Lithuanian Energy Minister Reflects on the Year in Lithuanian LNG

Lithuania’s LNG terminal in the seaport of Klaipeda has faced a lot of criticism since its inception. Critics say it is just too large for a country size of Lithuania and that the maintenance costs are too high, especially after the recent LNG law amendments that spread the cost among all the country's gas consumers.

However, Rokas Masiulis, the Baltic country’s Energy minister, praises the facility as the guarantor of Lithuania’s energy security and says the ministry does whatever it can to expand the use of the terminal capacities. Minister Masiulis kindly agreed to take the questions on the subject from Natural Gas Europe.

Natural Gas Europe: As the year winds down, can you please elaborate on the performance of the LNG terminal this year?

Bound by contractual obligations, Lithuania will acquire this year from Norway’s Statoil 540 million cubic metres of gas. [For comparison, Litgas, Lithuania’s gas trading company, plans to supply only about 280 million cubic metres of gas out of all its contracted volumes to Lithuania’s regulated heat and electricity producers next year.]

The amount is necessary to secure the functioning of the liquefied natural gas terminal in Klaipeda and also to secure competition in the market. The terminal’s technological regasification capacity at the moment is around 10.2 million cubic metres of gas per day. The capacity has to be kept at the level in order to satisfy gas demand during gas consumption peak periods; for example, in winter when the temperatures are very low. The capacity as it is also secures gas supply security in case there’s a disruption of gas supply from Russia. If the capacity were lower than that, the amount of regasified gas would not suffice to meet the existing demand for gas.

I‘d also pay attention to the fact that we can employ the terminal’s full capacity only since October of 2015 after the new gas pipeline connecting Klaipeda and the settlement of Kursenai was launched. Although the maximum annual capacity of the LNG terminal is around 3.7 billion cubic metres of gas, the real maximum yearly capacity is a little bit lower than that. It is so because, simply speaking, there is no reason to keep the terminal’s regasification capacity at maximum throughout a year. To our mathematical assessment, the terminal’s employed capacity surpasses 15% today.

The buyers of Klaipeda's liquefied natural gas are regulated energy producers. Lithuanian law on Liquefied Natural Gas Terminal envisions that all regulated energy producers are legislatively bound to give preference for liquefied natural gas when choosing fuel.

NGE: Since the launch of the LNG infrastructure, Lithuania has been actively probing global markets, even South America’s. What is the reason that Lithuania has not gotten any farther than Estonia in the bid?

In fact, Lithuania has not been looking for LNG buyers in the markets in the continent that you mentioned. The impression that we may be entering South America’s LNG markets, or any other markets, perhaps was conjured up after abundant theoretical deliberations on the possibility appeared in Lithuanian media. The purpose of that kind of information was to send a message to an assigned supplier on the flexibility that we were ready to show. When we started discussing that, for example, a part of LNG sales could go through Litgas, our assigned gas trader, to LNG bunkering services. Names of different ports worldwide were brought up, but none in South America, however.

NGE: What is the share of Lithuania's LNG sales to Estonia?

As we sell regasified liquefied natural gas to Estonia, it would not be precise to say that it is buying LNG from us. However, what matters at the end of the day is that Klaipeda LNG terminal has created a competitive and realistically functioning gas market, which now allows Estonia to buy the gas from Lithuania. Estonia-bound gas export fluctuates every month. In June, it amounted to 24% of Estonia’s total gas import, in May and April it was 21% and 27% respectively.

NGE: How much of the gas do you believe Latvia can buy from the terminal once the neighbour untangles the legal issues and gives the green light for gas imports?

It depends on decisions by Latvian buyers. Lithuania is ready to provide all necessary conditions for Latvia, which would enable it to acquire a necessary amount of gas.

NGE: How big a setback to the Lithuanian plans is a Latvian court’s ruling to halt LNG deliveries from Klaipeda until the unbundling of Latvijas Gaze, Latvia’s gas trader, is over?

The entanglement in legal processes will certainly slow down the appearance of competition in Latvia’s gas market, as well as hamper establishment of a realistically functioning Baltic states’ gas market. But as the decisions are in the hands of Latvia, Lithuania’s Energy Ministry does not want to comment on the legal issues Latvia is coping with.

NGE: Do you believe now it would have been better for Lithuania and the region if the Baltic states of Latvia, Estonia and Lithuania had built and operated a regional LNG facility?

