Lithuania opens up market [NGW Magazine]

The Lithuanian government has given the green light to a proposal to make the gas market more competitive by relieving large, state-regulated firms of the obligation to purchase gas from the country‘s state gas importer Litgas. It buys LNG for delivery at the Klaipeda LNG terminal and needs a certain quantity to keep the temperature low.

If the Seimas, national legislature, approves the proposal, regulated heat and power producers that consume over 50GWh/yr, will have to buy at least 50% of their supplies on Gas Electronic Trade (GET) Baltic. However, they will have no obligation to buy half their supply from state-owned suppliers.

Eight firms will be affected by the arrangement: Vilniaus silumos tinklai (Vilnius Heating company) which bought 1,956 TWh of gas in the Klaipeda facility in the first ten months of the year, Panevezio Energija (Panevezys Energy), which bought 233.7 GWh; Klaipedos Energija (Klaipeda Energy), which bought 231 GWh; Kauno Energija (Kaunas Energy), which bought 169 GWh; Siauliu Energija (Siauliai Energy), which bought 151.6 GWh; Lietuvos Energijos Gamyba (Lithuanian Energy Production), which bought 128 GWh; Litesko, which bought 110.6 GWh; and Visagino Energija (Visaginas Energy), which bought GWh.

This year the companies used more than 90% of the LNG that had been imported during the first ten months of the year, or 1.22mn m³ of LNG (about 730mn  m³ when regasified). All the other energy suppliers in the country use less than 50 GWh/yr.

Until now, the biggest buyers have had to buy LNG from Klaipeda, paying the price set by the energy regulator, the commission for energy control and pricing, VKEKK, thus ensuring the functioning of the terminal.

According to the energy ministry, the new order will increase the liquidity of the Lithuanian and the Baltic gas markets generally; and prompt new gas suppliers to enter the market. 

“The firms will be free to choose any supplier at GET Baltic Exchange for example,” Litgas told NGW.

The amendment is expected to win parliamentary approval and take effect next January.

According to GET Baltic CEO Giedre Kurme, until now regulated generators have had to buy all of their supply, which is around 3.1 TWh, from a designated supplier such as state-controlled Litgas at a regulated price.

“Because of this rule, regulated energy producers are essentially not involved in the competitive natural gas market and are not allowed to buy natural gas for regulated activity, either through bilateral contracts with other companies (apart form Litgas) or from the GET Exchange,” the GET Baltic chief explained to NGW.

Asked how the 50%  gas purchase rule will likely change the gas trade dynamics at GET Baltic, Kurme said regulated energy producers would become a part of the competitive natural gas market on an equal footing with other market participants.

According to her, such regulatory change would increase liquidity and competition on the exchange and would also encourage new suppliers to enter the market.

“It is expected that traded volumes on the exchange could rise from around 1 TWh in 2018 up to 3 TWh in 2019,” she said.

There are 74 participants on the Baltic Gas Exchange, and nearly all have access to trading on the Lithuanian market. The volume traded on the exchange in the first 10 months amounted to 1 TWh.

“We expect to close the year with a total amount of 1.1 TWh of gas. Year-on-year, the volumes increased 2.5 times, traded volumes in 2017 totalled 0.44 TWh. It is expected that with the regulated energy producers coming to the market in 2019, traded volumes on the exchange could surge up to 3 TWh,” the GET Baltic executive said.

Since it was set up in 2012, GET Baltic has grown in a number of ways: registered counterparties, bids and offers submitted, and done deals.

The new 50% order is not expected to reduce import demand for LNG, making it more price dependent, because the gas regasification limit at the Klaipeda LNGT will remain intact, i.e. 3.8 TWh (325 million m³) of gas yearly, or about four LNG cargoes totalling 560,000 m³. This is how much Litgas is legally obliged to import and regasify through Klaipeda.

Lithuania hopes to save €6mn ($6.8mn)/yr that it had so far allocated to Litgas. The amount includes various costs, such as general administration, membership of GET Baltic and capacity in the Incukalns underground gas storage in Latvia. Litgas was able until now to recover these costs from the state but this is now its own responsibility.

Yet, in the context of the European Union, the Lithuanian gas market is illiquid and still in the initial stage of development.

At the end of October, The European Commission (EC) approved EU state aid rules affecting compensation granted by Lithuania to Litgas so it could buy a certain amount of LNG to keep the terminal cold year round.

The EC has approved both the scheme in force for the period from 2016 until the end of 2018 and the modified scheme for the period from 2019 until the end of 2024.

According to the EC, the LNG terminal has, since its construction, played a vital role in the diversification of gas supplies and security of supply in Lithuania although it has not been fully used since it began operations.

In June 2018, Lithuania notified the EC of certain changes to the aid scheme approved in 2013, whereby it no longer obliged heat and power generators to buy a certain amount of gas from Litgas to cover the costs of the LNG purchases.

Ketlerius, of Litgas, told NGW that, the regulator, VKEKK, has not decided how the obligation fee could change.

Lithuania's Klaipedos Nafta, operator of the Klaipeda LNG terminal, announced plans to become the world's largest LNG terminal operator worldwide over the next decade, although so far its efforts have been concentrated on south America.

“Now our goal is to become the largest LNG terminal operator globally by 2030 and have at least 10 projects in our portfolio,” the CEO of Klaipedos Nafta, Mindaugas Jusius, said November 6.

In his words, the company is actively involved in projects all over the world, both as a consultant and investor.

He said Klaipedos Nafta has completed one project in Colombia and has more than 10 ongoing projects where it tries to use or sell the Klaipeda LNGT experience, or become a financial investor into the projects and operate terminals.

Owing to confidentiality reasons, the Klaipeda Nafta CEO could not disclose the projects the company is involved in but hinted that all of them so far have been in South America.