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Lithuania Renegotiates LNG Deliveries Amid Fury by Gas Consumers

The new agreement will see somewhat cheaper LNG, but still considerably more expensive than Russian pipeline gas - consumers which are forced to purchase the LNG instead are not amused

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Lithuania has revised its contract with Statoil on supplies to the LNG terminal in Klaipeda, Vilnius announced on January 25. The volume and the pricing of the gas will be reduced.

The rearranged deal is aimed at helping Lithuania improve the economic performance of the Baltic region's only alternative to Russian pipeline gas. Launched in January 2015, the platform has struggling to find customers for the gas - which fills little of the potential capacity of around 4bn cm. That has angered major consumers who are being forced to support the facility, and risks raising gas prices for housholds.

The deal, agreed by state gas trader Litgas with Norway's state oil and gas company, reduces the annual supply volume by 35% to 350mn cubic metres (cm) annually, but extends the contract to 10 years. Under the original deal, Statoil was to deliver 540mn cm annually over five years. However, falling demand caused by mild winters and growing use of other energy sources has put the terminal’s economic viability into question.

Lithuania launched a bid to renegoiate the contract last year as it sought solutions to the stuttering commercial performance of its clearly political project. Litgas said in 2015 that it expected to end the year with a surplus of 280mn cm, or half of the gas it bought from Statoil last year.

"The key achievement is that [Litgas and Statoil] agreed to change the gas price formula to bring the price of gas closer to the price of pipelined gas," Prime Minister Algirdas Butkevicius said in a statement. "As a result, LNG supply costs should decline by up to 25%, or €25.5mn, annually, which will bring the terminal's maintenance costs down too."

Annual maintenance costs - charged to major gas consumers whether or not they buy LNG from the facility - will drop to around €84mn from €110mn, Dalius Misiunas, CEO of Litgas parent Lietuvos Energija, told a news conference on January 25, according to Leta.

That should help Vilnius soothe the anger amongst the country's large gas consumers over the cost of supporting the terminal. That is a driving issue, given that Russia and Gazprom are acutely aware of the issues. The maintenance costs were subject to a re-jig in November.

The revised pricing on the Statoil contract should help heat producers save around €8.5mn annually, according to Leta, while households and other consumers will enjoy seeing approximately €4.5mn off their gas bills.

Fertilizer manufacturer Achema, the country's largest consumer, should also save €5mn. At the same time, the company appears unimpressed by the new cost of the actual gas at the platform, and isreported to be close to sealing a deal with Statoil to buy 500,000 cm directly from the Norwegians.

Lithuania's struggle to ease the commercial pressures surrounding the LNG terminal have not gone unnoticed in Moscow. Gazprom is in the middle of a fight to retain control of the Latvian pipeline network and storage facilities, which are a key obstacle to Litgas efforts to expand sales across the region. Russian companies have also recently been reported to be sniffing around Achema.

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