Lithuania May End Gazprom Ties When LNG Unit Starts Work

Lithuania is considering ending its long-term gas agreements with OAO Gazprom after its liquefied-natural-gas terminal begins working this year, Lithuanian President Dalia Grybauskaite said.

Access to alternative cheaper gas supplies via the terminal will help shake off political and economic pressure from Russia and bring the Baltic nation “real independence from Gazprom,” Grybauskaite said in an interview with IQ magazine’s January issue. Gazprom is the country’s sole gas supplier.

More than two decades after breaking free from the Soviet Union, Lithuania is struggling to reduce Russian dominance in its energy sector. The Baltic nation pays the highest price for Russian gas supplies in Europe, Prime Minister Algirdas Butkevicius has said.

The government is seeking a 25 percent price cut from Gazprom. The talks are advancing “very slowly,” Butkevicius said in an interview with Kauno Diena today, adding that the government has now received some reaction from Gazprom to its proposals after two months of silence.

Grybauskaite said the government’s talks with Gazprom are “not negotiations but a set of demands and political pressure” from Russia that “well exceed the bounds of energy and Gazprom’s relations with Lithuania.”

Border Checks

Russia imposed tighter border checks on Lithuanian cargo and vehicles for almost a month in September, disrupting shipments to the Baltic state’s biggest export destination. It also banned all dairy imports from Lithuania for three months in October on what it said were safety concerns. Lithuanian dairy exports fell 72 percent in October from a year earlier.

In 2012, Lithuania’s previous government sued Gazprom in a Stockholm arbitration court for 5 billion litai ($1.98 billion), the amount the country says it was overcharged for gas since 2004. That followed a European Union antitrust probe, partly at Lithuania’s request, regarding the Russian company’s pricing for gas sales in central and eastern Europe.

The Baltic nation’s floating LNG terminal is on course to start operations in December. State-controlled operator Klaipedos Nafta AB has agreed to lease a newly built LNG ship named “Independence” from Norway’s Hoegh LNG Holdings Ltd.

The new LNG terminal means Lithuania “can very seriously consider the option of not having any agreements with” Gazprom when its gas supply deal expires at the end of next year, Grybauskaite told IQ.

Lithuania shunned EU aid to build the LNG terminal, as that would have slowed the project’s completion. That may help Lithuania become the first Baltic country to escape Gazprom’s supply monopoly, Grybauskaite said in an interview in November.

To contact the reporters on this story: Bryan Bradley in Vilnius at bbradley13@bloomberg.net; Milda Seputyte in Vilnius at mseputyte@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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