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Lithuania Considers New Tax to Support Its Loss-Making LNG Facility

Lithuanians' rising heating bills are a sure sign the diversification away from cheap Russian gas has succeeded

This article originally appeared at Natural Gas Europe

The head of Lithuania’s heat producers calls the country’s much-lauded liquefied natural gas facility in the seaport of Klaipeda “an expensive posh store where shopping is mandatory.” To bring ‘fairness’ to the situation, Vytautas Stasiunas, President of the heat providers association insists a single LNG facility maintenance tax should be imposed – not only on major gas buyers, but on all the consumers, i.e. each Lithuanian citizen.

The necessity for an egalitarian tax has become particularly urgent after the country’s Constitutional Court ruled in favor of the state recently, reaffirming the country’s gas and power suppliers’ mandatory obligation to purchase gas from the facility, where the price is still higher than that of Gazprom.

Minister open for discussions

Though nearly all in the Baltic country agree that the LNG terminal and the Korean-assembled FSRU have served as tangible leverage in talks with Russia over gas price. After the launch and Gazprom gas price cuts on European markets, Lithuania has been struggling ever since with whom to foist costlier Norwegian gas and its costly LNG repositories.

“As of now, the residents depending on centralized heating mostly support the LNG facilities, but this needs to be changed: if we deem them objects of national importance and guarantors of our energy security, to population has to take over the burden of costs,” Stasiunas told Natural Gas Europe.

The Lithuanian Energy Minister, though as always showering the LNG facility with praise, says the idea is worthy of “discussion.”

“It is really possible to discuss the most suitable model of the maintenance. Now we have such model as it is (through mandatory gas purchases), and it functions well, but if anyone suggests a better model, it is worth looking for a best solution. I am open for discussions (in that regard),” Minister Rokas Masiulis explained to Lithuanian media.       

He agreed that the terminal gas price is “insignificantly” higher against the Gazprom price, but insisted that the Klaipeda LNG terminal has pushed the price for Lithuania down “generally.”

After the Constitutional Court ruling mandatory LNG purchases in the country are thought to rise from roughly 35 to 65 percent.

If not for its nodding to the interest of state, experts say the Lithuanian authorities would have issues with the roughly €600 million price tag for the LNG vessel’s 10-year lease.

“That now Vilniaus Energija (a heat company serving the Lithuanian capital Vilnius) will have to buy from the terminal 65 percent of its demand for fuel – up 30 percent from the previous level- looks pretty weird to me. It is akin to obligating someone to lavish 65 percent of the wage in a posh store,” Stasiunas spoke illustratively to Respublika, a Lithuanian weekly known for its hard take on the LNG facility.

Largest gas consumer mulls opting out of mandatory LNG purchases

The so-called “gas price security component” at Klaipeda LNG terminal is said to be €22.3 for 1,000 cubic meters of Statoil gas supplies. In other words, that is how much is needed to come up with on top of the commercial price in order to secure the wellbeing of the strategic energy objects.

A component of the terminal operational costs is indirectly also included in Lithuanians’ power bill through public service obligation payments, arising from state power companies’ obligation to purchase local generation.

The $128 million offshore liquefied natural-gas vessel converts LNG into natural gas and pumps it to the mainland, able to replace all of Russia’s annual 2.7 billion cubic meters of gas supplies if operated at full-capacity - almost 4 billion cubic meters per year.

At that level, the terminal could cover 80 percent of the entire Baltic region’s demand, but Latvia and Estonia have their own schedule: the latter has been advancing its own LNG project, while the former mulls starting one.

With the far less than projected demand, Lithuania’s LNG terminal is being run at just over 10 percent of its capacity and the Baltic state still struggles to sell the minimum base, ca 500 million cubic meters of gas per year.

With the constitutional obligation to buy the Norwegian gas, the uncertainty over the LNG terminal’s maintenance budget is not going anywhere.

The Baltics’ largest sole commercial gas user, fertilizer producer Achema, which will likely be forced by the constitutional ruling to pay roughly €25 million for the terminal infrastructure support without getting a single drop from it as its buys cheaper Gazprom gas, mulls opting out of the obligation with imports of nitrogen, which can be used by the plant for the fertilizer output.

Achema is not only one to not bode well for the Klaipeda facility.

