U.S. LNG Gets a Big Cheer in One of Russia's Small Neighbors

(Bloomberg) -- One of Russia’s European neighbors is fully embracing U.S. liquefied natural gas.

Lithuania, the Baltic state that used to be completely dependent on gas piped in from Russia, is turning to LNG from Norway to the U.S. to help negotiate better prices from its former Soviet ruler. The country of just 2.8 million people is now the biggest European buyer of U.S. LNG after Spain and Portugal.

The U.S. has been trying to encourage Europeans to buy more of its gas and vehemently opposes the expansion of a pipeline directly from Russia to Germany that bypasses Ukraine and other eastern European transit nations. Lithuania signed two agreements with the Freeport LNG project in Texas during a meeting with President Donald Trump in Washington earlier this month, deepening its ties with the U.S. and the rivalry with Russian gas.

“In the summer time, LNG from the U.S. was even cheaper than Russian pipeline gas,” Lithuanian Energy Minister Zygimantas Vaiciunas said in an interview in Berlin. “The competition is taking place.”

Lithuania secured half of its gas needs with LNG last year. Lithuania’s Klaipedos Nafta AB agreed with Freeport to jointly develop small-scale LNG facilities and floating storage and regasification units worldwide, and the other deal was a framework agreement on buying LNG in the future, Vaiciunas said. Freeport is due to start at the end of this year or in early 2019, and the parties are yet to fix the pricing and volumes of supplies, he said.

Lithuania opened an LNG terminal in 2014, giving it a tool to negotiate better prices from Russia’s Gazprom PJSC, which the Baltic nation said were some of the highest in Europe.

LNG has had a “transformative effect on prices in Baltic States,” Maros Sefcovic, vice president and commissioner for the Energy Union at the European Commission, said Tuesday in a separate interview in Berlin. Average household gas prices in Lithuania fell 24 percent in 2015, the first full year of operations of the Klaipeda LNG terminal.

Russia’s outlook for its gas prices rising 18 percent this year creates “new competition opportunities for U.S. gas, not only in Lithuania but also for Europe,” Vaiciunas said. Over the past two years Russian gas produced at low-cost Siberian fields and piped via pipelines to Europe has largely beat economics of U.S. LNG supplies to Europe.

Lithuania expects the 50-50 ratio between LNG and pipeline gas imports to remain, its energy minister said.

“This LNG terminal was our choice to get competitive price but also have flexible supply, it pays back and we recommend this technology,” Vaiciunas said. “At the beginning this terminal was like a strategic investment, to have the security of supply but now it pays back as an instrument to ensure competitive prices and a very good diversified portfolio.”

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