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    Klaipeda bullish on growth [NGW Magazine]

Summary

The LNG terminal has not been running at full, yet the operator is talking about adding more capacity. Would this be a pyrrhic victory for politicians?

[NGW Magazine Volume 4, Issue 3]

by: Linas Jegelevicius

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Featured Articles, Europe, Premium, NGW Magazine Articles, Volume 4, Issue 3, LNG, Lithuania

Klaipeda bullish on growth [NGW Magazine]

The CEO of Klaipedos Nafta (KN), the company operating Lithuania’s LNG terminal has given a very upbeat and ambitious forecast for its short-term prospects. Mindaugas Jusius raised eyebrows with his claims, although others in the world of politics can be found who share his bullish views.

He told Reuters mid-January that under the auspices of KN the terminal would double LNG flows after 2021, when the Gas Interconnector Poland Lithuania (GIPL) and Balticconnector, a pipeline between Estonia and Finland, are built.

“Our ambition is to grow into the largest operator of LNG import terminals worldwide,” Jusius was quoted as saying.

Citing full bookings out to 2035 at the Swinoujscie LNG terminal, 300 miles west along the Baltic coast in neighbouring Poland, as well as its own plans to expand its capacity to 5.4mn mt/year, he hopes to cash in on the growing global LNG market as traders and suppliers compete for capacity in the infrastructure and so gain access to gas markets in central and eastern Europe and beyond, in Ukraine, for example.

However board member Ian Bradshaw was a little more cautious. The terminal had to be prepared for tough competition in the gas market, he told the Lithuanian business daily Verslo Zinio afterwards. "There are gas network improvements that would increase demand for LNG imports through Klaipeda. There's also a possibility that the use of LNG in the Baltic Sea marine navigation will grow. But we are realists and know we'll have competitors in our business. Therefore, we have to position ourselves in a way that will allow[wp1]  us to provide the highest-quality services at the lowest possible price,"

In his opinion, gas will be a transitional fuel for another several decades, but this will depend on new markets forming, such as the transportation of LNG by truck; and as a marine fuel.

As the Klaipeda LNG infrastructure is more up-to-date and better integrated within the local gas transmission system, Jusius’ hope that the terminal will reach at least 40% utilisation is realistic, some observers say.

“The story that the Klaipeda LNG terminal has propagated about its performance externally is excellent. Everyone sees it as an example to emulate,” a Latvian energy expert and former advisor to an EU cmmissioner, Jurij Ozolins, told NGW.

To understand how the gas interconnectors will improve the business case for the terminal regionally, he suggested looking at where GIPL ends.

“It will end right at the Belarus-Poland border, meaning that the gas can potentially go where nobody expects it to go now, namely over the border, into Belarus. Sure, now this sounds preposterous, but the possibility is there,” he argued. “And who knows where the demand for LNG will arise some day,” he added.

But Belarus has only one source of gas to date: Gazprom, which is also a shareholder in the bundled pipeline and gas importing company Beltransgaz. Beltransgaz also operates the final section of the Yamal-Europe pipeline before it enters the European Union and is unlikely to allow gas to flow into the country.

The GIPL pipeline to Poland is due to open in 2021, and with it comes the prospect that Lithuania will be able to supply gas to Ukraine. This would bolster Ukraine's diversification of its own supplies from Russia and knit it more tightly into the European gas market.

According to Ozolins, an abundance of energy resources is “always a good thing,” and although pipeline gas is cheaper than LNG, the availability of both creates new opportunities for each.

“I don’t see them competing in the Baltics, the industries need more electricity and gas. Yet the worldwide trend is clearly for LNG,” Ozolins said.

Asked to compare the Klaipeda floating LNG facility with Poland’s in Swinoujscie, he insisted that the former is “way better…. The whole conception and the implementation of the Klaipeda LNG project is very modern, encompassing all the world’s best facilities of the kind can offer today. I mean the floating storage and re-gasification vessel nearby, the marine LNG bunkering services and the robust and rapid integration of LNG in local heating and transportation sectors. That Latvia’s Incukalns underground gas storage is nearby is also a plus in the entire chain. All that makes the Klaipeda LNG terminal a stand-out,” Ozolins said.

