decide on the future of the Klaipėda facility. And this may be problematic...
  2. Creating a gas connection between Poland and Lithuania should be still considered as a plan. Meanwhile, the Latvian gas transfer network, probably until 2017, will remain a Gazprom’s territory. The latter issue may have a direct impact on sales of LNG coming from the Lithuanian FSRU, should the volume of the gas be indeed increased (such correlation was suggested by the Lithuanian PM). This, as I mentioned it above, would have a direct impact on profitability of the terminal.

Constructing a land LNG terminal – the floating unit is not enough

The above-listed problems force the Lithuanian authorities to optimize the key investment, aim of which is to make Lithuania independent from the Russian gas supplies.

Lack of confidence in the Latvian export policy is probably a reason why a decision has been made to create the second, land-based LNG terminal, with a storage capacity of 5 thousand cubic meters, which is to play an auxiliary role, in relation to the floating storage and regasification unit. Here, I mean supplying gas to LNG carriers, train tanks and tank trucks.   

When one considers this issue, looking at it from the Polish point of view, one could state that it would be better to create a single facility, but in a proper way. Particularly because oof the fact that a floating LNG terminal may be troublesome, especially for the harbour where it is staying.

Safety issues and the Port of Klaipėda

At the end of January this year, Lithuanian website, described the problems related to safety of the FSRU, which is stationed at the Port of Klaipėda:

  • In the spring last year, a Danish vessel approached the area in which the floating regasification and storage unit is stationed, without obtaining relevant permits. That activity was not stopped by the security service, nor were the security officers authorized to use weapons in such situation (sic!). After that incident, more financial means have been allocated to improvement of the Port’s security. Several legal amendments have been made to, however, these actions have not solved all the problems.
  • It shall be noted that some of the port buildings are being leased, e.g. by the Russian companies. These buildings may potentially be used for the purposes of sabotage operation, aim of which would be to attack the FSRU. Attempts of extracting such subjects from these buildings have been stopped by the European Commission, which stated that such operation would have an impact on rules of free competition, which are in force within the port area.

A week after the article describing the above-mentioned issues had been published, a bomb threat call was made, regarding the Lithuanian terminal. The described issue shows, how big is the challenge related to provision of safety for a floating regasification unit, which is anchored in a commercial port, where there is a lot of ship-traffic.

Lithuanian LNG Terminal – a perfect investment?

The problems faced by the Lithuanian LNG terminal lead to a lot of questions. The most important one, within the Polish context, is: was the investment carried out perfectly?

In my opinion, the problems related to the FSRU-dedicated pipeline, a need of creating a land facility, security problems and tough macroeconomic environment, which was not taken into account when the initiative was pushed towards realisation, show that the “Independence” cannot be considered to become a role model for the Świnoujście terminal.