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    Lithuania seeks Belarus role [NGW Magazine]

Summary

The LNG-importing country can maybe solve its overcapacity problem if it can persuade Belarus of the benefits of what will be expensive diversification. [NGW Magazine Volume 4, Issue 20]

by: Linas Jegelevicius

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Liquified Natural Gas (LNG), Featured Articles, Europe, Premium, NGW Magazine Articles, Volume 4, Issue 20, Security of Supply, Import/Export, Supply/Demand, Baltic Focus, Market News, Belarus, Latvia, Lithuania

Lithuania seeks Belarus role [NGW Magazine]

Russia-dependent Belarus has recently been robustly courting the idea of diversifying its energy supplies and building warmer relations with the West. This is the result of Belarus’ difficult negotiations with Russia on the terms of co-operation after 2020. Minsk has taken the initiative of not only exploring possibilities of western energy trade, but, some experts say, also to gain a stronger foothold in its negotiations with Russia.

Anticipating energy business opportunities with the eastern neighbour, Lithuania has approached Minsk several times in the last month, hinting it would be happy send gas over the border, sourced from deliveries to the Klaipeda liquefied natural gas terminal (KLNGT). The Belarus-Lithuania border has been a delivery point for Gazprom Export auctions.

Lithuanian prime minister Saulius Skvernelis has acknowledged that Lithuania and Poland, both of which border Belarus, are discussing projects that could help reduce Belarus' energy dependence on Russia. Skvernelis said he discussed the issue with his Polish counterpart, Mateusz Morawiecki, on his visit to Vilnius on September 17.

Then Lithuania’s foreign minister Linas Linkevicius told his Belarusian counterpart, Vladimir Makey, when they met at the latest UN General Assembly in New York in mid-September, that Lithuania could help with his country’s energy diversification efforts.

The president of Belarus Alexander Lukashenko has mentioned that his country could start importing oil through Poland and the Baltic countries if it fails to reach a deal with Russia on prices. Belarus has even warmed to the idea of buying US crude oil, following a high US official’s visit to Minsk in September. Minsk and Washington have agreed to exchange top-tier diplomats again – Belarus lifted in early 2019 a long-standing limit on the number of US diplomats allowed in the country. Belarus is said to be already holding informal talks on possible oil sources not only with the US, but even with Azerbaijan and even Kazakhstan, landlocked countries in the distant Caspian region.

But Lithuania, facing a glut of LNG, is mulling something different: selling LNG from the Klaipeda jetty to Belarus. The director of international development at Ignitis Group – former Lietuvos Energija – Mantas Mikalajunas told NGW that Lithuania has all the infrastructure that is necessary for it to supply gas to its neighbours, including Belarus.

“We are successfully selling natural gas in Latvia: the same case could be implemented in Belarus, if they would like to diversify their gas supplies. All possible supply routes are interesting for us,” he said. “Nevertheless, our earlier attempts to open talks with the Belarusian gas transmission system operator [Beltransgaz], controlled by Gazprom, regarding the use of the transmission system have had a short answer: it is not technically possible,” he said.

According to the Ignitis Group executive, even if there are genuine technical limitations, natural gas swaps, which is the usual practice across Europe, could still be easily implemented, and anti-trust law would prevent Gazprom from taking action against it.

“It all depends on the desire and determination of Belarus and its eastern counterparties. Moreover, enabling such swap deals among EU member states using Gazprom’s infrastructure has recently been included as binding obligation for Gazprom in the European Commission anti-trust investigation settlement,” Mikalajunas said.

The Lithuanian LNG terminal in Klaipeda mainly imports gas for domestic consumption, using between a fifth and a third of its annual capacity of 2.7mn metric tons/yr of LNG, but it hopes to double the flow once the pipelines to Poland and Finland have opened after 2021.

An advisor to the Lithuanian energy ministry Aurelija Vernickaite told NGW that Lithuania can also offer Belarus the use of Baltic bio-fuels exchange, Baltpool, and share expertise in employing renewable energy.

