The small Baltic nation just took a giant step to counter Russia's energy bullying.
With the arrival Monday of the liquefied natural gas terminal Independence to the Lithuanian port of Klaipeda, the tiny Baltic countries have thrown up a gleaming steel gibbet to dissuade Russia from using energy to hold the region hostage.
The floating, nearly 1,000-foot-long LNG terminal will for the first time allow Lithuania and its neighbors to import liquefied natural gas for domestic consumption, rather than relying on Russia’s Gazprom for every ounce of gas. The ship has the capacity to take in and regasify 4 billion cubic meters of gas annually, surpassing Lithuania’s own demand, and could supply, in theory, more than 75 percent of all the natural gas needed by the three Baltic states. Full commercial operations are expected to begin later this year; the Independence already has a five-year deal with Norway’s Statoil for limited shipments of LNG.
Lithuanian president Dalia Grybauskaite hailed the $500 million vessel’s arrival as a "strategic geopolitical project that may decide the future of the whole region." U.S. Secretary of State John Kerry said in a letter to Lithuanian leaders that the Independence represents a "historic milestone" for Baltic energy security.
Though Lithuania contracted the vessel more than two years ago, its arrival comes at a propitious time. Russia and Ukraine are still at loggerheads over natural gas exports, and Europe lives in fear of a prolonged disruption in Russian natural gas supplies, as has happened several times in winters past.
Russia, Ukraine, and the European Union are expected to meet again Wednesday to try to finalize a deal that would see Russia resume gas exports to Ukraine — thus lessening the risk of a Europe-wide supply disruption — if Ukraine can scrape up the billions of dollars that it owes Gazprom for previous gas shipments.
The new Lithuanian gas project will be a linchpin of the region’s ability to withstand any Russian supply cuts. "Once the Klaipeda LNG terminal enters into operation … the supply for the protected customers would be ensured in the three Baltic States in all [disruption] scenarios," the EU’s executive branch found in a recent "stress test" of the continent’s ability to weather a cutoff in crucial energy supplies.
Longer term, turning to LNG, rather than trying to build huge pipelines to bring gas from friendlier countries, could well be the alternative to reliance on Russia, says the Oxford Institute of Energy Studies in a new paper. "The main additional source of non-Russian gas for Europe up to 2030 will be LNG," the paper concludes.
The new Lithuanian terminal isn’t a silver bullet for the region’s energy woes just yet. The Baltics are an energy island with little physical connection to other European countries, which limits the new project’s immediate impact on blunting Russia’s stranglehold, said Andreas Goldthau, an energy analyst at Harvard University’s Belfer Center.
But countries there are scrambling to lay the groundwork. Poland will have an LNG import terminal ready next year, while Estonia, Latvia, and Finland are also mulling constructing their own LNG import facilities. If they finish building regional gas pipelines, that would give the Baltic region the ability to turn into an energy supply hub for some of the countries most dependent on Moscow’s gas, Oxford Energy noted. The combination of new LNG terminals and regional pipelines, for example, would enable Poland to replace most of the gas it currently imports from Russia.
The rub, of course, is that LNG is generally more expensive than gas shipped through fixed pipelines on long-term contracts. That’s the main reason that Europe as a whole uses less than one-quarter of the LNG import capacity it currently has: Russian gas is simply cheaper than buying the stuff off of tankers.
But for Lithuania, LNG isn’t necessarily a high-priced alternative — for now. It already pays about the highest price in Europe for piped Russian gas, despite snaring a recent discount. Lithuanian officials said Monday that the first volumes of LNG will be competitively priced.
That may well change during the winter, since initial supplies from Norway are linked to British spot gas prices. As temperatures plummet, those gas bills will rise. And Europe’s heating season starts this weekend.
"The Lithuanian consumer will be paying a premium for energy security exactly during the time of the year when it really matters," Goldthau said.
If LNG is ultimately to ease Eastern Europe’s energy dependence, the big question mark going forward is what happens to the rapidly growing LNG market. Massive amounts of new gas-export capacity are coming online in the next few years in a bid to meet expected growth in demand for the fuel in Asia. But whether liquefied gas will be a pricey or a dirt-cheap commodity depends on the extent to which Asian demand for more gas materializes, and just how many gas suppliers rush in to meet it — including the United States.
Now that the United States is awash in natural gas, thanks to the boom in hydraulic fracturing, many lawmakers are clamoring to send exports of gas to beleaguered allied countries. Several lawmakers have introduced bills that would fast-track gas exports to NATO allies and Japan. The arrival of the first LNG terminal in the Baltics gives U.S. gas-export champions another reason to cheer.
U.S. Senator Jim Inhofe (R-Okla.), an important Senate voice on energy matters, who attended the Independent’s inauguration, urged President Barack Obama to expedite U.S. gas exports. "The inauguration of Lithuania’s first liquefied natural gas import facility marks an important step in our European allies’ efforts to free themselves from the grip and influence of Russia, which manipulates natural resources markets to advance its foreign policy agenda," Inhofe said in a letter to Obama.
"Lithuania’s ability to reduce its total dependence on Russia for natural gas is very significant," said Rep. Mike Turner (R-Ohio), who has worked extensively on the issue. "The United States must continue to support efforts to help our European allies diversify their energy resources and create a more competitive global natural gas market."