New Lithuanian Gas Pipeline to be Kick-Started
The new gas pipeline between Lithuania’s Baltic seaport Klaipeda and Kursenai (Kiemenai), a settlement in the northern part of the country, will speed up the LNG flow from the country's LNG terminal in Baltic seaport Klaipeda to neighboring Latvia, which Gazprom-controlled national gas company was forced to allow foreign gas exports. The 64 million euro 110-kilometer pipeline completed over a record-short time will also allow the transportation of higher volumes of gas to domestic consumers. But experts warn that Lithuanian officials are mum on the price that Lithuania will be paying both figuratively and literally.
New gas pipe will hike gas delivery capacity
Seen as a new milestone in the Baltics’ energy independence, the new 800-mm diameter pipe will enable Lithuania’s gas system operators to significantly boost gas delivery capacities domestically and abroad, as the old 300-mm in diameter pipeline could accept only up to 40 percent of the gas volume.
The new pipeline, finished over a record-short course of two years and three months has nine line block valve sites, two intelligent in-line inspection tools and four cathodic protection stations.
With the new pipeline expected to be launched at the end of the year, Amber Grid, the pipeline administrator, will be able to start supplying LNG 24-hours a day. Fully integrated into Lithuania’s natural gas transmission system, it is expected to 100 percent satisfy the Lithuanian gas needs and cover over 80 percent of the Baltic region’s annual gas demand.
“The pipeline will secure gas supply security, increase competition in the gas market and provides a possibility to employ the Klaipeda LNG terminal capacities at the fullest,” Rokas Masiulis, the Lithuanian Energy minister told. “From now on, any gas consumer in the Baltics gets a possibility of obtaining the gas from the terminal. In other words, the pipeline along with the terminal opens access for Baltic gas consumers to the global gas market.”
Saulius Bilys, AB Amber Grid director general, also notes that the gas conduit will “significantly” boost the gas transmission capacities from Klaipeda LNG terminal to the Lithuanian-Latvian border.
“No any other state-supported natural gas infrastructure object has been built so rapidly, organized and efficiently as this one,” the CEO praised the project.
Agreeing on the project’s importance, the European Commission (EC) has allotted 27.6 million euros for its implementation.
High significance amid developments in Latvian gas sector
The laying of the pipeline is particularly important amid the changes in neighbouring Latvia’s gas sector.
With the European Union (EU) exempting Latvia until 2017 from EU’s 3rd Energy Package requirements, which envision unbundling supply, distribution and management of energy resources, Latvia, where Gazprom co-owned Latvijas Gāze retains until then the grip on the country’s gas network, has been as if a splinter in the region’s liberalized gas sector.
“With the situation in Latvia, our possibilities to get access to the Latvian gas system, including the underground gas repository in Inchukalns, were limited and opaque until now…But things started changing a year ago when Latvia’s sector players submitted new rules for the gas sector,” says Dominykas Tuckus, director general of JSC Litgas, Lithuania’s natural gas supplier and trader.
In September 2015, Council of Latvia’s Public Utilities Commission has approved the “Rules on the Use of Natural Gas Transmission System” and the “Rules on Use of Inchukalns Underground Gas Storage Facility”, which lay down the procedure how users are provided with system services including the specification of entry and exit points of the transmission system in the territory of Latvia and towards cross-border connections.
In other words, it means that Latvian consumers can choose from now on their natural gas supplier and third parties can get access to the gas transmission and storage network, now controlled by Latvijas Gāze.
Referring to the exemption valid through 2017, it urges to stick with the legislation and demand to scrap the new regulation.
Although the company mulls legal actions, it is very much in doubt whether a Latvian court will heed the complaint under the new circumstances in the national gas sector.
With the legislative hurdles for gas export removed, now all boils down to the gas price Lithuania can offer Latvia.
