All agreed loans

Lithuania. AB Klaipedos Nafta

Date of agreement: 9 Mar 2020
Country: Lithuania
Customer: AB Klaipedos Nafta
Amount in EUR: EUR 160 million
Maturity: 25 years
NACE sector / loan type: Manufacture of refined petroleum products
Business area: Infrastructure, transportation and telecom

Project

The loan has been granted to finance the purchase of the most economically feasible floating storage regasification unit (FSRU). Provided financing is up to EUR 160 million.

The FSRU used for LNG operations in Klaipėda is leased on a ten-year lease arrangement that expires in 2024. The Lithuanian government has decided that it is necessary to secure the long-term importation of LNG to the State and to acquire a chosen FSRU after the termination of existing contract to facilitate this, as this has been calculated to produce greater economic benefits than extending the lease agreement.

KN expects that LNG will remain an important energy resource for the transition to a low-carbon economy by 2050. According to their calculations, natural gas consumption is forecasted to remain stable in Lithuania in the upcoming decades, which supports the decision to acquire the LNG vessel.

At the end of 2019, NIB granted KN a loan agreement of EUR 134.1 million to partly cover the operating lease payments and enable equalised tariff levels to be maintained throughout the full lifetime of the terminal, both before and after an FSRU is acquired. As with the current agreement, the decision to grant the loan was based on the strategic importance of the LNG terminal for NIB member country.

KN is LNG and oil terminal operator. It ensures safe, reliable and efficient access to global energy markets for its customers by sustainable development, investment and operation of multi-functional terminals worldwide.

Fulfilment of NIB's mandate

Productivity:

The project will ensure Lithuania’s option to import regasified LNG to the Baltic gas markets through an FSRU, securing the natural gas supply.

While gas consumption in both electricity and heat production in Lithuania has declined significantly in the last decade, the demand for industrial use has doubled in 2010–2017 and accounts for 60% of total consumption.

During 2014–2018, FSRU has operated at 23–35% of its operational capacity. Following favourable conditions, the utilisation rates increased in 2019 and KN expects to maintain higher volumes in the following years.

During the above-mentioned four-year period, gas prices in Lithuania and other Baltic countries declined and converged with central European prices. Lithuania’s gas prices have traditionally been among the highest in Europe, with a price premium of over 10% compared to Latvia and Estonia, but converged with those in other Baltic countries after falling by 43%.

The inauguration of the LNG terminal broke down the market dominance of a sole supplier. However, gas prices fell across the whole Europe. Although, the drop in prices cannot be attributed solely to the operations of the LNG terminal, the gas price drop was more significant in Lithuania than in other European countries.

Productivity impact indicators related to the project:

FSRU capacity utilisation, measured in %

Environment:

The project is within the gas supply infrastructure sector, providing an alternative source of natural gas compared to existing and future gas pipeline connections and LNG facilities in the region.

The greenhouse gas emissions (GHG) of the LNG supply associated with 4 billion cubic metres a year are estimated to range from the best case of approximately 1,534,000 CO2e tonnes annually (t/a) to the worst case of approximately 4,000,000 t/a. These estimates take into account the total supply chain of LNG, including production, liquefaction, transport and regasification. The level of GHG emissions depends on the energy demand of production affected by the accessibility of natural gas at the source, the potential use of carbon capture and storage (CCS) technology and methane releases along the supply chain.

Due to the uncertainties associated with the future gas demand and infrastructure as well as the development of the Baltic gas market, a conservative approach has been applied in calculating the emissions.

Sustainability summary

Potential users of the LNG include industry, energy generation and small-scale use such as marine shipping. Following climate-related transition risks relate to these:

  • EU Climate policy targets:

The EU is aiming for carbon neutrality by 2050. Currently, EU’s climate targets 2030 include cuts of at least 40% in greenhouse gas (GHG) emissionsfrom 1990 levels, a share of at least 32% for renewable energy and an improvement of at least 32.5% in energy efficiency.

Lithuania provided its updated National Energy and Climate Plan 2021-2030 to the European Commission in December 2019. Lithuania’s proposed share of renewable sources in gross final energy consumption in 2030 is 45%. The country’s primary and final energy consumption is estimated to decrease from 6.5 and 5.5 millions of tonnes of oil equivalent (Mtoe) to 5.5 and 4.5 Mtoe in 2030.

  • Industry transition:

A major user of LNG is the Lithuanian fertiliser company Achema, which uses natural gas as a raw material for ammonia production. In the future, low carbon alternatives such as “green ammonia” could replace natural gas in the fertilizer industry.

  •  Shipping transition:

The share of estimated regional small-scale use of LNG is at the early development phase. Decarbonization of shipping is driven by the International Maritime Organisation’s (IMO) climate strategy aiming to reduce the GHG emissions of shipping by at least 50% by 2050 compared to the 2008 levels.

A low-carbon future would require more energy-efficient ship designs and operations, and renewable alternative fuels.

For the development of small-scale market, KN has established a partnership with Polish “PGNiG”, which will come into effect in April 2020.

Press release

NIB ir toliau finansuos KN projektus