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    Lithuanian Buyer Contests LNG State Aid

Summary

Consumers are forced to pay for a service they did not ask for and which damages their business, says a major gas user.

by: Linas Jegelevicius

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Lithuanian Buyer Contests LNG State Aid

Lithuania’s Achema and affiliate Achema Gas Trade are to contest the European Commission's October decision to authorise state aid to the Klaipeda LNG terminal, in an appeal to the EU Court of Justice (CJEU).

Achema, a fertiliser manufacturer, is the largest single commercial gas user in the Baltics. Cancelling the state aid would help reduce its annual terminal support fee, at around €20mn, significantly, it said.

According to Achema, the new LNG terminal maintenance scheme creates unequal conditions for company Lietuvos Energijos Tiekimas (Lithuanian Energy Supply, LET), which buys LNG from Norway’s Equinor under a long-term contract.

“The problem is that LET gets compensation for LNG evaporation and to cover the difference between the purchase and sale prices for gas bought from Equinor. Therefore, other market participants, including Achema Gas Trade, lose their competitiveness. When selling natural gas to heat producers where the market volumes stand at around 360mn m³, LET can in fact offer any price as the difference will be paid by Achema and other gas consumers through the LNG fee,”  Gintaras Balciunas, deputy chairman of the Board of Achema Grupe managing Achema, said in a statement.

In October last year, the EC approved a new procedure for awarding compensation to LET to ensure that a necessary amount of LNG to maintain the LNG terminal's normal activity is supplied.

Based on the new procedure, energy producers are not obliged to purchase gas from the designated supplier LET, and the company's costs, just as before, are compensated from the so-called LNG terminal security component.

Under the contract with Equinor, a Norwegian state-backed energy company, LET is still obliged to purchase the necessary volume of LNG, four shipments a year, which it then sells on the Lithuanian, regional or international market.

Under the new model, the price of the sold is unregulated, and LET is also no longer compensated for activity and gas balancing, exchange and storage costs which the company now finances from cash-flow.

The Achema executive also reiterated that the company, as the largest natural gas consumer in Lithuania, pays the largest share of the LNG terminal's maintenance fee.

“As much as 50% of the compensation LET gets for offering a lower price than Achema Gas Trade and other gas suppliers is in fact paid by Achema. In our opinion, this is totally unfair and does not meet any competition conditions,” he said.

According to him, the decision to turn to the CJEU is not aimed at challenging actions of the Lithuanian government but to challenge the EC decision to approve changes to the state aid to the Klaipeda LNG terminal.

In late March, Achema said it could not take on a long-term commitment proposed by the energy ministry to purchase up to 1bn m³/yr of gas via the Klaipeda LNG terminal, which could reduce the company’s terminal support fee.

“They want a larger commitment on our part. (They want us) to transship up to 1bn m³ of gas via the terminal,” Lyda Lubiene, Achemos Grupe's (Achema Group) majority shareholder and chairwoman of the management board, was quoted as saying.

“You know that the supply of natural gas increases every year. The price is falling, and binding ourselves to such a commitment for a longer term (would be an unreasonable thing to do). All the more so because we have to wait until 2024 (to see) whether the terminal is purchased (from Hoegh LNG) or a smaller one is bought,” she added.

Lubiene said she wanted to know if the energy minister would deliver on his promise to reduce the terminal's costs for Achema by around 40% starting in July this year. Achema expected the costs for the company to go down at least by €6mn/year.

Aurelija Vernickaite, an advisor to Lithuania’s energy minister, said all the necessary procedures were underway to cut LNG terminal costs for allnatural gas consumers, and Achema too, by mid-2019.