"Technically, the infrastructure is here. We have a very important pipeline that physically will ensure all the capacities that are necessary towards the Latvia direction. Now it’s all about the prices, because prices are an important factor. We need supplies with a competitive rate and that is so far the issue, Dana Reizniece-Ozola, the Latvian minister of Economy, admitted recently when visiting Klaipeda.
Lithuanian officials skip the topic of price
Lithuanian officials are eager to praise the new gas export possibilities, but reluctant to speak of the price, though.
Mantas Dubauskas, advisor to the Lithuanian Energy Minister, was opaque when asked by Natural Gas Europe what the gas price to Latvia might be.
“You see, not only Litgas will be able to sell the gas - other sellers can use the terminal obviously, too, and come with their gas suppliers, certainly. And if it comes at some point to sale of the Norwegian gas we deposit in the facilities, the price will be up to negotiations,” the advisor told. He added though: “However, it is still has to be cleared whether Litgas can resell Norwegian gas.”
Always straightforward Vidmantas Jankauskas, a former chief officer in Lithuania’s National Commission for Energy Control and Prices, now a lecturer and sought-after energy expert, told Natural Gas Europe that Lithuania, so far, has not another choice than rely on the Norwegian gas supply.
“What is good about the pipeline is that it will provide access to Latvia’s Inchukalns underground gas repository,” says Jankauskas. “This is especially important in summer, for example, when there’s LNG surplus and essentially no one needs then gas from the Klaipeda terminal,” the expert underlined.
Otherwise, he insists, there is “nothing particularly good” about the pipeline.
“It will definitely hike the LNG terminal support costs and they will be added, in one way or another, to the gas consumers and heat users’ bills. Few speak about it now,” Jankauskas told.
Speaking of the price, Latvians, he has no doubt, will be buying Klaipeda LNG terminal’s LNG “way cheaper” than Lithuania pays Norwegians.
“Now their price is around 50 percent higher than that of Gazprom,” he says.
He also brings attention to the proposed amendments to Lithuanian Law on Liquefied Natural Gas Terminal, which he says, were “shrewdly proposed in summer” when the legislators are more preoccupied with their vacation more than anything else.
They envision that both power produces and gas consumers -even low-end gas consumers - will have to bear the price burden on their shoulders.
“Tersely, with the LNG support costs higher, the bills will be edging up, too,”- the expert says.
“Latvia and Estonia must be all over the moon”
Although the amendments are yet in the drawers, but they will undoubtedly go into force, Jankauskas does not hesitate: “Again, it will be done arguing that the country’s LNG terminal is guarantor of Lithuania’s energy security. Getting Latvians on board is a boost for the project, but I don’t hear anyone talking about the price,” Jankauskas emphasized.
The amended law also foresees that Achema, the Baltic country’s largest gas guzzler, will be paying not for the actual LNG consumption from the enactment, but for the gas consumption capacity.
Lithuania consumes around 3 billion cubic meters of natural gas yearly, and nearly half of it- 1.3 billion cubic meters of gas, to be precisely- is used by the fertilizer producer, Achema.
“So, again, at the end of the day, the legislative changes aim to support the terminal and FSRU facility at any cost. I kept repeating from the start that, economically, the project is not viable,” the expert said. “It could have been such if it had been developed as a regional project.”
The Lithuanian lawmakers are expected to vote on the amendments yet in October.
They will also remove legislative obstacles for Klaipeda LNG sales to any purchaser abroad.
“Politically, to get Latvia on the buyer list seems to have been more important than anything else, including the gas price Lithuanian intends to sell the gas for,” Jankauskas told.
He paid attention that Lithuania talking about the gas interconnector with Poland, GIPL, has hinted that it would like to see other countries benefiting from it to be paying “interconnector utility tax.”
“With the same token, we perhaps should ask Latvia to pay it, too but, because of the “energy politics”, it is out of question, obviously” the expert said. “I am sure that Estonians and Latvians are over the moon and will thank Lithuania eternally that their energy security has come to them at no cost to them. Lithuania is paying the bill alone,” the Lithuanian expert insisted.