Six years ago, Lithuania, like other Baltic countries, was completely dependent on the monopoly supply of natural gas through pipelines from Russia. Today, Lithuania has ensured security of natural gas supply, forgotten about the political component of Gazprom’s gas price, created a complete value chain in the field of liquefied natural gas (LNG) imports, established itself on the global market as a reliable LNG terminal operator and ensures supply of natural gas to the region. The ‘broken ice’ enhances strategy consistency – to ensure the long-term operation of Klaipėda LNG terminal at least until 2044.
The direction of growth
Since the start of operations of the Lithuanian LNG terminal (KN ‘Klaipėdos nafta’, the operator), its utilization rate has been rising on an yearly basis and reached 50% in the sixth year of operation and similarly a year before in 2019. This indicator illustrates the dynamics of the European LNG market and reflects the ongoing trend of low LNG prices. The decrease of demand for LNG consumption affected by the COVID-19 pandemic filled European natural gas storage facilities and subsequently pushed LNG prices down. LNG flows from Norway account for the largest share of Lithuanian LNG terminal imports and account about 82% since the beginning of operations. LNG from the USA has demand in the spot market. Therefore 3 large scale LNG cargoes from US were imported through the Lithuanian LNG terminal during this natural gas year, which is calculated from 1st October 2019 until 30th September 2020.
A total of 3.5 million cub. m of LNG was imported in 2020, whereas in 2019 – 2.2 million cub. m. The import of natural gas through Klaipėda LNG terminal surpassed the gas imported by pipelines. In certain periods of year 2020-2021, 68 and more percent of natural gas supplied to the natural gas grid were imported through the LNG terminal. In the autumn of 2020, Lithuania announced that it had doubled its natural gas exports to neighbouring countries – using the well-developed Lithuanian gas transmission infrastructure, twice as much as last year was transferred to the Baltic States and Finland, i.e. – 7.8 TWh. This growth was significantly influenced by the launch of the Estonian-Finnish gas connection Balticconector. From 1st January, prices on the Finnish gas exchange approached the prices in the Baltic States, although a couple of months before the start of the connection, the differences amounted to as much as EUR 10 per MWh. The correlation between the European TTF index and the Finnish natural gas price started immediately after the liberalization of the market.
The potential of LNG has not yet been exploited
According to McKinsey & Company, the global gas market has grown by 5.3% in recent years and is expected to grow by 0.9% annually until 2035. The LNG segment is considered to be very promising – its growth is forecasted to be 3.5% by 2035 per year. LNG also has an important role to play in the transition to a climate-neutral economy by 2050. According to the European Commission, it is the most economically viable fuel for the transition to green energy. LNG reloading station, which started operating in Klaipėda in 2017, has also enabled the development of a small-scale LNG market – Bunkering ships with LNG, transporting by tank trucks to regions remote from the natural gas network. However, so far the potential for LNG use in the Baltic States remains relatively low. LNG bunkering takes place only in Klaipeda and Tallinn, the LNG refuelling point for transport operates only in Estonia, a larger breakthrough can be seen only in Poland. Lithuania is also laying the foundations for the infrastructure of LNG heavy road transport refuelling points. In the next 2-3 years at least 4 LNG filling points will be operational in Lithuania, as the state provides subsidies for the establishment of such infrastructure. Klaipeda LNG terminal is among the most efficient terminals in Europe and the only terminal in the Baltic States. It is increasingly used by Latvian and Estonian gas suppliers. And with the growing demand for LNG in the transport, shipping and industrial sectors, the possibilities of utilisation will increase.
Will ensure the operation at least until 2044
The LNG reloading station in Klaipėda gained a stronger foundation when in 2020 its sole user became the Polish company PGNiG. KN sees Poland as an open and high-potential market, as there are still many customers in Poland that are distant from the natural gas network, and the network of LNG filling points is expanding. In addition, Poland aims to reduce the production of electricity from coal from 80% to 37-56% by 2030, so the demand for natural gas supply will increase. The coming year will bring many more strategic opportunities to operate the Klaipėda LNG terminal at high capacity. The construction of the GIPL gas pipeline with Poland (which will start operating in early 2022) will become an important link connecting gas supply points and pipelines in the Baltic region with rest continental Europe, including countries such as Ukraine. Gas consumption in FINESLAT countries (Finland, Estonia, Latvia) and Lithuania should keep stable with minor declines until 2030. The supply flexibility, price transparency and independence from a single supplier provided by the infrastructure in Klaipėda are becoming important factors for the whole region. In 2018, the Seimas of the Republic of Lithuania approved the National Energy Independence Strategy and the Law on the Liquefied Natural Gas Terminal which altogether envisages long-term operation of the Klaipėda LNG terminal until 2044. When the current contract for the lease of the FSRU ‘Independence’ with the Norwegian ‘Hoegh LNG’ expires, Lithuania will have to acquire and own this type of vessel that meets the country’s energy security and natural gas competitiveness aspirations. The KN is obliged to complete this project by the end of 2024 and to secure the supply of natural gas by the most cost-effective technological solution until 2044.
Expert article 2827
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