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FSRU Independence a Historic Milestone for Lithuanian Energy Security

Live coverage on the heavily-guarded 294 meter-long floating storage and regasification unit (FSRU) mooring the seaport of Klaipeda, off Lithuania’s Baltic coast, started in the early morning hours with an array of congratulatory speeches from high-ranking Lithuanian, Latvian and Norwegian government officials along with other notable figures that stretched well into the late afternoon. The buzz leading up to the arrival and introduction of the FSRU’s long-awaited arrival was akin to the restoration of Lithuania own independence 24 years ago. This was not out of the ordinary considering what the event means for energy security in the country. If run at full-capacity, almost 4 billion cubic meters a year, the Klaipeda LNG terminal is expected to cover 80-90% of the Baltic region’s LNG demand, including that of Latvia and Estonia.

platformaThe vessel, Independence, has a capacity of 170,000 cubic meters and is leased by Klaipedos Nafta AB, the state-owned energy terminal operator, from Norway’s Hoegh LNG Holdings (HLNG) for 10 years with a possibility to buy the FSRU thereafter. The Norwegians will also provide maintenance and the crew. Klaipedos Nafta is said to pay $189,000 a day for the lease of the vessel and that will amount to $68.9 million a year and around $690 million per 10 years. Norway’s Statoil, which has a contract to supply the terminal with LNG for five years to cover its minimum operations, will be supplying the Klaipeda LNGT 540 million cubic meters of gas per year, and the price will be pegged to the UK gas index. The price was in the range of $360- 400 per one thousand cubic meters in August and the preliminary worth of the five-year deal is said to be somewhere $1-1.2 billion, which is in the same price-range as Gazprom’s gas exports. Vessel Independence was built by South Korea’s Hyundai Heavy Industries shipyard.

“Ahead of the 25th anniversary of the restoration of independence, Lithuania can be proud of its resolve, courage and the political will. Lithuania is the first in the entire Baltic region to have built a LNG terminal… We have proved for the world and ourselves that our nation is able to defend it independence every day and Lithuania’s main self-determination is written as the name of the vessel,” said Dalia Grybauskaite, the Lithuanian President. The Head-of-State underscored that Lithuania has built the terminal on its own and took only three and a half years to complete the project. “We have become an energy-secure country. The terminal will be a security guarantee for the Baltic region. We will always be able to come to help our neighbors if they need this,” she said.

As much as the LNG terminal is an important energy project, as much it is significant as a geopolitical project that will ensure the Baltic region’s energy independence, according to the Lithuanian President. “From now on, nobody will be able to dictate the price of gas to us or buy our political will, or bribe our politicians,” she noted. Grybauskaite thanked the governments of Andrius Kubilius, former Conservative PM, and Algirdas Butkevičius, the incumbent Social Democrat PM, for their efforts in implementing the LNG terminal project despite “objections and attempts to put a stick in the running wheels.” She did not bring up any names though, but Kubilius, also one of the spearheads of the LNGT project, mentioned the former special parliamentary commission, led by PM Arturas Skardzius, was the project’s biggest opponent. “The Commission has assumed a very distinctive, politically-charged stance against the former government and all the energy projects we had drawn up. It was trying to scandalize and discredit the projects, including the Klaipeda LNG terminal,” Kubilius told Natural Gas Europe.

Before, the 2004-2008 Social Democratic government’s reluctance to transpose the EU’s third energy package, which core element included separation of companies’ sale operations from their transmission networks, a regulation highly disliked by Gazprom, could have potentially derail the project, according to Kubilius. Latvian PM Laimdota Straujuma, welcoming the liquefied natural gas terminal in Klaipeda, said that “it is opening the way for obtaining alternative gas sources and a better price for consumers.” “We are now planning to increase the capacity of the gas pipeline between the Klaipeda terminal and Latvia. We are also looking forward to timely completion of the gas supply segment between Poland and Lithuania. This will be another important step towards ending the energy isolation of the Baltic States,” she said. According to her, Latvia’s Incukalns underground gas storage facility will become a key element of the region’s gas network and will help the region to promote cooperation with global energy suppliers. Latvia had previously opposed Lithuania’s LNG terminal project and wanted to build a regional terminal itself.

Juris Ozolins, a Latvian energy expert, also praised the Klaipeda LNG facility. “Nor we’ll have a link with global gas trading markets for the first time during the Baltic States’ history. Besides, from now on, we will have alternative is spite of relying on a single participant of the market, and the consumers will be able to choose one. I don’t see any legal hindrances preventing the largest Latvian consumers from buying LNG in other markets through the Klaipeda LNG terminal and Lithuanian infrastructure,” the expert told. Estonia, meanwhile, mulls building its own LNG terminal. In a letter to the Lithuanian president and prime minister, US State Secretary John Kerry called Lithuania’s LNG terminal “a historic milestone.” Perhaps with it in mind, Grybauskaite said US shale gas in 2-3 years will start reaching Lithuania, which will be very beneficial to Lithuania as it will be already able to accept gas by then from all over the world, including from the US.

Vidar Helgesen, Norway’s Minister for EU affairs, said the Norwegian government does not intend to influence decisions by the state-controlled energy group Statoil on the price of liquefied natural gas (LNG) sold to Lithuania even if Russia’s Gazprom further cut its gas price to make imports through the Klaipeda LNG terminal unprofitable. “…Lithuania may expect gas prices to go down now that it has two gas suppliers…For a very long time, we have made it clear that (…) commercial decisions are taken by Statoil, its leadership, and, therefore, we don’t interfere with pricing mechanisms or decisions,” the Minister told reporters. Asked what Lithuania will do if its current and only supplier, Gazprom, slashes the gas prices, the Lithuanian President replied “if it happened, we all would be very happy.” “The lesser (price) the better (is). That is the purpose of the LNG terminal – securing competitive pressure to all that is being supplied… this is already happening, as the (gas) price has been reduced by 20 %,” she told. “Just the existence of such an LNG terminal will bring an end to any political manipulations by anyone over the subject of price of gas. Unfortunately, with the single gas supplier, it has long been something Lithuania had to deal with. If the FSRU vessel had not been built, Lithuania, surely, would have not gotten the price cut of 20%,” Kubilius emphasized to Natural Gas Europe. He said he remained very “cheerful” after meetings during the FSRU celebrations with representatives of Cheniere Energy, which secured rights from late 2015 to export LNG oversees and is very interested in the Klaipeda LNG facility. On October 28, another vessel is expected to deliver 50 million cubic meters of gas from Norway’s Statoil for the testing of the LNG facility, which will be put in an operation starting December 3.

Natural Gas Europe, October 28th

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