LNG terminal in Klaipėda efficiently guarantees gas supply competition in the region

KN says the experts from the international company Pöyry Management Consulting presented a study on securing long-term import of liquefied natural gas (LNG). The study presented on 11 April examines the need for LNG supply after 2024 and presents a cost-benefit analysis of the most economically advantageous alternatives of securing such supply. The study reveals that the LNG terminal will continue to bring economic benefits to Lithuania after 2024.
 
Independent experts selected through an open tender evaluated whether it is appropriate for Lithuania in terms of economic and supply security to ensure long-term import of liquefied natural gas after 2024, when the lease of FSRU Independence expires.
Experts carried out the cost-benefit analysis with a view to identifying an economically optimal solution for securing long-term LNG supply. They evaluated three potential alternatives: acquisition of the LNG terminal after 2024; extension of the lease for another 10 years; and extension of the lease for another 20 years.
 
The study reveals that the LNG terminal will bring economic benefit to Lithuania and the region’s gas consumers after 2024. Being a reliable alternative source of gas, the LNG terminal will guarantee competition in the gas market and contribute to the national energy security.
 
 “The findings of the study confirm that the LNG terminal efficiently guarantees gas supply competition in the region and creates conditions for gas supply to Lithuania’s consumers at the best current global market prices. The gas price corresponding to the EU average has been guaranteed in Lithuania since 2015, which is one of the major achievements in terminal operation. With these insights from the expert analysis we are able to move to another stage aimed at providing shareholders with an economically balanced and responsibly assessed proposal regarding a technical solution that best meets the interests of the country, the shareholders and KN,” says Mindaugas Jusius, CEO of AB Klaipėdos nafta (KN), the operator of oil and liquefied natural gas (LNG) terminals.
 
“The consultants’ analysis shows that the LNG terminal in Klaipėda will continue to play the role of a tool for the exertion of an efficient pressure on gas prices after 2024, like it does at present. It is equally important that any chosen scenario of long-term LNG supply after 2024 – whether buying or leasing the terminal – would enable reduction of terminal maintenance costs for consumers in the coming years,” says Minister of Energy Žygimantas Vaičiūnas.
 
As the study states, failure to ensure long-term import of LNG supply poses a risk of failure to ensure adequate competition among suppliers and a competitive pressure on gas prices of the dominant supplier. The LNG terminal reduces the risks of possibilities of Gazprom, a dominant supplier in the region, to abuse the dominant position in the market and unreasonably increase gas import prices for consumers. According to estimates, if there were no LNG terminal in Lithuania, Gazprom could apply an extra mark-up of 11 to 20 per cent on gas sold in the region. According to experts, the most conservative estimates show that benefits created by the LNG terminal to Lithuania solely due to lower gas prices would reach EUR 20–60 million annually after 2024, depending on the regional market model functioning at that time.
 
The economic benefit of the LNG terminal has been evaluated from the perspective of three markets: the Lithuanian market, the common gas market of three Baltic countries, and the common Baltic-Finnish gas market.
 
The analysis has assessed both opportunities and risks in all three scenarios of long-term security of LNG supply. According to experts, if Lithuania buys a terminal, it will be able to flexibly react to the unexpected shift in circumstances, for example, changes in natural gas consumption. There would be no such flexibility in the case of lease of the LNG terminal.
 
The study states that if a Lithuanian-Polish gas pipeline (GIPL) is built, the supply security situation will improve, yet GIPL alone will not be enough to guarantee the competitive level of prices. The analysis shows that supply security and efficient communication among suppliers might be ensured only upon availability of at least two sources alternative to Russian gas: the LNG terminal and GIPL.
 
The analysis also reveals that if decisions related to long-term security of LNG supply are adopted before 2024, this would create additional economic value and enable reduction of infrastructure maintenance costs for gas consumers.
 
On Friday, an independent expert analysis will be introduced to the Infrastructure Commission of the Government which will envisage further steps. The Government will pass final decisions regarding long-term security of LNG supply. As provided in the Plan of Implementing Measures of the Government’s Programme, this has to be done by the end of 2018.