Europe’s 11th Russian Sanctions Package Could Be Coming Soon
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Russia's state-owned natural gas monopoly OAO Gazprom is the sole supplier of gas to former Soviet republics Estonia, Latvia and Lithuania, a situation that Lithuanian legislators would like to change.
On 12 January Lithuanian President Dalia Grybauskaite said that reducing Lithuania's energy dependence on a single source will be among the government's priorities this year.
But the same day Lithuania's Seimas (Parliament) removed from immediate consideration a hearing of the draft Law on Natural Gas from the planned extraordinary parliamentary session's agenda following receipt of a report on the energy sector from the country’s Valstybes Saugumo Departamentas (State Security Department, or VSD).
Opposition leader Valentinas Mazuronis, a member of the Tvarka ir teisingumo partija (Order and Justice Party, or TT) and member of the Committee on National Security and Defense told journalists, "It has been decided to look into it at the Committee on National Security and Defense before hearing the bill. Such was the request, and it is logical that if it is the way it is, we need to look into what is in there." Mazuronis added, "I really cannot comment on the report as I have not seen it, and it was only said that perhaps these issues should be dealt with following recommendations from the Committee on National Security and Defense which is expected to analyze the report."
Other politicians were more coy. Committee on National Security and Defense chairman Arvydas Anusauskas, while confirming that the VSD report had been received nonetheless refused to comment on its contents and whether members of the parliament were mentioned in it, stating, "Such a report on the energy sector does exist but I will not comment on its contents."
Why such a cloak and dagger approach on an innocuous energy report?
Because, informed sources speaking on condition of anonymity to the Baltijos Naujienos Akcijos news agency that the VSD report does in fact contain names of members of parliament.
TT party members have proposed amendments to the nation’s draft Law on Natural Gas to ban resale of gas with the purpose of forcing natural gas importer Dujotekana UAB, indirectly owned by Gazprom, out of the Lithuanian market. Currently the Lithuanian Natural Gas Law stipulates that natural gas transmission, distribution and storage activities must be separated from supply. As Gazprom set up natural gas supply quotas with Lithuanian natural gas supply companies, its de facto monopoly leaves Lithuania no technical possibilities currently to receive natural gas from other sources.
Parliamentary Committee on Economic Affairs member Kestutis Dauksys, one of the authors of the amendments, has said the amendments would only allow natural gas supply by companies consuming and extracting natural gas or which have their own distribution and supply network.
Resentment of Gazprom is hardly limited to Lithuania, as the energy behemoth owns or have huge minority positions in 60 to 80 entities strewn across Europe. Lithuania is currently building energy links with Poland and Sweden and a liquefied natural gas (LNG) terminal as it seeks to overcome its energy dependency on its giant eastern neighbor.
But how far in fact can Lithuania go in severing the Gazprom natural gas umbilical cord? As it stands, Gazprom and Lithuanian gas supply companies have already negotiated long term contracts, including Lietuvos dujos AB - up to 2015, Dujotekana UAB - up to 2013, Haupas UAB - up to 2012, while Lietuvos dujos AB stores roughly 40 million cubic meters of Gazprom natural gas in Latvia’s gas underground storage facility.
Estonia’s Eesti Gaas and the Finnish gas company Gasum have signed a protocol on setting up a regional natural gas trading exchange, the regional next step after a similar understanding was reached between Gasum and Lithuanian firm Lietuvos Dujos to establish a gas exchange in Lithuania.
But it won’t be cheap, as analysts note that Finland’s experience shows that if a joint gas exchange becomes operational, then the average price of natural gas consumed by households in Estonia could increase from its current level of 39¢ per cubic meter to the Finnish level of about 65¢.
Currently Russian Gazprom holds slightly over one-third of Eesti Gaas as well as shares in Finland’s Gasum.
Bottom line - until Lithuania builds a coastal liquefied natural gas port and storage facility, Gazprom will continue to dominate the country’s natural gas market, and VSD reports implicating Parliamentary members in the cozy trading arrangements between domestic gas companies and Gazprom will continue to be shelved.
And if and when Gazprom is excluded from the Lithuanian natural gas markets, consumers there can expect their energy bills to increase.
By. John C.K. Daly of Oilprice.com
Dr. John C.K. Daly is the chief analyst for Oilprice.com, Dr. Daly received his Ph.D. in 1986 from the School of Slavonic and East European…