Checkpoint Asia

Lithuania’s LNG Terminal Built to Replace Russian Pipeline Gas, Imports Russian Liquefied Gas

Pressure to turn a profit and justify existence forcing the expensive project to welcome Russian gas it was built to replace

Lithuania’s presidential adviser on energy is frustrated that the expensive LNG terminal built by the state to try and lessen Russia’s share of gas imports to the country is now receiving LNG from Russia in addition to from other countries:

The Klaipėda liquefied natural gas (LNG) terminal should not be used to import Russian gas in the long run, an adviser to Lithuanian President Gitanas Nausėda believes.

“From the long-term perspective, the terminal should undoubtedly remain an alternative supply channel and the capacities of the facility, which was built with Lithuanian consumers’ money, should not be given away to players from the East,” Jaroslav Neverovič, who is also a former energy minister, told BNS.

The biggest Lithuanian consumer of Russian LNG is its fertilizer giant which is the country’s biggest consumer of natural gas in general:

Lithuania’s fertilizer manufacturer Achema, the Klaipėda terminal’s biggest customer, has been actively importing LNG from Russia.

According to information available to BNS, Achema imports small LNG cargoes of Novatek gas from the Baltic Sea port of Vysotsk, and it has imported a large shipment from the Russian supplier’s Yamal LNG terminal in Siberia through intermediaries.

The fertilizer manufacturer does not comment on whether it has long-term contracts, nor does it disclose who its LNG suppliers are. It is known that the company also imports LNG from Norway’s Equinor.

However the main state-owned electric power company has also bought Russian LNG:

Two of the three LNG cargoes which arrived at Klaipeda were bought by Achema, a privately-owned fertilizer producer, and the third was purchased by a unit of Lithuania’s state-owned energy firm Lietuvos Energija, via a trader, according to officials at Klaipedos Nafta and Lietuvos Energija.

Fact is distance matters, Norway is closer than Russia’s Arctic but doesn’t produce enough for everyone around it. Moreover Norwegian production is falling, plus Poland is building a pipeline which is going to lower the amount of LNG it sells further. The next closest is Russia’s Arctic LNG, which despite harsh waters it traverses is still less expensive than the far away US kind.

In fact as Russia builds up its LNG it isn’t exactly short on custemers, Lithuanians are having to compete with a number of other willing takers:

Three cargoes were received by Lithuanian port Klaipeda, one each by the Finnish ports of Tahkoluoto (Pori) and Tornio, and the remaining two went to Visby and Nynashamn in Sweden.

Ironically, the pressure to turn a profit and justify its existence is forcing the expensive Lithuania’s LNG terminal to seek Russian gas it was built to replace.

The Lithuanian government however claims that Klaipėda has already “paid for itself” seeing that since it has been launched in late 2014 Vilnius has been able to negotiate a lower price from Gazprom. That is not exactly true however, the real reason Lithuania’s price is lower now is that the global oil price was halved in 2014, and that since 2018 the EU has been able to impose a number of rules on Gazprom which leverage the Union’s collective bargaining might to grant its members better negotiating positions:

Under the deal, Gazprom will allow clients to ask for lower prices when these diverge from benchmarks such as Western European gas market hubs, scrapping its old system of linking them to oil prices. They may seek price reviews every two years and go to arbitration if a no deal is agreed within 120 days.

The Russian gas export monopoly will remove contractual constraints, which prevent clients from reselling its gas.

In markets isolated by a lack of pipeline infrastructure, Gazprom will give customers the right to change gas delivery points. Swaps will apply for contracts of at least 18 months at fixed delivery fees, including for relatively small amounts of gas and at short notice of just over four months.