Lithuania Makes LNG Terminal Priority in Battle for Cheaper Gas

Lithuania’s completion of a new liquefied natural-gas terminal is its top priority in a struggle to escape “unfair” pricing by its sole supplier, Russia’s OAO Gazprom (GAZP), Prime Minister Algirdas Butkevicius said.

Work on the terminal at the Baltic port of Klaipeda, which slowed earlier this year due to legal challenges by companies involved in tenders, is now proceeding apace, Butkevicius said. Financing is also assured with an 87 million euro ($117 million) loan that state-run terminal operator Klaipedos Nafta got from the European Investment Bank in July, he said. The EIB valued the project at 180 million euros.

“Given the importance it will play in gas supply diversification, we have to complete it by the end of 2014 at any price,” Butkevicius said in an interview today in the Lithuanian capital, Vilnius.

Gas prices that are at least a quarter more than other European buyers pay Gazprom are holding back Lithuania’s economy, which uses the fuel intensely for power generation, heat, and manufacturing, the prime minister said. While the European Union wants to see an LNG terminal built in the Baltic region to boost energy security, Lithuania is worried it may take too long and end up elsewhere, so it is building its own.

Klaipedos Nafta agreed last year to lease a floating LNG terminal from Norway’s Hoegh LNG for a decade. Parliament this week decided to probe whether it’s paying a reasonable price.

Competitive Drag

The higher gas prices and trade curbs imposed by Russia on its EU neighbor prompted Butkevicius to accuse Moscow last week of waging what “could almost be considered a sort of economic war.” Gazprom has said it’s acting within a contract that is valid through 2015.

“We’re talking about our competitiveness,” Butkevicius said today. “How can you compete when your businesses face so much higher production costs?”

President Dalia Grybauskaite urged the government last week to speed up construction of the terminal due to an absence of signs that talks with Gazprom may lead to a price cut. The president has also recommended continuing a lawsuit that the previous government filed against Gazprom in a Stockholm arbitration court last year. The suit seeks 5 billion litai ($2 billion) for unjustifiably high past gas prices.

Butkevicius, who said he still hopes for an agreement with Gazprom, is also looking beyond the LNG project to a proposed new gas pipeline linking Lithuania with Poland that would boost access to alternative suppliers.

“We see big support for this project from the European Commission, which could finance up to 85 percent of the cost,” he said. “It would end the isolation of the Baltic states and Finland from the rest of the EU gas market.”

To contact the reporter on this story: Bryan Bradley in Vilnius at bbradley13@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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