KN initiates study for LNG terminal capacity allocation and pricing model

KN (AB Klaipėdos Nafta), with the help of external experts, plans to perform an evaluation of long-term capacity allocation alternatives and pricing for the LNG terminal. In the first stage, KN announces a public market consultation whereby it will pursue to obtain preliminary price indications for such a study from the market and to optimally prepare for the purchase of the study itself.
 
According to Darius Šilenskis, CEO of KN, the company plans to perform the market analysis and to evaluate the long-term and short-term capacity allocation and pricing mechanisms of the European LNG terminals and to identify the most suitable model for Klaipėda LNG terminal with the help of experienced experts. It is expected that results of the study would ensure the maximum long-term capacity utilization and efficient operation of the LNG terminal based on a cost-reflective tariff model.
 
“The de facto exploitation of the LNG terminal demonstrates its benefits not only for the national but also for the regional natural gas market and gas consumers. We believe, that together with the launch of the Balticconector connection between Estonia and Finland and further expansion of the natural gas transmission system in the region (GIPL connection with Poland), it will further stimulate the market participants’ interest in the long-term LNG terminal capacity allocation,” comments Darius Šilenskis, KN CEO.
 
The LNG terminal is a state-regulated activity of KN, which operates according to the principle of the transparent and open third party access. According to the current LNG terminal pricing methodology, the terminal’s operating costs are mainly (partly?) covered by an additional supplement of the security supply applied to the price of natural gas transmission services.
 
Part of the LNG terminal operation costs is paid by the LNG terminal users as a variable LNG regasification price for the amount of LNG regasified at the LNG terminal. The variable price of the regasification service is calculated according to the methodology approved by the State Energy Regulatory Council (hereinafter – SERC).
 
“Currently, the methodology is based on the principles of the transmission system pricing model, which aims to ensure equal prices for different transmission system entry points and to increase the market competition. The methodology is not based on the operating costs of the LNG terminal and covers only a part of the total estimated operating costs. We will seek to assess the possibilities of changing it, which could accordingly contribute to the reduction of the security supplement for the gas consumers,” says D. Šilenskis.
 
The company which will conduct the study will have to answer which long-term capacity allocation mechanism could be applied in the LNG terminal and apply LNG terminal’s pricing accordingly.
 
According to the head of KN, with a public market consultation KN seeks to obtain insights from the market participants and potential organizers of the study, so that it could prepare for the purchase of the study itself as effectively as possible. Announcing public consultations before initiating public procurements has already become a good practice for KN while carrying out the project of the long-term LNG terminal supply solution.
 
Following the public consultation, after evaluating the obtained information, corporate decisions will be made and the purchase of the study will be announced. It is planned to select an external expert by January next year and to prepare the study in the late spring of 2021. The results of the study will be discussed with the market participants and other interested parties, and possible changes to the rules for the use of the LNG terminal are planned to be submitted for public consultation afterwards. Each stage of this process will be communicated separately by KN or relevant institutions.