I don’t. Remember that before the completion of the LNG terminal in Klaipeda, Lithuania had won a considerable discount on the gas from Russia’s Gazprom, the dominant player in the market. That today Lithuanian gas consumers are paying the lowest price in the region and one of the lowest in the European Union is because of the LNG terminal. It has the capacity of satisfying the bulk of the three Baltic States’ gas demand, so the terminal could be operating as regional (in the future).

NGE: How important is Lithuania’s latest decision to hold all gas consumers liable for the support of the national LNG infrastructure?

Indeed, the decision is very important, as it will allow a more proportional distribution of the costs of natural gas supply security. With the enactment, natural gas consumers’ proportional contribution to the financing of the supply security will depend on the gas system capacity that they need.

I’d also pay attention to the fact that all the consumers would be contributing to the LNG infrastructure’s maintenance until now, so the model is not new.

Under the old scheme, if consumers had not used enough gas, they would not have paid enough to ensure supply security.

NGE: According to the new model, the tax would be counted by expectation of maximum gas demand in one day. The adopted amendments will have the government establish a minimum quantity of gas required to ensure the operations of the LNG terminal in Klaipeda.

NGE: Some experts argue, however,  the new LNG Infrastructure maintenance model may not be what the European Commission believes is right. Has the decision to split the LNG terminal maintenance costs among all gas consumers been approved by the EC?

As I said, the recently approved LNG infrastructure maintenance model is not new. As a matter of fact, it is an improvement of the former model which was in line with the requirements of the European Commission.

NGE:The state’s LNG infrastructure maintenance daily costs are estimated to be in the range of €60,000. How much will they go down with the decision to pool them on a larger amount of payers, i.e all gas consumers?

The total amount that is necessary to maintain the infrastructure will not change as only the amounts being paid by separate consumers are subject to change. Heat producers and suppliers will be benefiting most from the amendments.

NGE: Lithuania’s fertilizer producer Achema, the biggest gas guzzler in the Baltics consuming around half of the Lithuanian gas demand, has been reluctant to share the LNGT maintenance costs.  Did Achema give a nod of approval to the new LNG infrastructure support model?

As with all other gas consumers, Achema has to pay for the natural gas supply security. Next year, the amount of Achema’s supply security component will depend on the maximal natural gas supply system capacity which Achema is going to declare. Our tentative calculations show that the new improved regulation is more favourable to the fertilizer producer. To believe some of Achema representatives’ public commentaries, the company is not intending to bow out of natural gas purchases. In fact, it has shown an earnest interest in buying LNG through Klaipeda LNG terminal.

NGE: Lithuania has failed to reach an agreement with Norway’s Höegh LNG over a buyout of FSRU Independence before the 10-year lease contract expires. Is Lithuania intending to renew talks with Höegh LNG?

The Energy Ministry cannot comment on possible continuation of such talks.

NGE: Is Lithuania in talks with Norway’s Statoil over the price and terms of gas supplied to FSRU Independence? What does Lithuania want to renegotiate with Statoil?

When passing the LNG terminal law amendments, the Lithuanian Parliament has obligated the Lithuanian Government to encourage Lietuvos Energija [a state-controlled energy holding managing Litgas] to enter into new negotiations with Statoil.

NGE: When is Lithuania expecting to have talks with US’s Cheniere Inc?

I believe that by the end of the year it should be clear whether Lithuania will be among the recipients of the first Cheniere LNG cargo.

NGE: What Cheniere gas price would satisfy Lithuania?

Any competitive price--I mean one that would not make the general gas portfolio more expensive for our consumers.

NGE: How does the Ministry assess LNG prospects in the country and region with the demand for gas waning?

In the course of the LNG terminal construction, we were thinking, first of all, about the security of the gas supply and guaranteeing competition in the market. As we have succeeded in achieving this, we tend to see more prospects for the LNG expansion now.

I really believe that, with the LNG market being very dynamic, Lithuania has the possibility of becoming a regional leader of the LNG market., especially that liquefied natural gas can be used for different purposes--as ships’ fuel or fuel for public transportation or trucks, too. LNG can be transported in special gas trucks and we are actively getting ready for it.

Klaipedos Nafta, operating Klaipeda LNG terminal, has already started a project aimed at building an on-land LNG distribution center.

Most recently, Klaipedos Nafta and Germany’s Bomin Linde LNG have signed agreement on lease of a LNG bunkering vessel.

Meanwhile, Litgas and Statoil are planning to establish a joint company that would proceed with small-scale LNG activities and bunkering services.

All of that, if implemented, would mean a bigger employment of the Klaipeda LNG facility’s capabilities and more earnings for it.