Lithuania Seeks “More Flexibility” in LNG Terminal Contracts
As Lithuania's Energy Minister does not deny the country is in talks with Norway’s Statoil over a more flexible LNG supply schedule to a LNG terminal in the seaport of Klaipeda, the Government may also ask for more suppleness from Norway’s Höegh LNG. Höegh is the leaseholder of the floating storage and re-gasification unit (FSRU) in its seaport, possibly seeking its earlier buyout or extension of the 10-year lease, which would placate the concerns the project vital for the Baltic state’s energy independence is the short-term.
Lithuania may want to review key LNG terminal contracts
“If the talks with the Norwegians turn out to be true, it would not surprise me very much, as Lithuania, struggling to find buyers for the gas on international markets, has to inevitably go over again the contracts with the partners (Statoil and Höegh LNG, too) and see where sides can agree on more flexible terms that better accommodate the terminal’s current needs,” Juozas Augutis, a Lithuanian energy expert, told Natural Gas Europe. “The strides in that regard have been purposeful lately.”
Energy Minister Rokas Masiulis says however that reports about the Ministry’s talks with Statoil over a more flexible schedule of the gas import are too “premature”- Bloomberg was the first to break out the news, but the Minister, citing some factual discrepancies, called the story “misleading”- but did not deny the talks are ongoing.
“Various operating modes at Klaipeda LNG terminal and its possibilities are currently being tried out and the Energy Ministry has asked companies related to the LNG facility to get ready for various possible scenarios,” Masiulis was quoted as saying by Lithuanian media.
“Even if we do not rule out this (talks) happening for some time, at this stage all is rather about consideration of possibilities. When there is an agreement on these possibilities, then decisions on a model of operations will be made,” the Minister explained.
Asked by BNS, a Lithuanian news agency, whether LitGas, the country’s gas distributor, is in touch with the Norwegians over the gas issue, Masiulis admitted the company is indeed in talks with the Latvians – the neighbors prefer the Gazprom imports over the Lithuanian LNG for now - on the use of the Incukalns underground storage gas facility.
“It is also holding talks with Statoil on increasing the flexibility of supplies, but I wouldn’t like to elaborate…But the Ministry has asked the LNG terminal-related companies to look into all possibilities so that we know all the options when we map out a scenario of its operations for next year,” the Minister said.
Under a long-term gas supply contract Statoil is to supply Lithuania annually with 540 million cubic meters of gas to the Klaipeda LNG facility for five years. The terminal’s capacity is nearly six-fold larger, but cannot be used as the country struggles to find buyers for the gas on international markets.
Reportedly, Litgas got hold of Statoil unable to sell some 150-200 million cubic meters of the annual volume this year and around 240 million cubic meters next year.
The figures make nearly half the current LNG terminal capacity.
“Companies have to be ready for various scenarios”
Masiulis hints the situation needs to be addressed and, with “various regimes tried out” the LNG terminal- relevant companies have to be “ready” for various scenarios.
“As far as the operations of the facility are concerned, all actions have to do in one or another with the flexibility of the terminal and ratcheting up its potential so that we can know the possibilities of the infrastructure, which would allow is get ready for the most optimal scenario,” Masiulis told.
Among the “try-outs,” he pointed out, is testing the gas reservoirs, pumps and the quality of gas.
“With the gas being stored in the reservoir longer, or pumping it faster, we might have a discussion on alteration of the gas quality parameters just because it (gas) is changing with the time elapsing. If that were the case, then the gas could possibly be used elsewhere, but this is not envisioned in any legislative norms now,” the Government member pointed out.
To the observation that the LNG terminal experiences gas surplus especially during summer, when the local power generators barely use the gas and the exports are tepid, Masiulis responded that the “issue” is being underlined “too much.”
“Therefore the Ministry is on a lookout for various forms of flexibility,” he reiterated.
The striving, he says, includes “hypothetical” possibilities on the extension of the terminal’s lease or its buyout from Höegh LNG.
According to the Minister, such developments are “plausible” just because they would allow reduce the terminal operation costs.
“(When it comes to the financing) it is an integral part of the question and we’d tackle it in one way or another. “Klaipedos Nafta” (Klaipeda Oil, the terminal managing company) has got quite a few options, among them getting a loan from the European Investment Bank or some other banks. Options are out there, but they can be concretized when we take on one thing, or another. Until then all is in the initial stage - it’s too early to talk about what scenario will be chosen,” Masiulis noted.
