LITGAS Head of Business Development Talks Baltic Gas Auctions, Transmission Rules

Russian newspapers recently reported that Gazprom Export would hold an auction on natural gas deliveries to Estonia, Latvia and Lithuania. The auction relates to gas Gazprom will export to the Baltic countries in 2016, after the expiry of existing contracts, which are valid until the end of 2015. 

Against this backdrop, Natural Gas Europe had the pleasure to speak with Vytautas Čekanavičius, Head of Business Development Department at LITGAS. LITGAS is a natural gas supplier and trader, part of the largest energy company group in Lithuania, Lietuvos Energija, responsible for ensuring the minimum required gas quantity.  

Asked about the auction, Mr. Čekanavičius said in the interview that “LITGAS is not involved at all, but from what we hear from the market, we see it as a viable option, as it happened in Europe already. So it is one of the ways to sell gas. The question is just how this [the auction] will be done.” He also explained that Vilnius would be interested in an European approach to transmission rules.

The rest of the interview is below.

Natural Gas Europe (NGE): Gazprom recently said that Gazprom Export is considering the option to hold auctions for deliveries to Lithuania, Latvia, and Estonia by the end of the year. Do you see this as a likely option? Is it something you can confirm?

LITGAS does not have direct connections with Gazprom and it is difficult to comment as we do not know anything concrete – there were only mentions in press reports without details. But speaking on pure theoretical grounds, an auction is another way to sell and buy natural gas. 

NGE: Commentating on Gazprom’s auctions in Germany, some experts said that the fact that just one third of the offered capacity was sold might be used as an instrument to show there is not enough interest in this kind of mechanism. Do you think something like this might happen in the Baltics too? 

I think that it depends on the conditions of the auction. It is a pity that the auction was not public. There is nothing official, but in general our understanding is that there were several steps in the auction and that in each step the price was lower. You could organise an auction in a way that it would look like bilateral discussions. You could hold auctions for the three Baltic countries together, or you could hold an auction for each state. It is very hard to comment.

NGE: What would be in Lithuania’s interest? Would Vilnius prefer an auction for the three states together?

It all depends on the auction’s conditions, on how it is organised. So it is a bit early to speak. 

NGE: More generally, what’s the interest of Lithuania, and of LITGAS, when it comes to Brussels? Is there anything in particular you are asking from European institutions?

I think that in general the European Union has made the step toward regulation in LNG and storage. It was said recently that European institutions are about to launch something in this field at the beginning of next year. We filed our comments on these European documents, so we expressed our position there, but there is space for regulation, especially how you divide costs, who should build the infrastructure, how it should be financed, whether it would be by individual state or rather regional, [and] how to avoid regulatory bottlenecks for trade. For example, speaking about Lithuania, Latvia and Estonia, if you sell gas from Lithuania, you pay transmission in Lithuania, you pay transmission in Latvia and then you pay transmission in Estonia also.

Maybe something regional could be done, which was a plan that was circulating some time ago. That plan would imply that you enter the market in one state and you deliver in another state, with the transmission being considered regional. That would allow you to pay transmission just once. 

NGE: Do you think that this regional approach to transmission could go back to the European tables? Is it a viable option? Could it be reconsidered?

It has to be judged case by case, but for example in the Baltic region, you see that regulation between the three states could be improved. 

NGE: Could that be done on a regional level without the intervention of European institutions?

It could be, but I think we are not the only region in Europe that has this issue. I think it is logical to start from above. From the EU it would be much better to see the whole picture, whether we are alone in this situation or not. 

Sergio Matalucci is an Associate Partner at Natural Gas Europe. He holds a BSc and MSc in Economics and Econometrics from Bocconi University, and a MA in Journalism from Aarhus University and City University London. He worked as a journalist in Italy, Denmark, the United Kingdom, and Belgium. Follow him on Twitter: @SergioMatalucci