Lithuanian Buyers Eye Gazprom Auction
At least three Lithuanian industrial gas consumers have lodged applications with Russian gas monopoly Gazprom for its Baltic gas auction. The total offered is about 560mn m³ for delivery in Q2-4 of this year, either at the Kotlovka gas metering station on the Belarus-Lithuania border or from Latvia's Incukalns, the only gas storage facility in the Baltic republics.
The three companies told Natural Gas Europe they had registered for the March 15-17 auctions. They are fertiliser producer Achema, JSC Kaupas, a wholesale oil trader responsible for heating in the resort of Druskininkai in southern Lithuania, and Lietuvos Duju Tiekimas, affiliate of the country’s energy holding Lietuvos Energija.
“We are participating (in it) in hopes to obtain natural gas at a cheaper price. Our position is to consider all the best alternatives (of cheaper gas) that come along the way, including those by Gazprom. Our priority is the best price,” Achema told NGE.
Consuming 1.4 bn m³/yr, Achema is the Baltic Republics' largest single gas buyer and accounts for nearly half Lithuania’s demand. The nitrogen fertiliser manufacturer recently signed a gas supply contract with Norway’s Statoil, which was widely seen as a major blow to Gazprom in the region.
Achema is expected to purchase roughly 700 mn m³ of gas, i.e. some 50% of its expected gas consumption this year, from Statoil by October.
Mantas Mikalajunas, the CEO of gas supplier Lietuvos Duju Tiekimas, also confirmed participation but did not elaborate.
“Whether we will purchase anything and how much depends on the price (in auction),” he said.
Gazprom Export told NGE in a statement that Gazprom’s decision on gas auction for the Baltics was based on its wish to “test out” auctions “as a mechanism” for selling gas in the Baltic states.
“Each of the countries has its own peculiarities. The (gas) markets are becoming more flexible and we want to introduce to them a flexible instrument of work. We are constantly analysing demand and needs of our clients. With this in mind, we have selected such direction and configuration of auction that will be attractive to our clients. Such form of sales supplements the system of long-term contracts providing energy security to Europe and the Baltic states as well,” it said.
According to the company, only Lithuanian and Latvian companies will participate in auction.
“There will be no Estonian companies as we have recently signed a gas supply contract with Estonia valid through 2016-2018,” Gazprom told NGE.
Gazprom Export carried out the first gas auction in September 2015, with deliveries taking place at other points in Europe over this winter, including at the landfall of the Nord Stream pipeline.
Not all the gas available was sold, but 15 customers in all bought over 1.2bn m³. Lithuania did not participate in the auction.
Gas industry experts, however, voiced mixed reactions to Gazprom gas auction in the Baltics.
Usually critical of Gazprom, Mikhail Krutikhin, a Russian energy expert and partner of RusEnergy, a Russian consulting company, now praises the Russian gas monopoly.
“The first auction of Gazprom last year was not very successful. It offered around 3bn m³ of gas and managed to sell only slightly over 1bn m³ of gas. The failure was not about the price, but all the additional and rather intricate demands for bidders. There was a sense then that Gazprom did not understand what trading relations are all about,” Krutikhin told NGE. “Now it has apparently got smarter. What they are suggesting -- batches of gas being auctioned -- is a very interesting idea. Previously the sales would be wrapped up in the linen of politics, but now they are purely commercial in the auctions the company maintains.”
Auctions “might be a sign” that Gazprom will focus solely on commerce in its trading from now on, the expert believes.
"Gazprom has simplified the whole process of gas sales and supply. Plus, it started offering some nice bonuses for the new clients. The old Gazprom formula of gas sales was very clumsy -- tied to oil prices on international oil hubs and exchanges and so on. Now the latter is gone, things have become simple,” Krutikhin said.
One complication though is that only companies free from existing contractual obligations with Gazprom may participate in the auctions, he pointed out.
“If some of Gazprom’s old clients express a wish to switch to the new formula, there might be disagreements -- especially in that the prices in Gazprom's auctions are likely to be lower than the contracts it has already signed. Nevertheless, Gazprom is in the position now that it needs to iron out any discords on the road,” he said.
A situation may arise in the Baltic gas auction, he adds, that Gazprom's gas price will be even lower than that of Statoil, Lithuania’s other gas supplier.
Lithuania has signed in February a revised gas supply contract with Statoil and the Norwegian gas price is said to be lower than Gazprom's now.
“One supplier, wherever it is, will lose out. But trading relations are a very good thing and Lithuania has always striven for them in the gas market,” he said.
Auctions 'divide and rule'
Juozas Augutis, a Lithuanian energy expert, however sees the coming Gazprom auction as an attempt to “drive a wedge” into Lithuania’s energy security efforts.
“To me, Gazprom is saying this: 'Look, the market is evolving and there are new ways to get cheaper gas and you are stuck with your liquefied natural gas terminal (in Klaipeda).' Undoubtedly, Gazprom is also trying to cast doubt on Lithuania’s revised contract with Statoil. The price in the auction will almost certainly be lower than Statoil's now. So to me, this is all about sowing confusion. Such an auction can trigger some tensions among gas buyers in the Lithuanian market. I am sure this is what Gazprom primarily wants,” Augutis told NGE.
According to industry association Eurogas, 2014 gas consumption in the three Baltic states was 4.4bn m3, of which Estonia consumed 0.6bn m3, Latvia 1.3bn m3 and Lithuania 2.5bn m3. Since the opening of an LNG import terminal at Klaipeda in Lithuania in late 2014, the region for the first time has access to non-Russian gas imports, with Norway's Statoil the contractual supplier of 0.54bn m3/yr (some 8 LNG cargoes/yr) to state Litgas.
Last year Litgas and Lietuvos Duju Tiekimas, both part of state-owned Lietuvos Energija, announced their intention to merge -- with Litgas to be retained as a brand in international trade.