Lithuania Sets Energy Example: Minister

Lithuania's energy ministry Rokas Masiulis opened the Energy reFORUM 2016 in Vilnius June 2, stressing that the Baltic country has seen some “tectonic shifts” in its energy market and become a stronger nation in the process.

“We set an example for others who are seeking energy independence. Before taking on the reforms, Lithuania was 100% dependent on oil and gas supply imports [from Russia] and now it is 100% independent with a liquefied natural gas terminal in the seaport of Klaipeda and the power links to Sweden (NordBaltc) and Poland (LitPol) built. Now we live in a completely different world,” the minister said.

Importantly, the reforms in the energy sector proved that politicians can stop “bickering” when it matters most, according to the minister: “They showed they are mature and able to reach major goals, even in the energy sector.”

According to Masiulis, energy independence has always been Lithuania’s key target. And the next is to enhance transparent management of the country’s energy companies. “We are introducing new ways of management,” he said. "If we could compare the projects carried out 15 years ago, 10 years ago and now, the differences in prices have been enormous. All the improvements in the mentality are tangible in the electricity price, too.”

“The way our LNG terminal was constructed was different," he said. Instead of negotiating a gas price with Gazprom and building a small-size LNG terminal, which is what some people were proposing, it went ahead and "built a large-size LNG terminal in Klaipeda. When stacking the LNG prices in the three Baltics states, we see it is the lowest for industrial consumers in Lithuania and is slightly behind Estonia in price for households,” he said. Household prices tend to be the highest as they cannot be supplied off the transmission system and require more capacity.

Now Lithuania produces around 60% of heat from bio-mass, not far short of the 70% goal. Meanwhile, the electricity price on the Lithuanian trading zone at Nord Pool exchange has fallen by 18% with the power cables to Sweden and Poland in place. Yet the Baltic countries still need to synchronize their transmission systems with the European grid.

Energy Landscape Sees Big Change

A professor at the World Trade Institute Thomas Cottier admitted he sees now “a big change” not only in Vilnius, which he visited first in the early 1990s, when Lithuania had just broken away from the now defunct Soviet Union, but in the energy landscape, too.

“For many years, energy, in terms of gas and oil, has not been a main topic for the world but it has (been) for Lithuania. Meanwhile, electricity has always been a main topic as it is a matter of nation-building…  But with climate change and the need to mitigate its consequences, renewable energy sources – sun, wind, hydro power and biomass – are changing the market…The sources will not be sustainable however if we do not have a long-distance trade, where traders commit,” Cottier said. The transition to renewables has not been always smooth.

“We have some disputes ongoing, like, for example, regarding renewables’ feed-in tariffs. Rules can be applied to the renewable energy sector but they are not made for them,” Cottier underlined. “We do not have research on how much subsidy renewables may receive.”

The modern world also lacks common rules on power interconnection, competition policies as well as intellectual property in the energy sector. “The Paris Climate Agreement does not give any tools or instruments to reach the goals. One of the tools is financing but it is a small part. The main thing has to be done through trade regulation – bring all products in a sustainable mode,” he said, regretting that developing countries are not participating in the developments.

Speaking of what needs to be done to address the issues, he cited the importance of application of case law and the significance of preferential trade agreements that are on the rise.

Another speaker was Mantas Bartuska, the CEO at Klaipedos Nafta, the state oil terminal operator, which also operates the LNG terminal in the seaport of Klaipeda. He spoke of the LNG terminal’s benefits, including the added value to the terminal of an LNG reloading station that is under the construction in Klaipeda.

Bunkering plan

“We have stepped into the global LNG development markets with the project... We are counting on the new activities as the whole LNG market is expected to double in volume by 2020,” the CEO said.

According to him, Klaipeda FSRU Independence has been “a game changer” in the Baltic Sea “not theoretically but practically too. The floating storage and regasification vessel offers new possibilities for the regional gas market players, namely, third party access, connection of all three Baltic States, has upside potential with Poland’s connection, as well as LNG bunkering and electricity generation,” he said.

He noted that Lithuania “is changing LNG rules” to ensure larger flexibility in using the terminal for small-scale activities, which is the company’s short-term goal. “The ongoing development of LNG value chain in Klaipeda and the experience we have could be leveraged in the Baltic sea region,” he said.

Kim Talus, professor at the University of Eastern Finland, delivered a speech on LNG infrastructure regulation under EU law. “The infrastructure developments in the EU are very slow, except Lithuania, which sets an example for the rest out there,” Talus said.

He praised Lithuania’s LNG terminal which has allowed the Baltic country to obtain a 23% discount in natural gas price over the last couple of years, although other observers attribute the fall in the gas price to other factors such as the collapse in the oil price – which is now creeping back up again.

The FSRU 'Independence' at Klaipeda, Lithuania (Credit: Litgas)

“The Norwegian liquefied natural gas that Lithuania receives now under new terms is considerably cheaper than the pipeline Gazprom gas. Nobody could have predicted it just a few years ago,” he concluded.

According to him, EU “successfully” promotes both private and public investments in European gas infrastructure, mostly through publicly-funded projects of common interest and the Connecting Europe Facility. He mentioned the Poland-Lithuania gas interconnector, which, when implemented, will have a significant impact on the Finnish gas market.

“With it in place, Finland, where natural gas remains a regulated national monopoly, will lose some smaller markets around,” Talus believes.

He thinks Finland ought to use Klaipeda LNG’s bunkering facilities in the future to boost domestic competition.

“Klaipeda LNG terminal has potential of becoming a major hub for joint LNG purchasing in the entire Baltic Sea region and beyond and we have to take advantage of it,” he said.

Linas Jegelevicius