Höegh LNG Turns Down Lithuania’s FSRU Advanced Sale Proposal

Norway’s Höegh LNG turns down Lithuania’s proposal on FSRU advance sale

Operational costs of an LNG terminal is $189,000 USD per day. For a small country such as Lithuania that lives off an annual budget of $10.1 billion USD (notably, $2.54 billion USD comes from EU coffers), the burden is becoming too big to handle. To ease it, Klaipedos Nafta (Klaipeda Oil), the operator of the FSRU jetty, has asked Norway’s Höegh LNG, owner of the lease, to sell it now and not in 10 years as specified in the contract.

Höegh LNG : “Our business model is to own”

Höegh LNG spokesperson Birgitte Hjertum told Natural Gas Europe in a written reply that Höegh LNG refused to sell the floating vessel-repository because (quote) “its business model is to own and operate assets.”

Hjertum did not speculate on whether Höegh LNG  would consider re-negotiating the LNG price that Lithuania pays for Norwegian liquefied natural gas. “I cannot, unfortunately, comment this,” she said.

That Lithuania might also seek talks with Höegh LNG over lower LNG prices.

Speaking on behalf of the Lithuanian Government, Evelina Butkute-Lazdauskiene, spokeswoman for Prime Minister Algirdas Butkevicius told Natural Gas Europe that the LNG facility’s “operations have been tested and the regulatory and legislative environment (for FSRU) has been created by now.”

With the Norwegians nodding for the continuation of a lease, the Lithuanian government, she says, is now choosing the option of purchasing the vessel in ten years’ time, just as established in the contract.

“It is necessary to start the preparations now, however,” the spokeswoman insisted, noting that the vessel’s operational costs have not become any bigger lately.

“They are the same which were approved by the State Energy Control and Price Commission (VKEKK),” her written reply read.

The Lithuanian Government says Independence, the floating storage and regasification unit, has paid off already itself as it has helped to get from Gazprom, the country’s sole gas supplier long, nearly a 20 percent cut in the price.

Lithuania set to reduce LNG terminal costs 

In 2012, in a contract between Klaipedos Nafta and Höegh LNG, Lithuania was obligated to pay $189,000 USD daily for the jetty lease. The duty for Lithuania translates in $68.9 million USD yearly and it will require $689 million USD for the 10-year lease term.

The price of the vessel itself and the buyout will cost Lithuania after the lease term is over has not been released.

Following Höegh LNG's refusal to sell the floating repository ahead of time, Rokas Masiulis, the Lithuanian Energy Minister, has reiterated his determination to seek ways of reducing the vessel exploitation costs.

“This is our goal now. Responding to the shrinking consumption of natural gas in Lithuania and in the Baltics overall, we see that the part of the (natural gas) infrastructure costs can get bigger, thence we have expedited the (governmental) meetings with the reduction of the costs in mind,” the Minister was quoted as saying to Lithuanian National Radio LRT.

The Lithuanian Government is set to pass this fall “certain legislative acts” aimed to alleviate FSRU costs, he says.

To support the terminal, Lithuania has imposed for all gas consumers - around a half million of them - the so-called “supply security charge” as an additive in the gas transmission tariff, set by the Baltic country’s national energy regulatory authority, VKEKK.

The PM said in the radio interview it was possible to lease the vessel for 30 years, but purchasing it in 10 years, after the contract is up, would help Lithuania save approximately 70 million euro.

“Our assessments show - and it’s very important given the decrease in natural gas consumption both in Lithuania and the Baltic countries - that the share of infrastructure costs may increase. Therefore, we’ve organized those discussions without delay as we have to think of ways to reduce the burden,” the Lithuanian Government head said in the interview.

Lithuania mulls €300 million loan

With the LNG facility cost reduction in mind, Klaipėdos Nafta (Klaipėda Oil), has announced the plan to get a long-term loan, up to €300 million. The final decision on it will be made in autumn.

