Lithuania’s gas security: Risks and opportunities

There is a long-held view that the Russian gas supply to Lithuania is unlikely to be cut-off because Lithuania serves as a gas transit state to the Russian territory of Kaliningrad. In other words, the same gas pipeline feeding Lithuania, also supplies the Russian enclave. According to this argument, Moscow would be hesitant to turn off the gas supply to Lithuania because it would result in an automatic cut in the gas supply to Kaliningrad.
Lithuania’s gas security: Risks and opportunities
© AP/Scanpix

However, one should not overestimate this artificial ‘guarantee’ of gas supply. There is an abundance of evidence that Russia is pursuing a long-term strategy to make Kaliningrad independent from Lithuanian gas transit. Thus, the risk that Gazprom could enact a gas halt to Lithuania could become increasingly real. While Lithuania’s new Klaipėda Liquid Natural Gas (LNG) terminal would reduce the effects of a gas embargo, risks remain in the long-term and the short-term as the tensions between Russia and the West intensify.

Since the 1990s, Russia’s gas transit to Kaliningrad via Lithuanian territory served as a sort of guarantee of gas supply for Lithuania. Because Kaliningrad itself is an energy island and does not receive gas, oil, or electricity other than through Lithuanian territory, it would be vulnerable for any disruptions in energy supply. Vilnius has used Kaliningrad’s reliance on Lithuania for gas transit and electricity supply as a bargaining tool with Moscow on several occasions. By the 2000s Moscow started pursuing a strategy of making gas supply to Kaliningrad independent from transit through Lithuania. This should have come as no surprise. The Kaliningrad region is of strategic importance to Russia as it serves as military base in the middle of NATO member states. Furthermore, with the implementation of the EU’s Third Energy Package intended to separate the ownership of production and transmission of energy, Russia’s Gazprom will also lose the ability to control gas transit to Kaliningrad.

Russia’s plan to reduce Kaliningrad’s vulnerability and dependence on Lithuania is focused on three actions. The first is gas storage. In 2008‒2010, Gazprom implemented the Action Plan, completing a small storage facility that provides Kaliningrad with approximately one month of gas supply. A larger gas storage facility is also in the works. By 2015, its full capacity, which according to various estimates could meet from a third to full annual gas needs of Kaliningrad. Second, there are on-going talks of building an offshoot to Kaliningrad from the Nord Stream gas pipeline that runs under the Baltic Sea though the implementation has stalled to date with the global economic downturn. Third, in September 2013 Gazprom and the regional government of Kaliningrad signed a cooperation agreement to build an LNG regasification terminal on the Baltic coast by late 2017.

Connecting Kaliningrad to Nord Stream, increasing gas storage and building an LNG terminal would make this Russian territory completely independent from gas transit through Lithuania. Kaliningrad’s autonomy in turn, could make Lithuania subject to Moscow’s gas cut-off without any consequences for Kaliningrad. Furthermore, because pipelines supplying the Baltic states do not supply other Western markets, in case of a gas cut-off, Lithuania and the Baltics cannot rely on pressure from European states further down the supply line to ensure that Russia keeps supplies flowing.

Recent Lithuanian legislation has also been detrimental to Lithuania’s energy security. In October 2013 the Lithuanian Parliament reduced the quantity of the obligatory energy reserves that Lithuanian energy companies must maintain during the winter season from at least 30 to 10 days. This reduction of reserves poses additional worry about the possible (though not necessarily likely) scenario of a Russian interruption of gas supply to Lithuania, especially if it is occurs before the Klaipeda LNG terminal commences operations in December 2014. Once the LNG terminal is operational, the effects of Gazprom’s theoretical gas embargo on Lithuania are greatly reduced. The terminal will enable Lithuania, for the first time ever, to access alternatives to Russian gas. With a projected capacity of 2-3 billion cubic meters (bcm) per year, the Klaipeda terminal will be able to meet Lithuania’s annual consumption needs, which in 2012 were 2.7 bcm. It will also improve the region’s gas security because the Klaipeda LNG terminal would be able to meet roughly 75 percent of Lithuania’s, Latvia’s, and Estonia’s gas demand.

Nonetheless, Lithuania’s terminal, while mitigating the effects of a possible gas halt from Gazprom, does not eliminate all risks. Once Kaliningrad is fully independent from gas transit through Lithuania, a halt or reduction in gas supplies to Lithuania and the Baltic states could be implemented at the slightest political or commercial disagreement. After all, from a commercial perspective, the Baltic states are marginal gas markets for Russia and they are not transit states for Russian gas exports to European markets. This is particularly relevant in the current context of Russia’s resurgence and conflict in Ukraine. As a consequence, if Lithuania neither secures sufficient LNG supply contracts nor stores sufficient gas reserves, a gas cut-off from Moscow would be very painful for Lithuania’s economy, industry, and households in the cold winter months.

Agnia Grigas (Ph.D, University of Oxford) is the author of ‘The Politics of Energy and Memory between the Baltic States and Russia’ (Ashgate 2013) and a Fellow at the McKinnon Center for Global Affairs at Occidental College in Los Angeles.

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