Lithuanians need to establish a gas connection with Poland
Finalization of the LNG terminal project in Klaipėda will not protect Lithuania from Gazprom’s gas blackmail. The only way to get rid of the danger is to establish a gas connection with Poland.
Lithuanian Gas Market – Overview
Yearly gas consumption in Lithuania is ca. 3.4 billion m3 and it is delivered fully via the Gazprom’s gas supplies. Throughout the upcoming one and a half year the price of this resource will be shaped at the level of USD 370 per thousand cubic meters.i This is a result of the price drop, which was negotiated with the Russian company, most probably due to the upcoming deadline of hand-off of the floating regasification terminal in Klaipėda.
This December the above-mentioned infrastructure shall become operational. Next year this facility will make it possible to import ca. 1 billion m3 of gas, and the number will be increased to 2 – 3 billion in the near futureii At the moment, the Lithuanians were able to sign a contract with Statoil, which will provide them with supplies at the level of 540 million m3 per year, within the period between 2015 and 2020. Price of the gas is to be within the range of USD 336 – 373 and it is related to the NBP (National Balancing Point) indicator, which is an index of the British gas market. Buying gas on spot markets is also being considered.iii
Lithuania free from Gazprom?
Despite the changes discussed above, Gazprom still bears key importance for the Lithuanian Gas market. Most of the supplies will be provided by the Russian company. If that's not enough, the Norwegian and Russian gas will be comparable price-wise, but it is the Russians who still have an option of reducing the price even more. This issue poses a question – will there be any need to use the floating terminal in Klaipėda? This is even more questionable, as an idea of compulsory gas buy-off from the terminal for the local companies has been abandoned.
The second relevant issue is related to the storage capability of the new terminal. 170000 m3 is enough to provide LNG for the whole Lithuania throughout the period of 3 weeks.ivAnd this is the only way Lithuanians have to store the gas.
The example above shows, how little protection the Lithuanians have, should the Gazprom supply be cut.
What Lithuania should do then?
In order to protect themselves from being cut off from the Russian gas, Lithuanians need to rearrange the gas network within their own territory. This is possible thanks to the fact, that Gazprom sold its shares of the Lithuanian gas provider the Amber Grid Companyv. Investment related to the Lithuanian gas network shall aim at expansion of the Klaipėda-Kiemėnai pipeline, which will make it possible to connect Lithuania effectively with Latvian gas storage in Inčiukalnis (and this was already announced in July by the former Minister of Energy of Lithuania, Jaroslav Neverovičvi), and at building an inter-connector of the network that would link Lithuanian pipelines with the Polish ones (in August a reqest has been filed to the EU, so that this connection would be financed with the EU assets)vii.
Klaipėda Terminal is not Enough
Only execution of the above-mentioned initiatives may save the Lithuanians from being suddenly cut off from the Russian gas supply. The Klaipėda Terminal will not solve the problem, which is being a matter of pressing concern for Lithuania. On the other hand though, there are still some doubts regarding the quantity and character of the LNG already contracted (it is hard to imagine spot supplies to be the basic elements of the Lithuanian economy) and target import capabilities (rumours about 2 – 3 billion m3 in the future). All that might be caused by the local needs and other regional projects, including Terminals in Świnoujście, w Estonia (or Finland, depending on the decisions made by the European Comission), or Russians (Gazprom's initiative). Gas connection in Poland would not be a subject of such fluctuations – it would let Lithuanians get access to the gas supply from Germany or the Visegrad Group.
i http://wyborcza.pl/1,75248,15927992,Gazprom_obniza_ceny_gazu_dla_Litwy__Wilno_poszlo_na.html [access: 15.9.2014]
ii http://www.sgd.lt/index.php?id=5&L=1 [access: 15.9.2014]
iii http://online.wsj.com/articles/statoil-to-supply-gas-to-lithuania-in-five-year-deal-1408637833[access 15.9.2014]
iv http://www.lei.lt/energy-security-conference/index_files/Masiulis.pdf [access 15.9.2014]
v http://www.ambergrid.lt/uploads/documents/Investuotojams/Condensed%20Financial%20Statements_30062014.pdf [access 15.9.2014]
vi http://www.enmin.lt/en/news/detail.php?ID=3566 [access 15.9.2014]
vii http://www.ekonomia.rp.pl/artykul/1134803.html [access 15.9.2014]