He underscored that the liquefied natural gas terminal has already played its big role in forcing Gazprom to offer the gas discount of nearly 20 percent to Lithuania and the terminal gas price, the Minister insists, will not go up anymore.
Lithuanian-Polish gas interconnector stalls
Lithuania has called on recently Poland, the partner in building GIPL, gas interconnector between the countries, to tackle the issue of the pipeline’s financing.
“GIPL implementation will secure the establishment of EU Energy Union and will erase the bloc’s energy islands,” Butkevicius, the Lithuanian Prime Minister, told his Polish counterpart Ewa Kopacz in a meeting in Brussels.
Many experts believe the gas link could open up whole new opportunities for the Klaipeda LNG terminal.
But with the two neighbors looking forward to the inauguration of LitPol project, the electricity grid interconnector, Lithuania and Poland have been struggling with the gas pipeline.
Back in April the Prime Ministers of Latvia, Lithuania and Estonia addressed the European Commission (EC), asking to say a word on the GIPL financing – Poland reportedly wants the EC to allot more funding for the project, as well as for the other Polish gas connector, with Slovakia.
The EU top priority-marked 534-kilometer €558 million project is due at the end of 2019, but experts fear the deadline might be missed if the countries do not meet their financial obligations.
Once in operation, GIPL is thought to considerably boost the attractiveness of Klaipeda LNG terminal and lift it status to regional.
“It won’t happen, however, right away with the launch. This will be possible if liquefied natural gas replaces gradually conventional fuels used for maritime logistics, heat production and by the industry. To make it happen, Lithuania has to clearly stick with gas, but it won’t be easy as bio-fuels also see much support. With the preponderance of gas we’d be able to supply it from the terminal to medium-size marine vessels and industry that is not connected to the main gas mains,” several Lithuanian experts told Natural Gas Europe.
One of them, the aforementioned Augutis, also counts on Ukraine’s potential.
“With the gas link we’d come close to Ukraine and, with the political will out there, the terminal, though small for a country size of Ukraine, could get a decent job there,” the expert believes.
With the gas supply in the market, he says, Lithuania cannot relinquish Gazprom gas if it is cheaper on the market, but it cannot compromise Lithuania’s energy security, Augutis emphasized to Natural Gas Europe.
Another energy expert, Zilvinas Silenas, president of Lithuania’s Free Market Institute, says “the more possibilities the better for the end consumer” and reminds that Lithuania itself has not earmarked money for the Lithuanian-Polish gas link “for many years.”
“I reckon Poland has questions over profitability of the project, especially with the other gas projects being pursued in the region,” the expert said. “The geopolitics is tense, but many countries though, like Germany, for example, first seek to make sure their gas supply contracts are long-term. From the point, the Germans’ late accord with Gazprom over the construction of a new pipeline through the Baltic Sea should not surprise anyone.”
Vessel refueling will boost LNG demand
Richard Schroder, the Commercial Dirctor at Bomin Linde LNG, a Hamburg-based full-service provider of liquefied natural gas (LNG), believes that the future of the Lithuanian gas terminal is hinged on the ships’ adaptability to LNG as the fuel.
“Klaipeda should become the main supplier of liquefied natural gas in the Baltic region. I envision it servicing three types of consumers: first of all, marine vessels, then small LNG terminal and, finally, supply industrial enterprises directly from the gas stations,” Schroder predicted.
He believes that due to the more stringent environmental requirements around 10 percent of all vessel owners will have the conventional gas replaced with LNG over the next five years.
But there is not many that type of ships yet in the offing of the Baltic Sea yet, he says, just 16 (are out there), however nearly two dozen of them are under the way or in the pipeline.
If all pans out in favor of liquefied natural gas, 11 Baltic ports, including Klaipeda, would serve as hubs of their fuel supplying through specially designed stations.
The aforementioned Klaipedos Nafta considers construction of such a station over the next few years, which, when built, is expected to provide around 200 thousand cubic meters of gas for the Baltic ships over the next couple of years.
This amounts to nearly half the Klaiped terminal’s yearly capacity now.
Mantas Bartuska, Klaipedos Nafta Director General, says the company will follow into the footsteps of Poland which is successfully launching on-water ship-refueling LNG stations.
“Therefore we expect that the gas distribution station we will build in Klaipeda will contribute to the potential of the market growth. i.e. the consumers in the Baltic region will be able to use more liquefied natural gas. Besides, it could be delivered to Finland, Sweden, environment-conscious countries already using clean fuels,” the Director said.