NIB Nordic Investment Bank


Klaipeda LNG terminal: Competition adds energy security

The 160,000 cubic metres Golar Seal tanker delivered Lithuania's first ever LNG cargo on 28 October. Photo: Algirdas Kubaitis
Photo: Algirdas Kubaitis
“We have completed our tests and obtained the official LNG terminal operator licence,” says Mantas Bartuska, CEO of Klaipedos Nafta AB.

The new natural gas terminal at the Port of Klaipeda brings competition to the Lithuanian gas market and increases the energy security of the whole Baltic region. “The LNG terminal is a strategic project to improve energy diversity and security of supply,” says Mantas Bartuska, CEO of the majority state-owned utility Klaipedos Nafta AB, which operates the terminal.

Lithuania’s liquefied natural gas (LNG) terminal consists of a 290-metre tanker, the Independence, which houses a factory for converting LNG into a burnable variety. The ship is permanently moored to a jetty with an 18-kilometre pipeline connection to the Lithuanian gas grid.

The terminal allows Lithuania to purchase gas on competitive gas markets and from a range of suppliers. Previously, Lithuania purchased all of its natural gas from Russian gas producer Gazprom and paid among the highest wholesale gas prices in the European Union.

The Klaipeda LNG terminal officially started operations on 3 December.
“We have completed our tests and obtained the official LNG terminal operator licence,” Bartuska says.

Natural gas represents more than a third of Lithuania's energy consumption. Of this, 80% is consumed in combined heat and power plants for industry, and district heating units needed to warm houses. For 2015, Klaipedos Nafta estimates total gas consumption in Lithuania at 2.3 billion cubic metres (BCM).

Baltic gas grid
Lithuania’s new offshore LNG terminal is expected to have an annual capacity of 1.5 BCM for its first 12 months of operation. The full capacity of almost 4 BCM will be achieved when all gas pipelines in the national grid and connections to Estonia and Latvia have been upgraded in the coming years.

Mr. Bartuska is confident that Estonia, Latvia and Lithuania can create a competitive gas market.
“I believe that we will soon be able to announce the first gas transactions with our neighbouring countries. More interflows will appear in the future, and that will hopefully decrease prices for consumers in this region.”

In 2013, gas demand in the Baltic countries amounted to 4.9 BCM. Lithuania had the highest consumption at 2.7 BCM, followed by Latvia (1.5 BCM) and Estonia (0.5 BCM), according to Eurostat.
“This is a strategic energy independence project for Lithuania, and even for the gas market throughout the Baltic region,” says Bartuska.

Gas from Norway
The tanker Independence has a capacity of 170,000 cubic metres and is being leased from Hoegh LNG Holdings in Norway for ten years with an option to buy.

Hoegh provides all the maintenance and crew for the floating terminal. Klaipedos Nafta has taken initiatives to develop national training programmes to train its own gas professionals.

Lithuania also has a five-year gas contract with Norway’s Statoil ASA to deliver at least 540 million cubic metres of LNG annually. This amounts to six shiploads per year and is the minimum amount needed for the terminal operation to pay for itself. The first ever LNG cargo to the new terminal was delivered by the tanker Golar Seal on 28 October.

Tactical pricing
During January and April 2014, Lithuania paid 36% more for its gas from Russia than the average German border wholesale price, according to a quarterly report on European gas markets published by the European Commission in October.

Lithuania has a contract with Gazprom for gas deliveries until at least the end of 2015.
“Thereafter, the proportion of gas from Russia and elsewhere will depend on commercial conditions.”

Bartuska says the LNG investment has already prompted Gazprom to reduce the gas price to Lithuania.
“In the spring of 2014, Lithuania received a discount from Gazprom of more than 20%.”

However, the lower wholesale gas price is not seen as hurting the start-up of the terminal.
“Since the LNG terminal is such a strategic project, Lithuania has implemented regulations to ensure sound accounts. The model works so that we receive tariffs from the very first day of operations and this will compensate our expenses with a regulated profit included,” Bartuska says.

NIB is co-financing the LNG terminal with a 20-year maturity loan of EUR 34.8 million.

Dec 2014
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