Will Lithuania become independent from Russia supplied gas?

Till now Lithuania was dependent for 100% for its gas imports from Russian monopoly Gazprom. It is the largest extractor of natural gas in the world and one of the world's largest companies, which delivers gas to 25 European countries. In 2013 Gazprom delivered gas to the country for about $470-$480 per cubic meter, compared with the average $380 for the rest of the continent. 

The necessity to have an alternative energy source appeared following EU requirement to ensure alternative gas supply from 3rd December 2014. Furthermore, after shutdown of Ignalina Nuclear Power Plant, on 31 December 2009, Lithuania had become more dependent on natural gas import. For these reasons, Lithuania government has started and will soon finish LNG terminal project and, I think, it will make a big impact in our independence from Russia gas.

Liquefied natural gas (LNG) terminal is one of the most important Lithuania‘s energy projects. It will improve energy security situation in the country, create conditions for natural gas market in Lithuania and provide economic boost for local economies and residents. 

The LNG terminal is designed to have sufficient capacity and flexible operating modes and, if necessary, it could essentially meet the overall Lithuania’s demand for natural gas. 

The vessel storage will be manufactured by a Norwegian company: Höegh LNG. The floating vessel – a storage facility with the regasification terminal shall be of 170,000 m³, it maximum pumping capacity 11 m m³/day, which corresponds to the average daily consumption of gas in Lithuania. Therefore, even in the case of termination of gas supply by pipelines from Russia, the terminal will remain capable of supplying sufficient quantities of gas to the national economy. The terminal will be constructed at the same time addressing technical issues concerning coordination of pipelines, reconstruction and operation of pumping stations to ensure that in the future the capacities of the terminal are operated to their full extent.

Even if the LNG market remains less economical than long-term contracts with Gazprom, the mere presence of the floating LNG terminal would strengthen Lithuania’s bargaining position with Gazprom for long-term contracts. This has already been demonstrated when Lithuania, in May 2014, re-negotiated its gas contract and, for the first time since declaration of independence, received a price cut. Gazprom agreed to cut Lithuania’s gas price to $370, a reported discount of about 20 percent. From July 2014, Lithuanian consumers can expect to pay 15-24% less. 

The Klaipeda terminal would not only prevent Russia from threatening gas cut offs, but also deprive Moscow the opportunity to raise gas prices as a means of exerting political concessions. Once the LNG terminal is operational, the effects of Gazprom’s theoretical gas embargo on Lithuania are greatly reduced, as Lithuania could cover its short-term demand via LNG. Also Lithuania serves as a gas transit state to the Russian territory of Kaliningrad. In other words, the same gas pipeline feeding Lithuania, also supplies the Russian enclave. According to this argument, Moscow would be hesitant to turn off the gas supply to Lithuania because it would result in an automatic cut in the gas supply to Kaliningrad. However, the risk of a gas cut from Moscow remains in the long-term, particularly as the tensions between Russia and the West intensify. Lithuania will now be connected to a rapidly growing global LNG market, providing increased flexibility for gas importers.

In the end, I think that it is not as if Lithuania has achieved energy independence from Russia. But we got alternative supplier and prices cut, so the deal with the Norwegian company gives hope that gas supplies might finally be exempt from political manipulations.

Mantas Skroblas

[artigo de opinião produzido no âmbito da unidade curricular “Economia Portuguesa e Europeia” do 3º ano do curso de Economia (1º ciclo) da EEG/UMinho]