According to Energy Minister Masiulis, if available, Lithuania would be able to cut the LNG terminal infrastructure support costs by €15-20 million yearly.

“Should we decide that we are going to cover the terminal infrastructure support costs with the loan money, it would make it possible to lower them up to 25 percent – approximately up to €20 million in the supply security charge,” the Minister says.

He added that the vessel buyout in 10 years would allow Klaipedos Nafta to manage the financial flows “in a more beneficial way” throughout its service term, estimated to be around 30-35 years.

The bulk of the planned €300 million loan would go for purchasing the jetty from the Norwegians, according to the Energy Ministry.

“We are inclined to tell Höegh LNG now that we will buy out the vessel in 10 years,” Masiulis explained.

The spokesman for the Lithuanian Government also emphasized the time being “very good” for international borrowing.

“If we managed to take advantage of the favourable money market possibilities and complete the re-financing of the LNG ship, Lithuania could save around 70 million euros over 30 years,” she said.

Latvia is not convinced

The Government of Lithuania's spokeswoman, Evelina Butkute-Lazdauskiene, says Lithuania still hopeful that Latvia will sign up with the Lithuanian LNG supply.

“The possibilities of the Klaipeda LNG supply to Latvia are real and we are in talks over the matter. Such exports would not only increase competition, but also increase Latvia’s energy security,” commented Butkute-Lazdauskiene.

Asked to weigh in on a recent comment by the Latvian Economy Minister on Lithuanian gas being more expensive than that from Gazprom in Latvia, she responded it is “premature” to “speculate” how the prices would unfold with the exports started.

“To make any assessment as far as the price is concerned, we should need to concretize the terms, quantities and other factors,” she underlined.

Latvian Economy Minister Dana Reizniece-Ozola has said recently that, according to Latvian estimates, the LNG import from the Klaipeda facility would be “more expensive” than the gas supply from “Latvijas gaze,” an importer of Gazprom gas.

"The Klaipeda gas price is pushed up by the component of security, fluctuating expenses as well as transportation and other costs. Therefore it can be 5-6 percent higher than that by “Latvijas gaze”, the Minister was quoted as saying by BNS, a Lithuanian news agency.

Reizniece-Ozola added she had never spoken about export costs with her Lithuanian counterparts.

“We will try to understand whether it is possible to agree on a better model (of purchasing the Lithuanian gas)… It is obviously in their favor when the Klaipeda LNG terminal has more clients. Our decision on new (gas supply) infrastructure relies on our ability to agree on better (gas purchasing) conditions... Note, there are ongoing discussions on a regional LNG terminal in Estonia and Finland,” the Latvian Minister said.

Many experts, including Mikhail Krutikhin, a stakeholder in Russian consultancy RusEnergy, believe the long-term outlook of the Lithuanian LNG terminal, price-wise, would be much better if Lithuania managed to come to terms of the Lithuanian LNG exports with neighboring Latvia.

They see Lithuania sending the floating storage and regasification jetty to the Latvian capital Riga to fill with the gas repositories at Inchukalns underground gas storage facility.

But Latvijas Gaze, Latvia’s gas distributor, has decided to opt for Gazprom gas for now. The Russian company owns a 34 percent stake in the Latvian company.

Estonians praise Lithuanian LNGT, but eye one of their own

Meanwhile, Estonian Economy and Infrastructure Minister, Kristen Michal, praised the Lithuanian LNG facility while meeting Rokas Masiulis, the Lithuanian Energy Minister.

“It is obvious that the LNG terminal contribute to the gas supply security in the Baltic region, therefore it is very useful to get a close look at how it works in Lithuania…As Estonia always positively views new ways allowing use the various alternatives, it sees Klaipeda LNG terminal as one of the ways,” Michal told in a statement.

The Klaipeda gas imports make up around 20 percent in Estonia’s energy mix.

Estonian Prime Minister Taavi Roivas has hinted after the appointment last March that Estonia has reached its “limits” of the Lithuanian LNG use. The Estonian Government has also said it will pursue its own LNG facility.