Interview: Rokas Masiulis, Minister of Energy of Lithuania
Natural Gas Europe had the pleasure to interview Rokas Masiulis, Minister of Energy of Lithuania. We spoke about Vilnius' attempts to support exploration of shale gas in the country and discussed the implications of the Klaipėda LNG terminal for Lithuania and other Baltic countries. The terminal will start offering LNG reloading services in January.
According to Masiulis, Lithuania is, as a consequence of the terminal, amongst the countries that would not suffer energy security issues in case of disruptions from Russia. Vilnius is also considering new investments in UGS facilities, while looking at cooperation opportunities in the Baltic and, more generally, in Europe.
Commentators have said that Baltic States have to overcome their status as an energy island. What is your understanding of this process in Lithuania? Is Vilnius walking in the right direction?
Indeed, “energy island” status creates potential energy security threats and leaves Baltic States energy consumers and national economies vulnerable to electricity or gas supply interruptions and large fluctuations of fossil fuel prices compared with EU Member States with more diversified or self-sufficient energy systems. Moreover, large differences in gas prices, which Lithuania had experienced for a number of years, had also a negative impact on our industry’s competitiveness in EU and other markets. Therefore, our major goal is to become a fully-fledged member of the EU energy market. It means simultaneous creation of market rules and interconnections for alternative energy supply.
Currently Lithuania is among those limited number of Member States, which have fully transposed the Third Energy Package legislation and implemented the ownership unbundling model, too. As a result, implementation of power interconnections with Poland and Sweden are on track and will be finalized next year, necessary EU financial support for construction of bi-directional gas interconnection between Poland and Lithuania (GIPL) has been finally secured on 29th of October, while LNG terminal project in Klaipeda will start operating already at the beginning of December 2014.
All this demonstrate us that we have chosen the right direction and I think that our regional partners in the Baltic States will also benefit from these developments. It also lets me believe that after some time when the review of European Energy Security Strategy will be made, Lithuania and Baltic States will be listed not among most vulnerable, but among most energy secure Member States.
In a recent lecture, Frank Umbach, Research Director of EUCERS, said that Lithuania is the most vulnerable Baltic state due to the closure of the Ignalina NP plant, which was producing 70.7% of the country’s national electricity. Do you agree?
To some extent, I would agree. After the closure of the Ignalina nuclear power plant on 31 December 2009, Lithuania from the net electricity exporter overnight turned to the country with the highest electricity import dependency among the EU Member States, which currently imports 2/3 of consumed electricity. This closure also resulted to the increase of the Lithuanian energy sector dependency on natural gas, meaning that 2/3 of district heating and 90% of electricity is being produced in Lithuania by burning natural gas.
However, from energy security perspective, Klaipėda LNG terminal is a game-changer for Lithuania, since it will significantly reduce our vulnerability not only in gas sector, but in the electricity and heating sectors as well. The result of the European Commission’s gas supply stress tests proves it. We can also refer to other studies, such as recent study by the Institute of Energy Economics at the University of Cologne where, based on a computer simulation, taking into account existing gas infrastructure in Europe, experts explored what would happen if Russia would cut off the gas for one, three, six or nine months. Lithuania, together with other thirteen EU Member States, was listed among the countries that can ensure gas supply for their needs even during 9 months gas supply disruption from Russia.
It should also be noted that Lithuania is in mature state of developing two main electricity interconnection projects with Poland “LitPol Link” and Sweden “NordBalt”. The construction works on both interconnections are going under schedule and will be finalized by the end of next year. After the interconnection line with Sweden will be completed, we will have opportunities to import electricity fromthe Nordic countries, where electricity prices are usually lower than in the Baltic markets.
How do you asses Chevron’s withdrawal from Lithuania? Is shale gas still an option?
Shale oil and shale gas exploration in Lithuania is one of our priorities. It is foreseen in our National energy independency strategy, as well as in the work programme of the Government, that Lithuania will initiate and support exploration of shale gas in the country. We are now working on creating favourable investment environment for these activities in Lithuania. We have to be able to compete with other countries in our region to attract investments in shale oil and gas explorations to Lithuania. Examples in U.S. and Canada has proved that shale oil and gas production can bring economic benefits and that it can be done in consistency with environmental principles.
Is coal a viable solution to eventual gas disruptions from Russia? Is it a solution for Europe? Is it a solution for the Baltic States?
