Baltic Energy Interconnectors vs. Russian Clout
With over 20 years of experience in international relations and over half of the time devoted to energy issues, Lithuania's Romas Švedas is one of the most renowned Baltic energy experts.
His expertise in the field of international economic relations spans negotiator’s skills in the signing Lithuania’s Free Trade Agreements with Nordic, Baltic and Central European countries, negotiating the Lithuanian membership in the World Trade Organization (WTO), sitting as a member of bilateral intergovernmental commissions with Russia, Ukraine, Belarus and being head of Lithuanian delegation in bilateral intergovernmental economic relations commission with China.
In the field of energy policy, being vice-minister of the Lithuanian Energy Ministry (2009-2011) he was responsible for electricity interconnections with Poland (LitPolLink) and Sweden (NordBalt), LNG terminal, exploration of UGS, decommissioning of the Ignalina Nuclear Power Plant and development of a new Nuclear Power Plant project (Visaginas NPP).
Švedas was a member of the Baltic Energy Market Interconnection Plan (BEMIP) drafting team and representative of Lithuania in BEMIP High Level Working Group (2008-2011). During the period of 2009-2011 Romas Švedas was chairman of the Boards of State Enterprise “Ignalina Nuclear Power Plant”, AB “Klaipedos nafta”, AB “Litgrid” and member of the Board of AB “Lietuvos dujos”.
Švedas kindly agreed to answer Natural Gas Europe's questions on a broad range of energy issues in the Baltic region.
What are the specifics of the Baltic nations’ energy market? And how do they pertain to the challenges they face?
The bottom line is this: the countries - Lithuania, Latvia and Estonia -are the members of the European Union, and therefore are bound to the EU policies, including those in energy market.
Though all the three countries have their own peculiarities of market economy, their underlying common problem is what the EU refers to as the Union’s energy island.
It means that the countries’ energy infrastructure is historically linked with the former Soviet Union. Effectively, there are no any significant power connectors between them and the Western Europe, except a tiny power link connecting Finland and Estonia.
The Baltic States’ biggest challenge is the dependency on the single external gas supplier, Russia’s Gazprom. In that sense, Lithuania looks the worst as its reliance on external energy supplies in satisfying its energy needs hovers at a whopping 80 percent, the EU record. And when it comes to gas sector, Lithuania’s dependency on Russian Gazprom gas is at 100 percent, while electric power import amounts to the EU record-high 70 percent, according to the Eurostat.
The shutdown of the Ignalina Nuclear Power Plant in 2009, a prerequisite for the EU accession in 2004, has significantly exacerbated power supply. In fact, Lithuania has gone from power exporter to the biggest importer in entire Europe.
What are the biggest challenges in decreasing the energy supply dependency?
Without doubt, they are in diversifying energy supply, in other words, creating alternative energy sources. Lithuania has been pursuing that along with Latvia and Estonia in the framework of BEMIP- Baltic Energy Market Interconnection Plan tasked with interconnecting Lithuania, Latvia and Estonia internally -very determinedly and consistently.
What I often see happening in the Baltic region separate energy projects sometimes are prioritized as the key objectives of whole energy market. In particular, when it comes to Lithuania, it often boils down to a few things: to build a nuclear power plant, or not? Explore and extract shale gas, or not?
In the reality, these two I see as the only ways in achieving the ultimate goal of energy security and independency.
No doubt, the main priority in Lithuania should be diversification of energy supplies- guaranteeing that market conditions function in energy sector. That can be possible only with more than a single energy supplier.
How can this be achieved?
I believe that could be done in two ways.
First, on the legislative level, Lithuania has to pass and enact necessary energy security- oriented legislature. Other two Baltic counties need to do the same.
Second, implementation of EU-supported interstate energy projects in the region in quintessential.
Speaking of the legislation, what the three Baltic States have to do effectively boils down to one key thing: transpose the EU energy legislature into theirs and, importantly, make sure it is implemented.
The core piece of the EU legislation is the EU Third Energy Package.
Namely it, encompassing gas and electricity supply development directions, is the integral part of BEMIP.
Today the situation is the states in electricity sector development need to step up, as the implementation of the Third Energy Package-and BEMIP- is lagging behind.
Having said that, I have to note the countries have all the necessary projects to make the breakthrough in the pursuit of energy security and independence. EstLinkII, NordBalt, LitPol are among the most important, and they have to be launched until the end of 2015.
When kicked off they will ensure the EU-bound transmission capacity on the same scope we have now it with the East.
Without any doubt, the implementation of the afore-mentioned power projects would significantly enhance energy security and supply in the Baltics and secure the countries’ full and equivalent operations on the Nord Pool Spot (NPS) Exchange.
The power projects are being implemented on time, and their completion promise a lot brighter energy future for each of the Baltic States.
What should matter to foreign investors in regard to the latter is the countries’ power trading on the NPS is transparent and promising good prospects as with the completion of the projects by 2016 the systemic problems in Baltic power market will have been solved.
What’s your take on construction of nuclear power plant in the Lithuanian town of Visaginas?
Regardless whether it will be pursued or not (the governments of Estonia, Latvia and Lithuania are set to make up their minds on the project yet this month -Natural Gas Europe), the atomic power project, like other energy project in the region, would be regional.
This is what matters most.
