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Energetics
 
  Perspectives of Lithuanian LNG terminal (1)

Vadim Volovoj, Doctor in Political Sciences
2014 05 05

There are practically no doubts that Lithuanian Liquefied Natural Gas (LNG) terminal will be constructed. But there is also another important issue: who will by gas? According to Lithuanian politicians the terminal will increase Lithuania‘s energy independence but success of the project will depend on many factors. Here are some of them.

Firstly, the international LNG market is less predictable than traditional gas market. We all want a cheaper product but it will become cheaper only when supply increases demand. According to the survey carried out by the international audit company Ernst & Young, „it is expected that supply of liquefied gas will increase, especially by the year 2020. Despite different views, the majority of analysts and experts working in the above sector agree that every year supply is expected to grow 5-6 percent“.

Shale gas exports from the U.S. could change situation in the market. President Dalia Grybauskaitë highlighted: „I really hope that, maybe not at once, but especially when after two or three years shale gas from the U.S. reaches Europe, we will be very happy that Lithuania was the first to build an LNG terminal in the Baltic States and region”.  

But hardly  the Americans will be eager to reduce gas prices and loose profit. Pursuant to the analysis of  Ernst & Young, after 2018 global demand for LNG will exceed supply; new gas liquefaction capacities might be introduced, but it wouldn‘t be right to say that even then gas prices will decrease.  

Thus, will we proceed to buy gas from Gazprom? According to V.Jankauskas, Deputy CEO of Lithuanian Confederation of Industrialists, „in order to buy certain volumes of gas, we have to sign a long-term (5-10 years) agreement“. Even if this happens and Lithuania gets concessions, where will we realise the same price or even more expensive gas?

Via the LNG terminal it will be possible to purchase huge amounts of gas in order to ensure profitability of the terminal. But Lithuania is planning to promote the use of biofuel, especially in the heating sector. According to the portal biokuras.lt, „in 2020-2025 even 75 percent of heat in the district heating sector will be produced from local resources. [...] Compared to 2011, consumption of biofuel will double“.

Conclusion is simple: Lithuania‘s LNG terminal will have to export its production, otherwise it will face economic challenges. And although it is assumed that first of the entire terminal will work for the local market, today the idea to export gas seems to be realistic. The other question is where and how to export (export requires relevant pipeline infrastructure)?

Theoretically Lithuanian terminal could become regional. For instance its gas could be purchased by Latvia. But during the visit to Lithuania, Latvian Prime Minister L.Straujuma couldn‘t say that this would be the case even when gas becomes cheaper than Gazprom‘s gas.

J.Neliupðienë, Advisor to President D.Grybauskaitë, suggested another option: „Profitability of the ship and the terminal is nearly 4 billion cubic meters of gas every year. In fact, it can secure gas needs not only in Lithuania, but also in the entire region. Appropriate energy infrastructure (via the EU funds) will also meet Finland’s needs”. But Estonia and Finland have already signed a Letter of Intent concerning construction of a natural gas pipeline Balticconector connecting the two states, and building two liquefied natural gas terminals (LNG).  

According to the Lithuanian President‘s Office, upon completion of the GIPL pipeline project (connecting Lithuania and Poland), an LNG terminal built in Klaipëda could also be used for gas export to Poland. Yet, the context of political relations between the countries might complicate situation, let alone the fact that Poland has been successfully buying gas from Russia, investing to shale gas production and constructing own NLG terminal.

Another option for the terminal could be supply of the liquefied gas to vessels and small customers which could be served from the trucks „loaded“ with gas.

D.Grybauskaitë paid a visit to South Korea and attended the naming ceremony of the storage vessel for the Klaipëda liquefied gas (LNG) terminal. She said: „It is a historic day for Lithuania. This vessel carrying a nice symbolic name ‘Independence’ is a real step towards our energy independence and security, which means that we have an alternative and that no one ever will blackmail us over gas prices or influence, through energy, our political or economic life.

But so far the reality is relatively favourable: the terminal will be constructed but we cannot say that it will operate economically effectively. On the other hand, the terminal has already done its work during negotiations with Gazprom; besides our country will have an alternative for gas supply. Finally, it might happen that after launching the terminal other actors of the regional market will extend a friendly hand, and Latvia, Poland or even Scandinavian countries will accept services of the terminal. 

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