Ukraine Asks Belarus to "Explore" Lithuanian LNG Import Possibilities
Ukraine has addressed Belarus, asking it to “explore” possibilities of Lithuanian LNG transit through its territory. As much as the idea with the Belarusian gas network owned by Russia’s Gazprom may seem preposterous now, it could get traction in the future if the current troubles of Gazprom lead to an overhaul of the Russian gas market by the Russian Government. “Russia has largely completed power market liberalization and there is a strong push to pursue it with the gas market. Gazprom’s worsening situation is triggering calls for change,” Vidmantas Jankauskas, a Lithuanian gas expert said.
Ukrainian official uses Twitter to break news
Ukraine’s endeavour for Lithuanian LNG was reaffirmed last week by Michael Bno-Ayriyan, the Head of the European Integration Department at the Ukrainian Ministry of Energy and Coal Mining (MECI). In his Twitter account, the Ukrainian official tweeted the following after the intergovernmental sitting of Ukraine and Belarus’ Commission Trade and Economic Collaboration: “We have registered our intentions of gas transit from the Baltic States through the territory of Belarus to Ukraine. We are talking about the liquefied natural gas terminal in the Lithuanian seaport of Klaipeda.”
The Ukrainian official, however, pointed to the “complexity” of such a project as the Belarusian gas transportation system belongs to Russian gas holding Gazprom.
Replying to Natural Gas Europe's query, MECI’s Communications Department confirmed that such a question was “indeed” on the agenda of the aforementioned sitting.
“Ukrainian side has emphasized that Ukraine seeks to unite its and Belarus’ efforts in reaching energy independence and that it is interested in diversification of natural gas supplies as well as the transportation of gas through the Belarusian territory should Ukraine and Lithuania agreed on a respective contract. Ukraine would like to explore all possibilities of gas transit from the Lithuanian territory using the Belarusian gas transportation system,” the reply reads.
It also says the Ukrainian and Belarusian officials have signed a protocol on cooperation, including energy sector.
Previously, the ministerial e-mail draws attention, Ukraine expressed its interest in “studying the Lithuanian experience in the implementation of the Klaipeda LNG project” in a sitting in the beginning of June held by two countries’ intergovernmental Commission on Trade, Economic and Scientific - Technical Cooperation.
Ukraine is also “interested” in participation of the construction of a gas pipeline between Lithuania and Poland, known as GIPL, the MECI reply says.
According to it, Lithuania “welcomed” the Ukrainian bid and encouraged Ukraine to participate in international tenders to pick up a contractor for the construction. Lithuania is to announce such a tender in 2016.
If such a pipeline is ever built, Ukraine would expect to tap Lithuanian gas infrastructure for Klaipeda LNG imports to Ukraine.
Ukraine has inclined it also wants to build own gas interconnector with Poland.
For that, Naftogaz Ukrainy plans to attract financial resources from the European Union, the director for business development at the state holding, Yuriy Vitrenko, said recently.
“If we are talking about a new interconnection point with Poland, it is more logical to talk about this with Europe rather than China. The interconnection point should have a pipe on the other side as well. We asked for the corresponding program of the European Union, which allows us to receive EU funding,” he was quoted as saying by Ukrainian media.
If it were impossible, sides would be mum
Asked by Natural Gas Europe about the possibility of Lithuanian LNG export to Ukraine, Mantas Dubauskas, the advisor of the Lithuanian Energy Minister, told that if (gas) export from Lithuania to Ukraine would not be possible, sides “would have done nothing at all in that direction.”
“Now the efforts in that regard are being done both by Lithuania and Ukraine, which has been now for quite some time seeking to decrease the reliance on the gas supply from Russia. The possibility of LNG purchase from Klaipeda LNG terminal is one of the available measures to lessen the dependency,” the advisor underlined.
How can the Ukrainian endeavour be pursued technically?
“To make it happen,” said Mikhail Krutikhin, a stakeholder in Russia’s RusEnergy, a consultancy firm, and an energy sector expert, “Ukraine and Belarus have to agree on laying out a gas pipeline between the countries. This would obviously be too expensive for Ukraine now. In addition, there are the political hurdles for that for the moment that can hardly go away any time soon. Even if they are removed someday, gas from such a pipeline will be really expensive. Ukraine, quite impoverished now, cannot afford it.”
Besides, he noted, Lithuania and Belarus should agree on the gas transportation through the existing pipeline. “Or perhaps a new pipeline offshoot would be required,” the expert pondered.
He, however, believes that the prospects of liquefied natural gas are “very good” worldwide.
