Latvia Sticks with Gazprom, Defies Lithuania’s Expectations

Latvia‘s state gas company Latvijas Gaze is not interested in liquefied natural gas from neighboring Lithuania’s LNG terminal in the seaport of Klaipeda.

“Our demand for gas in Latvia is completely satisfied by the long-term contract with Russian Gazprom. The market because of the current (gas) surplus so far is not ready to have an extra quantity of gas added to it,” said Mario Nullmeier, deputy chairman of Latvijas Gaze's board.

Gazprom holds 34 percent of the company’s shares, which makes the Latvian gas company reliant on the Russian gas holding.

Nevertheless, Lithuanian authorities had hoped Latvia would become one of the Lithuanian LNG buyers and treat the facility as a regional LNG hub.

Instead, Latvia is opting for Gazprom, for now.

Russian gas price is believed to be around 8-12 percent cheaper than Statoil's from the Klaipeda LNG terminal.

The Latvian Government is also weighing options to build its own modest-size LNG terminal.

“When we speak about gas supplies from Lithuania we must take into account a few things. First, there are limitations on amounts that can be supplied to Latvia and Estonia from Lithuania. At the moment, the main limitation is the pipeline from Klaipeda to Kiemenai (a settlement near the Lithuanian and Latvian border). The second limitation is that the Kiemenai gas metering station, technically-wise, is limited.  And, finally, we consider the LNG price which is higher in Lithuania. Besides, we have also to add the transportation price to it,” Vinsents Makaris, the Latvijas Gaze spokesman told Natural Gas Europe.

According to him, Latvia's natural gas consumption is falling: from 1.8 billion cubic meters of gas in 2010 to 1.3 billion cubic meters of gas last year,

"Besides, there are gas leftovers from warm winters and for us there is no room for extra gas supplies at the moment,” he emphasized.

Nullmeier, however, admitted that the Lithuanian terminal had played a role in Latvijas Gaze and Gazprom talks.

Both representatives did not comment on whether the company would seek Lithuanian LNG deliveries in the future.

The tell-tale moment could be 2017, when Latvia, meeting the European Union’s Third Energy Package requirements, is poised to unbundle the gas supply and control of transmission systems. But it remains in question whether it will be done as planned.

With Lithuanian state gas company Litgas nearing completion of the construction of the second pipeline (the project is due the end of the year) linking Klaipeda with Kursenai, from which the mains goes to the Inchukalns underground gas storage (UGS) facility in Latvia- this would allow twice increase the Klaipeda LNG terminal capacity, up to 2 billion cubic meters of gas per year and effectively turn the terminal into regional - Lithuania hoped Latvia will employ the new pipeline through which gas can be transported to the Latvian capital Riga’s CHPs.

However, Latvijas Gaze set out in March new rules which constrain Lithuanian gas flow to Latvia.

Lithuanian Prime Minister Algirdas Butkevicius, meanwhile, says it will be hard to strike any accord with Latvia over LNG supply from the Klaipeda terminal until Gazprom plays first fiddle in the Latvian gas market.

“Talks with Latvia have begun, but they are quite complicated and uneasy, because the Latvian gas market is controlled by Gazprom, which holds a significant part of the share package in the Inchukalns UGS. As Latvia is set to implement the EU Third Energy Package only in 2017, we expect it will succeed with the bid and then it will be easier for us to agree on the gas supplies,” the PM says.

It means that until then Lithuania can hardly expect see the Klaipeda LNG terminal operating as a regional LNG facility.

“The expectations about the Klaipeda LNG facility have indeed been high, but, unfortunately, not all they have been lived up. The terminal has not become regional. I reckon it would have been such if the European Union had been engaged in the project. This did not happen, alas. The low oil and gas prices also prevent the Lithuanian terminal from being a regional terminal,” Juozas Augutis, an energy expert at the Lithuanian Energy Institute, told Natural Gas Europe.

And with Estonian resolve to build their own modest-size LNG terminal, even without financial support from the EU, hopes to brand the Klaipeda LNG terminal as regional has become even bleaker.

The Lithuanian expert, nevertheless, invites all naysayers to be “more optimistic” about the national energy security guarantor - that is, how the Klaipeda LNG terminal is dubbed.

“Especially until Lithuania has not completely decided on the heating in the largest cities. Certainly, all hopes are about bio-fuel-fired plants, but fuelled modern CHPs cannot also be ruled out in some largest cities. If around 20-30% of the heat and power came from that type of plants, it would do just good for the diversification of our energy market,” the expert believes.

He also thinks that all the possibilities with Polish or even further markets are not exhausted.

“Certainly, Gazprom will be around and strong likely for quite some time, but if our liquefied natural gas facility is credited for curtailing the Gazprom gas supply prices, so why don’t we play the card more globally?” Augutis asked rhetorically.

Sigitas Rimkevicius, director of Lithuania’s Energy Institute (LEI), emphasizes that what matters at the end of the day is that the Klaipeda LNG terminal is the guarantor of Lithuania’s energy security.

“Certainly, the economic aspect remains, but, politically, and, security-wise, now we are a lot stronger,” he asserted to Natural Gas Europe.

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