Poland’s Swinoujscie terminal has trucking and bunkering facilities as part of the design and according to its estimates, operator PGNiG has almost 70% of the country’s small-scale LNG market. The rest is imported by trucks. “Growing sales of LNG are a consequence of the growing share of LNG in PGNiG’s import portfolio. The primary cause, however, is a rapid increase in demand for natural gas in liquefied form,” it said January 24, as it announced its 4,000th LNG truck delivery to off-grid customers.

The LNG reloading infrastructure in Klaipeda comprises of five storage tanks, each of 1000 m3; two truck loading bays; a marine bunkering jetty; and the regasification unit.

“The LNG reloading station has created a small-scale LNG infrastructure and established the port of Klaipeda as a regional LNG hub,” Ozolins said.

KN is also involved in the development of four LNG import terminals in Europe and central and southern America, with a view to becoming a shareholder and long-term operator, according to Jusius.

He said that the next three years will be a “decisive game” changer in the small-scale LNG market that is globally estimated to reach $47bn by 2021.

“The industry expects the trend towards the use of LNG fuel as a viable means to further speed up in the utilities, industrial and transportation sectors, but most importantly in the marine field, given the fact that the world ‘s shipping fleet will need to comply with the sulphur cap requirement. However, it will only make sense if the required bunkering infrastructure is in place, and the related industry players unite to implement certain decisions,” he said.

KN is a significant part of the “Blue Baltics” project, which also includes the AGA-controlled small-scale Nynashamn LNG terminal in Sweden, and Estonia’s Alexela Energia, which is developing a chain of LNG filling stations for public, commercial and sea transport.

Reinis Aboltins, an independent energy expert and a consultant at the Latvian parliament's European affairs committee, also spoke highly of the current Klaipeda LNG infrastructure.

“The prognosis that the flow of gas at the Klaipeda liquefied gas terminal can double over the coming years is not a fantastic one. I deem it realistic, as the operator of the terminal has been consistent in expanding and diversifying activities,” he told NGW.

“The terminal definitely is regional and its reputation as a major Baltic LNG hub will only strengthen,” he added. “If other similar terminals are built, they will serve only narrow purposes.”

In his opinion, the launch of GIPL and Balticconnector linking Finland and Estonia will certainly mean more competition in regional energy market, and it remains to be seen how the Baltic and Finnish gas markets will handle them.

“If the market liquidity is high, I don’t see the need for radical changes in the operation of the Klaipeda LNG terminal. But if LNG prices go up, in the region and in the whole of Europe, I believe there can be some corrections. It is also possible that the US could step in and sell, which would lower prices,” he said.

He also did not rule out the possibility of major ramifications in the regional energy market if sanctions against Russia were removed some day. “Politics and energy go hand in hand, so lifting sanctions can create a whole new situation in local energy markets,” he said.

However, some energy pundits, like Rytas Staselis, at Lithuania’s National Energy Association (NLEA), believe that doubling the flows do not make sense.

“What is it based on? Does it consider all the factors? I’d say that the volumes of the Klaipeda LNG terminal loading will mostly be determined by LNG demand and the prices,” Staselis told NGW. “In the short-term, it is very important that KN takes over the FSRU from the lessor, Norway’s Hoegh, in order to decrease the operational costs,” he said.

And another source, in former Lithuanian cabinet, told NGW on condition of anonymity that “the whole LNG terminal and the LNG vessel” idea has “hinged” since its inception on fears of Russia and Gazprom.

“The capacity of the terminal is way too big for a country like Lithuania, hence the miserable 30% utilisation rate. Heat producers complain of high LNG terminal support fees, but who cares? Politics, not the economy, is what governs Lithuania.That said that, we have to acknowledge that KN is making the best of its situation, and one that is of the government’s making,” he said.