The expected prevalence of bio-fuels in the country’s heating sector looms menacing to the LNG terminal

“Already in a couple years the majority of heat providers in Lithuania will use cheaper bio-fuels, not natural gas, so imposing a new national tax to be paid by all and each for the energy security guarantor (LNG facility) is not an option, but rather a necessity,” insisted Stasiunas.

Lithuanian lawmaker excoriates LNGT spearheads

Meanwhile, Arturas Skardzius, the chairman of a former interim parliamentary commission, set out to investigate Lithuania’s strategic energy projects during the Conservatives’ years in power through 2008-2012, notes that with bankruptcy of Achema, or in case it decides to start importing liquefied nitrogen and manufacture fertilizers from it, the burden of the LNG objects for all would be “hardly bearable.”

“Already in 2016 Lithuania is expected to start dealing with the glut of gas, a result of the increased use of bio-fuels. But closing eyes to the reality, the Conservatives pledged to buy 540 million cubic meters of (Norwegian) gas suppliers for five years…The gas distribution and transmission at the LNG terminal has gone from 231 litas ($95) to 401 litas ($163) for 1,000 cubic meters of gas…The way they blew up the terminal expenditures is nowhere else to be found. It is a crime. The energy security could have been reached at whole less cheap costs,” the Lithuanian lawmaker argues.

European Commission will likely not embrace idea 

Getting all to pay the “energy security” tax, experts point out, might be not an easy task.

Pijus Ralys, an energy expert at Lithuania’s Industrialists Confederation (LIC), believes the European Commission, the European Union’s executive body, will likely bristle against the idea.

“Imposing such a tax would be kind of a new thing in the Union. Alternative option would be to cover the costs from the Lithuanian budget, but since it significant share (around 30 percent) consists of the EU allocations, the state of Lithuania would certainly run into a collision with the Commission (over the use of funds). Especially that the majority of Lithuanian citizens do not use natural gas in their households,” the LIC expert told Natural Gas Europe.

Such a legislative initiative would also require a thorough overhaul of Lithuania’s laws, and drawing up a new one for the LNG terminal maintenance, which might be impossible with the Baltic country nearing to a new general election.

“Talking of the European Commission, one should remember that it had already ruled against the state of Lithuania in Achema’s complaint against the state on the mandatory LNG terminal infrastructure development support (Lithuanian authorities had initially sought major natural gas consumers in the country, including Achema, chipped in with their money for the construction beforehand, but after the EC ruling Lithuania has swiftly passed law obligating country’s heat and power companies, and Achema, too, to buy gas from the LNG terminal),” Ralys reminded.

 Lithuanian PM upbeat 

Arturas Racas, an analyst and editor of, a news site, noted that the LNG facilities’ costs are already “visibly” reflected in heat and power bills every month.

“Let’s make it clear: the residents are already substantially chipping in to the financial stability of the LNG terminal and vessel. That the Government came up with the idea of a direct natural gas terminal tax shows that things at the facilities are not way they were supposed to be according to the authorities. Those in power had to think of how to make the terminal profitable when the project was under the way and way earlier than that, but logic was not there obviously,” Racas criticized.

Not surprisingly, he says, with the economy bypassed, Lithuania deals now with a slew of issues regarding the terminal’s viability.

“Let’s admit: Klaipeda LNG Terminal is not viable economically. Trying to put the bulk of the terminal costs on Achema, a private company, is a stupid thing, likely to be happening in Russia or Belarus, for example, not in a EU country. The LNG terminal is not an economic project, but a political one, a very expensive one, obviously. It may have been useful in the negotiations with Gazprom, but altogether the cost-effectiveness of the facility will likely plague us all in the country for years to come,” the analyst emphasized to Natural Gas Europe.

Meanwhile, Lithuanian Prime Minister Algirdas Butkevicius insisted this week the LNG terminal in Klaipeda works effectively and the LNG price at it in April plummeted 12 percent in comparison to the year’s first quarter.

“After the first months of the year it is visible that the LNG facility is run effectively and there is exertion to adjust the working regimes to the changes that Lithuania deals in natural gas consumption and seasonality, too. As the certain ceiling has been put for the Gazprom gas prices, they will not be able to exceed those on international markets,” the PM told Lithuanian media.

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