Coal is not a solution for the Baltic States. As far as Lithuania, we do not have coal-fired power plants; therefore, it could be a solution only for a small number of households. Similar situation is in Latvia as well Estonia, where oil shale is dominating in electricity generation. There are only small number of EU Member States where hard coal plays a significant role in the energy mix; therefore, I do not think that the coal is viable solution for Europe.
For the first time in history, the Baltic States have the power to increase energy security. What are the most important steps to be taken in the coming months? What is the possible contribution from the EU?
By finishing implementation of LNG terminal in Klaipeda, Lithuania created possibility to participate in the international gas market and to diversify its gas supply sources. However, having in mind already existing gas infrastructure, LNG terminal in Klaipeda also creates possibilities for other Baltic States to import gas from alternative sources. European Commission based on the analysis of the stress tests has recommended ensuring supply of gas to protected customers in case of an emergency from Klaipeda LNG terminal. Yet, to implement this recommendation, it is necessary to ensure third party access to Incukalns storage facility and to the Latvian gas transport system. Our focus should be also given to the harmonization of the regulatory environment among Baltic States. Otherwise, market players may not be able to interact with each other, which also mean that regional market may not react with a sufficient speed in emergency situation, or even may not react at all due to legal formalities.
EU already contributes a lot by harmonizing our regulatory framework. Different cooperation formats within EU, such as BEMIP, together with EU financial support will remain key driving forces for the Baltic States cooperation in achieving common energy policy goals.
What is the role of energy cooperation in this context? What is your understanding of the Baltic Ports Organisation’s effort to promote a bunkering network across the Baltic Sea?
This is a very timely and useful initiative from the Baltic Ports Organization. As you may know, the Baltic Sea is being classified by the International Maritime Organization as the Sulphur Emission Control Area. Starting from January 1, 2015 ships sailing in these seas will have to use low-sulphur fuel, which means that LNG will become one of the preferred alternatives. Klaipėda LNG terminal is expected to become first break-bulk LNG terminal in the Baltic Sea, offering LNG reloading services already from January. These services are long awaited by LNG users in the marine, on-shore industry and transport sectors in Scandinavia, the Baltic States and Poland. Furthermore, Lithuania does not plan to stop there as our goal is to make LNG available for on-shore users as well. BPO and their members are very important partners for Lithuania becoming the LNG hub for the Baltic Sea.
Changing topic, do you think Lithuania needs to invest more in UGS facilities? Do you expect any progress in this direction?
It is our interest to have flexible and commercially attractive possibilities for storing gas. It would allow securing strategic reserve of natural gas, as well as to levelling seasonal irregularities of gas consumption and prices. We’ve recently finished geological investigations which showed that geological structure in Syderiai area has all the right conditions for installing an underground natural gas storage facility. In the coming year we will analyze the possibilities to ensure EU financial support for such regional underground gas storage project, in parallel – we will test the interest and the readiness of the gas market players in the Eastern Baltic region to participate in such project implementation.
Do you think that the new Klaipeda terminal will bring about additional advantages? Do you think you will be able to get new “discounts” in the near future?
The price of LNG supplied to Lithuania under the current contract with Statoil will be linked to the gas prices in NBP index, contract with Gazprom is linked to the oil prices, therefore much will depend on the prices in the LNG market, on oil prices, as well as on the global LNG player’s interest in our region. So far, everything looks very promising. It is clear that for the years to come Klaipeda LNG terminal will be the only tool for maintaining certain level of competition among gas suppliers in our region.
You also said that Europe needs new suppliers and not new pipelines from the same suppliers. Which are the suppliers you had in mind? How does this apply to Norway?
Speaking about diversification, adequate EU attention needs to be given to the projects, which substantially contributes to the diversification of EU gas supply. Sources and counterparts, that is to the LNG import terminals, in order to get the full benefits of the fast emerging LNG export facilities in the Atlantic basin, and investment into Southern Corridor, in order to have a pipeline access to the Caspian Sea region. Such pipeline with the proved and probable reserves of more than 8 trillion cubic meters of natural gas, has a potential reduce EU reliance on gas imports from Russia and to increase competiveness in the EU gas market.
In conclusion, a spokesman for NATO recently told the Latvian Information Agency that the military alliance could deploy troops within 48 hours in event they are threatened by any country. Do you think it is a simple reassurance, a message to Russia or a possible scenario?
As a Minister of Energy, I would not be able to answer this question.
Sergio Matalucci
Sergio Matalucci is an Associate Partner at Natural Gas Europe. Follow him on Twitter: @SergioMatalucci