Gazprom loses its gas supply monopoly in Lithuania

Port of Klaipeda, Lithuania
Source: Wikipedia

Up until the end of 2014, Russia’s giant Gazprom had virtually a monopoly on the supply of gas to Lithuania, but this is no longer the case. The coming online of Lithuania’s new LNG terminal in Klaipeda – aptly named “Independence” – marked a shift away from Russian gas.

In an interview with Reuters, Energy Minister of Lithuania Rokas Masiulis said that in the current year Statoil’s market share will exceed 5 percent. The Klaipeda terminal is to receive twelve cargoes of LNG, with Lithuanian Litgas picking up four of them, having contracted the annual delivery of 540 million cubic metres of natural gas from Norwegian oil and gas operator Statoil.

The Lithuanian utilities company, Lietuvos dujų Tiekimas, has also signed a short-term, six month contract with the Norwegians for the delivery of 300 million cubic metres of gas, while continuing talks with Russia’s Gazprom.

As Reuters reports, Lithuania is also in talks with U.S. liquefied natural gas company Cheniere Energy Inc over potential imports.

“We have good relations with Cheniere … our negotiations are about first shipments (next year),” Rokas Masiulis told Reuters on a visit to London.

“We would love to have U.S. cargo in our region to have competition with Gazprom. But of course negotiations will depend on price terms.”

Lithuania’s existing gas supply contract with Gazprom is due to expire at the end of the year.

“I believe negotiations with Gazprom now will be on competitive, reasonable terms and that will be just business and nothing else,” Masiulis told Reuters.

“After we have built an LNG terminal, there is no possibility of blackmail. Since we think there is no possibility of blackmail, discussion will be rational and economical rather than political. This is a big step.”

Meanwhile, the Financial Times speculates that with the wave of American LNG hitting European shores, Gazprom may resort to a gas price war in a simlar way Saudi Arabia has done for crude.

By Gazprom’s own admission, the company has about 100bn cu m of spare production capacity – equivalent to almost a quarter of its production and about 3 per cent of world output – which it can release onto the European market, depressing prices to a level where importing liquefied natural gas from oversees becomes uneconomical.

“Why would you concede market share to a higher cost producer?” James Henderson, Russian oil and gas specialist at the Oxford Institute for Energy Studies (OIES) told the FT. “If I was an investor in U.S. LNG I would be worried.”

Despite the speculations, Gazprom’s deputy chairman Alexander Medvedev assured investors at a meeting in London that the Russian giant doesn’t plan a “price war” against U.S. exports of liquefied natural gas to Europe.

“There is no need for us to launch any price war,” Mr. Medvedev told investors in London. “We are very relaxed about U.S. LNG, though very attentive,” he said.

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