Lithuanian LNG terminal’s results in 2020 exceeded expectations
The high utilization rate of the Lithuanian Liquefied Natural Gas (LNG) terminal, the highest so far result of regasification, the flexibility and ability to respond to rapidly changing market conditions, and most importantly, reduced natural gas prices at the regional level and declining terminal maintenance costs for consumers were the goals fully achieved this year. These remains goals for next year as well.
At the end of the year, we can estimate that the unprecedented situation of extremely low LNG prices in the market in 2020 enabled Lithuanian natural gas importers and, naturally, gas consumers to benefit from it.
At the end of the year, according to the schedule, we are planning to have 200 loading and reloading operations at the LNG terminal counting from the beginning of operations in 2014. We have already had 69 such operations in this calendar year alone. During the entire 6 years of terminal’s operation, more than 80 TWh of natural gas has been regasified and supplied to the national gas grid. This year alone, more than 20 TWh of natural gas has been regasified to date, more than ever before. This year, approximately 70 percent of natural gas in Lithuania is supplied through the LNG terminal. Of course, this year in the LNG market is rather exceptional than forming a long-term trend, as LNG prices have fallen down significantly due to the extremely warm winter last year and decrease of the global demand for natural gas affected by the Covid-19 pandemic. Lithuania could also benefit from these market conditions: natural gas price in Lithuania decreased by an average of 15 percent from 1st July 2020. We wouldn’t have been able to achieve this without the LNG terminal. And for the calendar year 2021, more than 14 TWh of regasification capacity has been ordered at the LNG terminal. This shows that this element of natural gas infrastructure ensures both energy security and the competitiveness of the natural gas market.
This year was particularly favorable for LNG imports from the USA. Calculating from the beginning of the LNG terminal operation in Klaipėda, 10 large cargoes were imported to Lithuania from the USA, a total of 9.37 TWh. By the end of the year amount of cargoes from USA will reach 12, according to the schedule. In the calendar year 2020, 7 shipments from the USA were received (and two more are expected by the end of the year). LNG from the USA will make up to 37 percent this year (with planned cargo) of all imported LNG. About 49 percent of LNG will be imported from Norway, the rest – by small quantities from Russia. Although natural gas exports from USA began in 2016, in 2019-2020 was a major breakthrough for the LNG exports to Europe. This was mainly due to an increase in liquefaction capacity in newly-emerged projects in the USA that boosted demand and supply to Europe. The customers of the Lithuanian LNG terminal, of which we have as many as 6 this year, were able to take advantage of the favorable market situation and import LNG from the USA. We believe that from 2021 the changed pricing mechanism of the LNG terminal reloading service and its differentiation according to ship / cargo sizes will further encourage the attraction of new users or cargo. The change in the pricing methodology simultaneously responds to the company's two goals - to increase the competitiveness of the LNG terminal and to reduce the security supplement paid by natural gas consumers, which is included in the natural gas tariff.
According to EUROSTAT, only in the first half of this year, Lithuanian natural gas consumers (households and non-households) paid one of the lowest prices for natural gas in Europe. In addition, the State Energy Regulatory Council (NERC) states that in the first half of 2020, natural gas was imported to Lithuania at approximately 54 percent lower price. All this was just a vision 6 years ago, when Lithuania and the whole region had one possible source of supply through pipelines and zero competition. The integration of the LNG terminal and other natural gas connections in the region has also provided a positive impetus this year. In the autumn of 2020, Lithuania announced that it had doubled its natural gas exports to neighboring countries. Using well-developed gas transmission infrastructure, twice as much natural gas was transported to the Baltic States and Finland as last year, i. y. 7.8 TWh. This growth was significantly influenced by the start of operations of the Estonian-Finnish Balticconector at the beginning of this year. From 1st January prices on the Finnish gas exchange approached prices in the Baltic States, although a couple of months before the start of the interconnector, the differences were as high as EUR 10 per MWh. The correlation between the European TTF index and Finnish natural gas prices began immediately after market liberalization. Natural gas trends are also positive in the future. In the Baltic States until 2030 relatively stable demand is forecasted. The launch of the GIPL interconnection and the opening up of the European natural gas market offer huge potential.
The higher the utilization of the LNG terminal, its ‘employment’ on a regional scale, is, the more its maintenance costs for consumers decrease. KN makes annual efforts to reduce the maintenance of the LNG terminal. The LNG terminal maintenance ‘fee’ is a security supplement paid by all natural gas consumers. The additional component of natural gas supply security to the natural gas transmission price ensures uninterrupted operation of the LNG terminal and consists of three parts - LNG terminal maintenance costs (KN’s share), costs incurred by the designated LNG supplier (AB Ignitis group’s share) and natural gas distribution administration costs (AB Amber Grid’s share). The security supplement is a part of the gas price charged to consumers, which is adjusted and approved by NERC each year to reflect actual costs. The KN’s share of the security supplement has been declining and this task remains a priority ahead. In comparison, the share of the KN in the security supplement is consistently decreasing from EUR 361.84 EUR per MWh / day / year in 2017 to 151.38 EUR per MWh / day / year in 2021. In 2018 an important, sustainable decision was made to ensure energy independence and competitiveness of natural gas prices at least until 2044 as well as to promote the use of LNG as a clean fuel in Lithuania. KN received 134 million EUR loan of the Nordic Investment Bank, which financed part of the FSRU rental costs by spreading them over a longer period until 2044, this way the security supplement will reduce by around 36 million EUR each year. Thus, the implementation of the long-term LNG project should provide the market with even more certainty about the future of the terminal, and stable LNG regasification volumes will create preconditions for further reduction of the security supplement for gas consumers.
