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Achema-Statoil deal may affect Gazprom’s gas prices for Lithuania

BC, Vilnius, 20.01.2016.Print version
Planned deal between Lithuania’s fertilizer manufacturer Achema and Norway’s oil and gas giant Statoil may lead to changes in the price of gas supplied to Lithuania by Russia’s Gazprom, experts believe. However, they have differing opinions on whether or not this contract could create a catalyst effect for other privately-owned gas importers and trigger changes in the market, informs LETA/BNS.

Photo: gazprom.ru

Former energy minister Jaroslav Neverovic says that the signing of an LNG supply contract between Achema and Statoil would establish a certain ceiling for the prices of Russia’s natural gas.

 

“As regards Gazprom, I see pluses. They [Achema and Statoil] will establish a certain ceiling for their main contract. If it were possible to find good prices of gas, in particular in summer, that would also send a certain strong signal as regards the price in the pipeline and would strengthen the negotiating position. I see a great many of pluses in what they’re doing, that’s very wise,” he told BNS.

 

In Neverovic’s view, this is the first step towards the creation of a real Baltic gas market. However, he thinks that Gazprom will remain the main supplier of gas to Lithuania and it will only have to adjust to the prices of LNG.

 

“I’m certain that this action, which we see now, is just an introduction to much more important changes in the gas market where LNG will play a very important role. Perhaps that won’t be the main role as I imagine that our current key supplier will seek to keep that position, I have no doubts that it will seek to maintain its market share and maximize its profit. However, LNG will enable both the state and businesses to ensure diversification and price ceilings in the long run,” energy expert said.

 

Neverovic thinks that significant changes in prices will also be triggered by LNG imports from the United States. Moreover, a gas interconnection between Lithuania and Poland would open up even more possibilities to conclude various deals.

 

The deal between Achema and Statoil would also facilitate the operations of the LNG terminal in Klaipeda and would bring down its maintenance costs for consumers, Neverovic added.

 

Meanwhile, Vidmantas Jankauskas, an energy expert, told BNS that this deal might lead to changes in Gazprom’s prices but it would not shake the market due to a decrease in gas consumption in Lithuania.

 

Gazprom won’t disappear anywhere, our European market is stable – it’s not growing even though we all dreamed of growth in gas consumption. Another thing is that Gazprom, despite all bravado, does not really have other options. Relations with Turkey are horrible and, speaking about China, if there’s anything, it’ll only be after 20 years. Hence Europe is the sole main export destination, which means that you have to follow the rules of the game, like it or not,” he told BNS.

 

Jankauskas does not think that Achema would mobilize more companies to use the LNG terminal as there are no more buyers of gas left in the country.

 

He believes that the authorities should consider building a gas-fired power plant, instead of a nuclear power plant, if they wanted to promote gas consumption: “perhaps they should think about a gas-fired power plant, instead of a nuclear power plant, which everyone is fed up with, and perhaps we should build a modern gas-fired power plant, which would be flexible in its operations.”

 

Ramunas Miliauskas, Achema CEO, confirmed to BNS on Monday that the contract with Statoil should be signed by the end of January. He refused to make any detailed comments in the absence of final agreement.

 

Meanwhile, sources told BNS that Achema and Statoil planned to sign a one-year gas supply contract under which the Lithuanian fertilizer manufacturer this year would purchase approximately 500 million cubic meters of gas.

 

In addition to Achema, Statoil also supplies gas to Lithuania’s state-owned gas trade company Litgas.

 

Litgas and Statoil in 2014 signed a five-year contract on the supply of 2.7 billion cubic meters of gas, or 540 million cubic meters annually. With gas consumption in Lithuania following a downward trend, the parties this week are expected to sign a revised contract, which will extend the term from five to ten years and will thus provide for the purchase of smaller annual gas volumes and for a slightly lower price.

 

If Achema signs the contract, Lithuania will buy nearly 50% of the required annual gas volume, i.e. nearly 1 billion cubic meters, from Norway, and will purchase the remaining volume from Gazprom.

 

Lithuania in late 2014 completed the LNG terminal in Klaipeda that provided the country with an alternative to gas supplied by Gazprom, which reduced the price of gas for Lithuania by approximately 20% in the spring of that year.

 

Lithuania’s heat production sector now accounts for approximately one-third of the total domestic gas consumption that has decreased by about one-third in the past few years.

 






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