“Importantly, Lithuania and Belarus can potentially use two existing natural gas pipelines between the countries. However, only one of them, Kotlovka, is being used now. There are technical capabilities of adapting the other for the purpose too, but the pipes belong to Russia, so the ownership entails some legal questions,” she said. “The other way of possible co-operation is to supply  Belarus with LNG by truck from Klaipeda,” she said.

Belarus is now neither an energy producer nor a significant geopolitical actor in the Eurasian region. However, it is an important transit country between Russia and Europe. The Druzhba crude pipeline, which crosses Belarus, has the unique distinction of being the world’s largest oil pipeline, bringing petroleum from Siberia to consumers in western Europe. And the Yamal-Europe gas line also crosses Belarus.

Although LNG to Belarus may not be commercial now, energy experts advised caution and not to jump to conclusions. One such, Karolina Zagrodna, told NGW: “Lithuania and Poland signed a gas connection agreement in 2018. When completed in December 2021, the Gas Interconnector Poland Lithuania (GIPL) will have a transport capacity of up to 27 TWh to the Baltic states and up to 22 TWh in the reverse direction. The 500-km interconnector will integrate the Baltic states and Poland, also providing wider access to LNG delivered to Poland’s terminal. Since Poland’s ambition is to become a re-exporter of LNG and a new, big gas supplier in general to regional countries, it might well be that Poland and Lithuania are looking to export to Belarus.”

Another expert, who asked to be quoted on the condition of anonymity, told NGW that both Poland and Lithuania have underutilised LNG terminals, though their utilisation is growing. “So they are looking for new customers. Poland is re-selling some LNG to Ukraine and is in talks with Romania about that, for example. I very much doubt either Lithuanian or Polish imported LNG could compete with cheap Russian gas, so if they are talking about gas, it's probably Lukashenko talking rubbish,” he said. 

Latvia mulls an LNG terminal

Latvia is considering building a floating LNG import terminal in the port of Skulte, even though Klaipeda is just 270 km distant.A joint-stock company "Skulte LNG Terminal" was set up in 2016 and is owned 83% by Nacionālā gāzes termināļa biedrībai (83%) and the rest belongs to an American businessman of Latvian descent.

Some Latvian MPs have called the project “a whim” of Latvia's New Conservative Party, which is being encouraged by the American businessman. According to Aigars Kalvitis, chairman of Latvijas Gaze (LG), when the terminal is in place, Latvia will follow the trend in the European and the world energy markets and become a regional LNG market player. “We seek to actively support entrance of new energy products in the Latvian and Baltic markets,” he said.

However, LG told NGW it is not involved in any way with the Skulte LNGT. Moreover, some Latvian lawmakers expressed doubt if the Skulte LNG terminal could be viable, especially as Latvia can already receive gas from Russia, Norway and the Klaipeda LNG terminal, and there is spare capacity there as well.

If built, Latvia’s LNG terminal would be sited about 2.5 km offshore, 40 km north of the capital Riga, and linked by pipeline to the Incukalns underground gas storage site 34 km away.

The website of Skulte LNGT says that the project has unique geographic, economic and technological advantages over any other LNG import terminal proposal of comparable capacity. It states that an expensive LNG cold storage facility is not needed (it usually takes 70-80% of LNG import terminal building cost, Skulte LNGT says), and the direct pipeline connection to the Incukalns UGS of 2.3bn m³ capacity will be used instead.

According to Skulte LNGT, the total project investment is at at most a third of any other LNG terminal solution of comparable capacity with LNG cold storage facility. The terminal’s capacity is expected to be up to 3mn mt/yr, which is greater than the country’s own demand, and have regasification capacity of 600mn ft³/day.

The environmental impact assessment has been underway since December 2018, so the start of the construction is unclear at the moment. LG has previously reported that it plans to attract a large strategic investor that will be handed the majority share in the terminal. South Korea’s Korea Gas Corporation has been named as the investor.

Latvian energy expert Jurij Ozolins told NGW that the Skulte project is still at a very “tentative” stage. “I saw the presentation of the Skulte LNG terminal at a recent gas conference in Riga. So far it seems to me just a nice intention that was being considered for the last six or seven years. The EIA has still not been done, no funding is secured and so on. More important, will there be demand for it, with the Klaipeda LNG terminal nearby and gas consumption falling?” he asked.