Lithuania officially made its debut in the global LNG market with the arrival of its floating storage and regasification unit (FSRU) Independence on Monday, October 27, 2014. The welcome ceremony in Klaipeda was attended by the Lithuanian Prime Minister Algirdas Butkevičius as well as foreign dignitaries, including the Estonian Foreign Trade and Entreprenuership Minister Anne Sulling and the US State Department Acting Special Envoy and Coordinator for International Energy Affairs Amos J. Hochstein. With much fanfare, such high-profile attendance seemed to confirm President Dalia Grybauskaitė’s high expectations for Independence‘s contribution to the country’s future energy independence.
For a country entirely dependent on Russian natural gas, the timing of FSRU Independence’s arrival cannot be more auspicious as Lithuania’s gas contract with Gazprom is set to expire next year. Although complete independence from Russian natural gas will not occur immediately, Lithuania’s floating LNG carrier will dramatically alter the geopolitics of the Baltic region. Moreover, it will also have long-term significant implications the U.S. global energy strategy.
Independence‘s first LNG supply is to be delivered from Noway’s Statoil ASA (STL) on Tuesday and will amount to 60 million cubic meters of natural gas. Annual deliveries of 540 million cubic meters of gas are to last for the next five years. It will make up a fifth of Lithuanian natural gas needs. Moreover, the pricing is estimated to fall in the same range as Gazprom’s standards after this year’s 23% discount. This is considered a relief for both Lithuania’s budget and security as the country has historically paid 36 % more for Russian gas than neighboring countries.
Additionally, Independence’s full supply capacity is estimated to be 4 billion cubic meters, potentially feeding 80% of the entire Baltic countries’ needs. Reflecting this potential, Grybauskaitė envisioned her country to be “a security guarantee for the whole region.” US State Secretary John Kerry also echoed by describing Independence’s arrival as a “historic milestone.”
However, these benefits will not accrue overnight. Lithuania imports 100% of its natural gas from Russia, and the current contract with Gazprom will last till the end of 2015. Moreover, given the entrenched presence of domestic pro-Russian interests that frequently impeded the domestic LNG project, the Kremlin’s influence may stand in the way of Lithuania’s energy diversification strategy at the time of contract negotiations next year. Logistical issues, including the two-month testing of the new LNG terminal, will also impede the country’s progress toward complete energy independence from Russia.
Nevertheless, Lithuania’s energy security will have changed drastically by 2016. So will the entire Baltic region. The annual capacity of the LNG terminal in Klaipeda will be 4 bcm, an amount that more than satisfies Lithuania’s entire natural gas needs. Given the ongoing upgrades to the pipeline connectors between Lithuania and Latvia, Lithuania will be able to redistribute surplus amounts to its neighbors after the completion scheduled at the end of 2015.
Moreover, Poland is expected to complete Świnoujście LNG terminal this year, and Estonia and Latvia are mulling similar projects. These initiatives are largely meant to extricate themselves from Russia’s historical influence on those countries. Thanks to FSRU Independence’s mobility, Lithuania will be able to lead the Baltic states’ efforts to reduce Russia’s regional hold.
What is most important, however, is that Russia does not have an effective alternative to its conventional pipeline strategy to maintain its influence on Europe. Indeed, this is primarily why Russia acquiesced in lower gas pricings to secure a deal with China for increased revenues. In short, Russia’s days as a natural gas juggernaut in Europe are numbered with the advent of FSRU Independence.
The Lithuanian LNG could herald a new era for Eastern European energy security with considerable long-term implications for the U.S. With the development of its additional LNG export facilities, the U.S. will be in a strong position to enter the global gas market. Indeed, the U.S. is already the world’s largest natural gas producer and is estimated to be a net exporter by the end of this decade. The prospect for coupling the U.S. with Eastern Europe via energy is now a distinct possibility. With its burgeoning natural gas industry, the U.S. will be able to increase its regional influence in the Baltic states and better address Russia’s resurgence.