2022-04-23

Energy pragmatism is possible, all it despises is rhetoric

Reducing Russia’s lucrative gas supplies to the West is a key challenge facing European leaders as they develop their response to the war in Ukraine. As reported by Politico, Lithuania’s Independence, a so-called Floating Storage Regasification Unit, could offer a useful case study for those looking to pivot away from Russian gas. LNG is pumped onto the vessel from a transport ship where it is turned back into gas for use or storage. FSRU systems can be built relatively quickly (project lengths are estimated at between one and three years) and generally require fewer planning permits than a permanent land-based equivalent. They can be moved from place to place and swapped out for bigger or smaller units as needed with comparative ease. Importantly, they also allow a country to pick and choose where its LNG supplies come from: Lithuania currently sources much of its LNG from Norway, the U.S., and Qatar. A proof that energy pragmatism is possible, not only necessary.

Tensions between Russia and Lithuania over energy supplies date back to the early 1990s when both countries were seeking to rebuild their economies after the collapse of the Soviet Union. In the winter of 1992, in one of a series of attempts to apply political pressure to Vilnius, Russian President Boris Yeltsin stopped oil supplies to its Baltic neighbor after payment disputes. In the years that followed, Vilnius accused Russian gas giant Gazprom of abusing its monopoly position by charging Lithuanian customers inflated prices. Lithuania ultimately lost a long-running compensation case in a Stockholm court over that claim, but at the same time, the Baltic state’s leadership was devising another way to wrest back power from Gazprom: the Independence project.

Lithuania’s contract with Gazprom was set to expire in 2015 and authorities understood that by that time, a new FSRU unit had to be moored and ready to go in Klaipėda harbor. In early 2012, Norway-based Hoegh LNG announced it had won the Lithuanian contract and it tasked South Korean shipbuilder Hyundai to get to work on the Independence. A raft of specialist kits, including a regasification system from China and a docking system from Denmark, was also commissioned for the $330 million projects. In Lithuania itself, public and private sector players were being pushed hard to ensure the project met its deadline, fast-tracking decisions, and working long hours. The pace continued until October 27, 2014, when the Independence finally drew alongside its new jetty in Klaipėda to be met by Masiulis, who had been made energy minister a month earlier by, a staunch supporter of the project. “We are now an energy-secure state,” then-President Dalia Grybauskaitė said. As the gas from the ship began to flow, lawmakers in Vilnius noted a secondary benefit they had not banked on. As well as providing them with greater energy security, the new competition from the Independence also pushed Gazprom into dropping the price of the gas it piped to Lithuania by about a fifth.

Years ago my country made decisions that today allow us with no pain to break energy ties with the aggressor. If we can do it, the rest of Europe can do it too!” tweeted Lithuanian President Gitanas Nausėda. The country also said it will stop buying Russian oil, although it remains connected to the Russian electricity grid. “FSRU projects are seen as good solutions for smaller countries like Lithuania, which consumes around 2 billion cubic meters (bcm) to 3 bcm of gas per year”, said Zongqiang Luo, a gas market analyst with Norway-based consultancy Rystad Energy. Lithuania got about a quarter of its gas from Russia last year.

Latvia and Estonia also said they’ll end Russian gas imports. The region isn’t yet connected to the EU-wide gas grid, something that will happen in May when a connector to Poland is partially completed. Although Lithuania no longer buys Russian gas for domestic consumption, Russian gas still flows through its pipeline network to the Russian enclave of Kaliningrad.

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