Lithuania Stitches Up New Model to Ease LNGT Running Costs

Lithuania is scrambling to find new ways to ease the mounting FSRU costs after Norway’s Höegh LNG rejected the government’s proposal to buy the facility located at the Port of Klaipeda.  

The Lithuanian Energy Ministry has begun to expedite its Natural Gas Capacity Model (NGCM), which aims to shift more LNG terminal costs from government to consumers.

The biggest challenge is selling the surplus of Lithuania’s LNG at market prices. LNG prices have declined as part of the current global commodities rout.

“Before only heat producers were supposed to support the LNG terminal and now the burden is to fall on the shoulders of all heat users, even those who do not use gas. I don’t think this is fair,” said Vidmantas Jankauskas, deputy director of Lithuania’s Industrialists Confederation.

If NGCM is enacted, consumers with central heating and biomass boilers will see higher energy bills.

Mantas Dubauskas, an advisor to the Energy Minister, insists the idea that Lithuania will always buy gas from Statoil at above market prices is inaccurate.

“There can be a situation, when, for some time, the Statoil gas price will be lower than the market price. If it happens that the Norwegian gas price is higher, the difference would be offset from resources collected applying the Natural Gas Capacity Model,” Dubauskas told Natural Gas Europe.

The advisor claims the ministerial proposal is about the security of natural gas supply and financing, not LNG surplus.

The Ministry keeps the price paid for Norwegian gas a secret, but it is said to be 10-15 percent higher than the market price.

Officials have praised NGCM as a fair way to spread LNG-related costs among all consumers. However, many Lithuanian gas experts claim the new model is merely a novel attempt to grapple with the enormous costs of maintaining LNG infrastructure.

If the Norwegians allowed the Lithuanians to buy the floating storage and regasification unit at the Klaipeda facility, Lithuania would have saved roughly $79 million according to the government.

The government’s price regulatory authority, VKEKK, has imposed a Supply Security Charge as a means to further support the Klaipeda terminal.

The charge would disappear under the NGCM, but details of how this would work have not yet been released.

“I want to [direct] attention once again to the same: LNG supply security, likewise any form of insurance, is not free. With the LNG terminal built, the security of supply has increased and an alternative source of gas supply appeared, which has contributed to creating a real competition in the market,” Dubauskas told.

“There is not any selection at all because Lithuania buys LNG at an expensive price from a single market player, Statoil,” Jankauskas countered.

The deputy director also criticized plans outlined by Klaipėdos Nafta to seek a loan of €300 million to cover terminal infrastructure costs.

The bulk of the loan would go to the purchase from the Norwegians when the lease expires.

“The borrowing would make sense if there were clarity that Lithuania needs the LNG terminal in the long future. Who can tell for sure now if Lithuania will really need the floating gas vessel just in ten years from now, after the contract with Höegh LNG expires? What about if it appears that we don’t need the ship and, from the economic standpoint, it does not make any sense to support it any longer? Won’t it happen then that we will have a redundant ship and the humpback of debts?” Jankauskas pondered.

The government will make a final decision on applying for the loan by autumn.