“To my estimation, in six or seven years, 60 percent of all the gas on global markets will come in the form of LNG. I see the United States as the front runner in the bid,” the expert said.
The US has already agreed on US LNG exports with Spain and the United Kingdom.
“The deliveries are about to start in two years or so and then they are set to grow, undoubtedly,” Krutikhin noted.
Speaking of the Lithuanian LNG facility, he reiterated its future is hinged on the price it can offer.
“Wholesale LNG purchases can be done at quite an attractive, pretty low price on the international markets now. And the price is set to edge down globally with the LNG terminals completed in Australia and South Africa,” the Russian expert believes. “The long-term outlook of the Lithuanian LNG terminal, price-wise, would be better if Lithuania managed to agree on LNG exports with neighboring Latvia.
He sees Lithuania sending the floating storage and regasification jetty to the Latvian capital Riga to fill with the gas repositories at the 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, but it might be forced to sell it when Latvia starts implementing the EU’s Third Energy Package, which foresees unbundling energy suppliers from network operators.
The Baltic country has said it may start with the EU obligation in 2017.
“Lithuania and Latvia, which are two Baltic and EU neighbors, must find an agreement on a more diversified use of the jetty. It is in the core interest of the project,” the expert concluded.
Changes may be inevitable
Meanwhile, Vidmantas Jankauskas, a Lithuanian energy expert, believes the political hurdles for Lithuanian gas transit to Ukraine through the existing gas infrastructure may be removed sooner than later.
“Gazprom has been in hot water lately. The company suffers from record high loss and is criticized for the weaker clout on the politics. Besides, it is embroiled in a row with Rosneft, the other Russian energy market giant. There are also some other gas players in the Russian market that would like to take advantage of the Gazprom troubles and see the market more diversified. Changes in the Russian gas market may be inevitable to stave off the further downturn,” the expert reasoned.
The Russian gas exporter’s net income has shrunk reportedly to 159 billion rubles ($3 billion) in 2014 from 1.14 trillion rubles the previous year.
The results reflect lower demand in Europe due to a milder last winter and increased supplies of liquefied natural gas, which all weigh on the prices.
According to the expert, Ukraine’s consideration of Lithuanian LNG exports point to the country’s determination to further diminish the reliance on Gazprom gas.
“The country has in fact already made significant cuts on Russian gas imports and depends on the reverse gas flow increasingly,” Jankauskas notes.
However, from the political standpoint, Lithuanian LNG exports to Ukraine through the Gazprom-controlled Belarusian gas network are impossible at the stage, the expert agrees.
“Obviously, the existing infrastructure would be needed if such an agreement (on Lithuanian LNG export) were ever hammered out. Laying out a separate pipeline for that is out of the question because of the immense costs,” Jankauskas emphasized.
The removing of the political hurdles (for Lithuanian LNG export) might come sooner or later, he believes nevertheless.
“Look, when it comes to liberalization of electricity market, Russia has largely completed it. Belarus, for example, mulls unbundling its generation from the network management by 2018, which is also what the European Union wants (Seen as the last authoritarian country in Europe, Belarus, however, participates in the EU Eastern Partnership Programme, aiming to bring former Soviet bloc countries closer to the EU). So you see the processes are going despite the regimes. Liberalization of gas market in the countries might be just a matter of time,” the Lithuanian expert believes.
Ukraine set to de-politicize natural gas sector
Ukraine’s Energy Ministry has announced last week of its determination to de-politicize natural gas sector in a bid for major energy reform.
Speaking of the Ministry’s activities for the first half of the year, Bno-Ayriyan, of MECI, pointed out to the increasing the country’s gas reserve by 10 times, reducing gas supplies from Russia to 10 billion cubic meters, and receiving foreign aid exceeding 800 million euros.
“We managed to get the ‘winter gas package’ discount as well as a discount for the second quarter of 2015, which, among other things, resulted from the fact that we have secured diversified natural gas supplies,” Bno-Ayriyan is quoted as saying in a statement by the Ukrainian Ministry.
He noted in it that the gas dispute resolution process has proceeded from a Ukraine-Russia dialog to a Ukraine-EU-Russia dimension.
In addition, the volume of gas reserves has increased in Ukraine by 5 billion cubic meters over the past six months, the Ukrainian official noted.
Talking on the issue of setbacks, he pointed to the failure to strike a deal on the “summer gas package,” and launching the “great reversal” project in cooperation with European countries – in particular with Slovakia, as well as addressing the issue of financing energy procurement for the fall and winter.