Sometimes I get the sense that foreign countries believe that each of the Baltic States pursue their energy projects separately.
It’s not true- all the projects are regional, with the fact in mind that starting 2016 the countries will be an integral part of the EU single energy system.
Speaking of the nuclear project, I’d not dare to predict its fate, but- again- it will be a regional decision of governments of Latvia, Lithuania and Estonia.
What are the other specifics of Lithuania’s gas sector besides the 100 percent dependency on Gazprom gas?
I call gas sector more interesting than the power sector in terms of predictability, implementation of projects and etc.
Power sector will definitely be the first one to fully reach the goal of energy independence and become the leverage to the single supplier.
Speaking of gas-fired generators, what sets Lithuania apart from Latvia and Estonia is that a very significant part of power in Lithuania is being generated by traditional generators, i.e using gas.
Meanwhile, Estonia has successfully employed oil shale and Latvia has been successfully taking advantage of its hydro resources.
Unlike in power sector, the situation in Lithuania’s gas sector is a whole lot more complicated.
Again, I’d like to look at it from the standpoint of legal basis and the development of infrastructure.
When it comes to gas legislature, having passed the law of gas supply and started ownership unbundling, which means separating gas supply from gas mains management, Lithuania has moved considerably forward in the recent years.
Sure, within the framework of the EU Third Energy Package.
But unlike the Baltics’ power market, Lithuania, Latvia and Estonia still do not have a single internal gas policy despite the Third Energy Package obligations. The 100 percent dependence on the single external gas supplier, certainly, exacerbates the situation.
In tackling it, Lithuania is advancing a Liquefied Natural Gas Terminal that is due at the end of 2015. Along with the EU-supported gas Lithuanian and Polish gas interconnector due by 2019 the two are an important stride in diminishing the dependency.
What about Lithuania’s shale gas? Could it be a third alternative?
Sure. It could be also an alternative in the energy security pursuit.
Lithuania had the investor, Chevron, but, unfortunately for us, we could not provide it a stable legislative basis, and it left.
That is disappointing as shale gas can significantly boost out energy security. It has been proven by Kaunas Vytautas Magnus University scientists.
Unfortunately for us, we do not yet possess the good experience Poland has in taking advantage of shale gas and dealing with the local communities that now often are adverse to the shale gas exploration.
I agree with some international observers that Lithuania seems to be artificially escalating the issue of shale gas exploration-related environmental issues.
I’m not saying they do not matter, not at all, but sometimes I strongly suspect some pro-Russian interests are underneath the clamor against shale gas exploration in Lithuania.
Interestingly, some of the billboards on Lithuanian highways urging to resist the American company and the shale gas bid appeared to be build- and paid for- by some unclear subjects.
This is what a journalistic investigation revealed.
And we’re talking here only of large billboards all see when driving by.
I sometimes wondered who stood behind the negative, anti-shale gas coverage in traditional media outlets.
There is really a lot to think of but I really would not like to delve into the details, and why the tender failed. But when speaking of the Chevron bid it was obvious that we lacked a political will in making in happen. As a result, the vociferous protests in the provinces and not only it. The attitude of the people needs to be addressed in the future.
Do you believe the dispute between Lithuania and Gazprom over gas price will be settled any time soon? And how?
Perhaps not as much is important the outcome of the dispute as is important the pending ruling at the Stockholm Arbitration Tribunal. If it ruled in favor of Lithuania, which is pretty likely, it would establish an unseen yet precedent, meaning a crucial breakthrough in the Gazprom relations with the Central and Eastern Europe. Practically, it would lead to huge civil lawsuits against Gazprom, coming from Latvia, Estonia, Moldova, Ukraine, Belarus and some other countries.
I am convinced Gazprom is really anxious about that.
I believe it is not now as much preoccupied with the gas price for Lithuania and a new contract with it, as with the fallout from the Tribunal ruling.
I am certain Gazprom will go to big lengths to shun the judicial precedent, but it cannot get away from the EU Third Energy Package ownership unbundling requirements. This is what Gazprom fears a lot, too.
We might be witnessing some historical shifts in the field of energy, without an exaggeration.
How can Lithuania take advantage of the European Commission (EC) resolve to sue Gazprom for EU Anti-Trust law breaches?
No doubt, it is also a headache for Gazprom as it could set a very far-reaching precedent for the company that in the course can effectively change the relations between it and entire countries, the gas buyers.
How much serious do you believe is Russia’s intention to build a LNG terminal in the enclave of Kaliningrad? Would it be pursued to bypass gas transit through Lithuania?
There has been news Russia has already built an underground gas repository in Kaliningrad. Russia has certainly a big potential in gas sector, so I’d not be surprised if it pursues the LNG project in the exclave. Sure, it is not a thing of the nearest future.
But what matters to Lithuania is a liquefied natural gas terminal in Kaliningrad would enable Russia to stronger manipulate the card of gas supply to Lithuania.
Having built the underground gas storage facility and mulling construction of a LNG terminal, Russia sends a signal to Lithuania that Kaliningrad will be the first one to secure gas supply from alternative sources. In other words, under certain Lithuania-adverse circumstances, and with the Kaliningrad gas facilities in place, Russia could cut gas supply to Lithuania without giving much thought.
I see it as Russia’s clear message that it will keep using energy issues as a tool of its politics.
Hence, the importance of the Baltic energy projects.