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    Revised Statoil Contract Cuts Volume and Price for Lithuania



Ahead of the signing this week a revised contract with Norway’s Statoil on LNG supply volume and price, Lithuania is already weighing the benefits.

by: Linas Jegelevicius

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Natural Gas & LNG News, Lithuania

Revised Statoil Contract Cuts Volume and Price for Lithuania

Ahead of this week's expected signing of a revised contract with Norway’s Statoil, Lithuania is already counting its chickens: Statoil’s liquefied natural gas price for Lithuania is set to go down by more than third and the Klaipeda LNG terminal’s maintenance costs are to decline by around 23%.

The 2014 contract obliged the Baltic country’s LNG terminal to take 2.7bn m³ over five years but it used less than half of that. Mantas Dubauskas, advisor for energy minister Rokas Masiulis, told NGE that only 15% of the facility’s maximum capacity was used in 2015. Some LNG has to be injected for cooling purposes and may be lost. "So now Lithuania will be buying now only around 350mn m³."

According to Darius Misiunas, CEO of Lietuvos Energija, Lithuania’s energy holding in charge of Litgas, the country’s gas trader, household heating bills will fall by over €8mn/yr, those for electricity by around €1.5mn. Industrial consumers are expected to save €5mn in heating bills and €7mn in power bills.

The agreement with Statoil will be extended for another five years – until 2024, its expiration coinciding with the end of the jetty’s lease.

Nevertheless, the country’s path to a “friendly” contract with Statoil was bumpy and required radical, unpopular moves by the government. Struggling from the terminal’s start-up to find buyers of the gas, Lithuania has had to spread the cost of running it across all the consumers.

“All the wriggling by the government is the consequences of politicians, not economists, deciding on the size of such a facility like Klaipeda LNG terminal. A new deal between Litgas and Statoil will work short-term, but Lithuania needs solutions long-term,” Vidmantas Jankauskas, a well-known Lithuanian energy expert and deputy chairman of the Lithuanian Confederation of Industrialists, told NGE.

He insists the Klaipeda LNG terminal in its current size and capacity has been “a big mistake.” The government, however, emphasises the 30% reduction. “Now Lithuania pays roughly €27-30/MWh and, with the contract revision, it will go down to about €16-20/MWh,” said Lietuvos Energija.

Biggest Baltic gas guzzler deals blow to Gazprom

Achema, the Baltics’ largest  industrial gas user and therefore a key contributor to the maintenance costs of the Klaipeda LNG facility, has signed its own deal with Statoil for its fertilizer plant in Jonava, starting at the end of this quarter. Being for summer delivery the gas will be cheaper.

Achema is still buying half of its gas from Gazprom. The gas supply to Lithuania breaks down in a similar proportion, insists Jankauskas, but the ministry of energy has not confirmed it.

“If all plays out well, Achema’s contract with Statoil will be undoubtedly a major blow to Gazprom, the fertilizer producer’s sole gas supplier until now,” says Mikhail Krutikhin, co-founder of RusEnergy Consultancy in Moscow.

In 2013 and 2014, Achema refused to pay the LNG facility’s maintenance charge, which it contested in court. Last year, Lithuania’s supreme court ruled against the company, which eventually paid €51.34mn in several installments.

Experts: long-term solutions are needed

When Achema and Statoil sign a contract, Russia’s Gazprom will have to be flexible in order to sell gas in Lithuania, the energy minister said

But Jankauskas insists that the whole revision of Litgas-Statoil contract is a mere “hole-patching.” Gas use has fallen significantly in the country and the region. Lithuania needs long-term decisions,” he said. In Lithuania biomass now accounts for 60% of the market for heating.

To solve the problem of the steady gas decline, small gas-fired power plants could be a way-out, Jankauskas said. “If Lithuania does not address it now, it may need to rewrite the contract with Statoil in a couple years again,” he said.

He notes that, in December, the prices of biomass and Gazprom gas had nearly converged.

“It is a tell-tale sign of what we might see in the future. I mean, the gas suppliers will be trying to compete with bio-energy providers. However, it will not be easy, as the transportation costs do hike gas’ price considerably,” Jankauskas said. Speaking of Gazprom, he believes it has already become a whole lot more flexible over the last couple of years.

Unlike Jankauskas, Krutikhin tends to play down the growing importance of bio-energy and asserts the prospects of liquefied natural gas in the region seem “very good.” And those who have LNG terminals in operation will be the winners, he believes.

“So the prospects of Klaipeda LNG terminal look really good to me. I’d just perhaps caution that one of its shortcomings is its lack of gas interconnectors. This might be crucial with LNG pipelines being likely in severe competition with the Gazprom gas pipelines in a couple years from now,” Krutikhin emphasized.

The minister's adviser, Mantas Dubauskas, is also optimistic. “Although gas consumption has plummeted in the country, its consumption in a form of liquid is on the rise. The ministry sees many prospects for small Lithuanian gas enterprises to make inroads and take root in small-scale LNG supply markets,” he said.

Linas Jegelevicius