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Gazprom Takes on Lithuania with New LNG Terminal

Russian state-owned gas giant Gazprom is eyeing late 2017 for the completion of a liquefied natural gas (LNG) terminal on the Baltic Sea coast of Kaliningrad as the company seeks to double its share in the global LNG trade by 2020 and hit back at Lithuania.

Gazprom’s planned LNG terminal off the coast of Kaliningrad, an exclave in Russia’s far-west, will have a capacity of 10 million tons of LNG annually and will be linked by an existing gas pipeline to an underground gas storage facility.

The project would deliver gas to Kaliningrad—population just under 1 million—for domestic consumption and would also supply underground storage facilities.

Cost estimates for the project, and the exact location, have not yet been finalized.

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Considering the geographical position of the most-western Russian region, delivering LNG by sea will "significantly improve the region's energy security," Gazprom said.

The Russian gas giant is seeking to double its global trade in LNG to 10% by 2020.

The completion of such a terminal would give Gazprom an alternative route to the overland one via Lithuania.  News of a late-2017 target date for the LNG terminal comes amid a brewing argument with Lithuania over gas prices and distribution.

Kaliningrad’s current gas supplies are transited through Lithuania, which has been one of the Baltic country’s key negotiating points with Moscow in terms of natural gas prices. The specter of an LNG terminal for Kaliningrad weakens Lithuania’s bargaining power significantly.

Currently, Russia is supplying Kaliningrad with an average of 2 billion cubic meters of gas annually—all of it transited through Lithuania, which receives gas transit fees. Lithuania purchases gas from Gazprom at a higher price than any other EU country.

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Lithuania has recently attempted to gain leverage over this system by pushing Gazprom out of its stake in the Lithuanian national gas company, using EU rules to prevent vertical monopolies in gas distribution.  

Lithuania is striking out on its own in terms of energy dependence, working on a new LNG platform that could be operational by the end of next year. Gazprom’s Kaliningrad LNG terminal announcement is meant as a clear response to Lithuania’s energy moves, and came only a day after the European Union gave Vilnius the green light on state funding for its LNG project.

While Russia’s Kaliningrad move will weaken Lithuania’s bargaining position, the completion of its own LNG project will restore the balance.

By. Charles Kennedy of Oilprice.com




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