Lithuania pays EUR 3b for Russian energy, could cut its dependence – analysts - BNS THEME

VILNIUS – Lithuania's energy dependence on Russia is one of the highest among EU countries as it paid over 3 billion euros for Russian oil, gas and electricity. But Lithuania would not find it hard to renounce Russian gas and electricity, analysts have told BNS.

However, it would be more difficult to do so speaking of oil as the oil refinery in Lithuania's Mazeikiai, the only oil refinery in the Baltic states, is adapted to Russian oil specifically.

As countries around the world are imposing increasingly tougher economic sanctions on Russia in response to its war in Ukraine, some politicians and economists are calling on Germany and other countries highly dependent on Russian energy resources to renounce Russian oil and gas.

In Lithuania, Russian oil is bought by Orlen Lietuva, the oil refinery owned by Poland's Orlen. Also, Russian gas is bought by state-owned gas supplier Ignitis and the Jonava-based nitrogen fertilizer producer Achema, as well as some smaller gas suppliers. And Russian electricity is bought by Inter RAO Lietuva, an electricity company owned by Russian electricity giant Inter RAO. None of these companies disclose how much they pay for these resources to Russian gas, oil or electricity companies.

Swedbank economist Nerijus Maciulis estimates that Lithuania paid some 2.7 billion euros for Russian oil and oil products last year, and also spent around 140 million euros on Russian gas and also around 180 million euros on Russian electricity.

Luminor bank economist Zygimantas Mauricas says Lithuania's energy dependence on Russia is probably the highest in the EU, which is reflected in international trade figures that show that the country imports way more oil, gas and electricity than it exports.

"In the fourth quarter of last year, the oil product trade deficit exceeded 400 million euros, it's being reduced by Orlen Lietuva, and there were some 300 million euros on natural gas, and the record-high expenses on electricity, standing at around 400 million euros. If we continue to move at this pace, the negative balance could stand at 4-5 billion euros this year, amounting to almost 10 percent of the GDP, which is a lot and is 2.5 times more than the financial assistance received from the EU," Mauricas told BNS.

Lithuania's state-owned Ignitis, which buys Russian gas, told BNS Gazprom gas amounted to less than a third of Lithuania's gas portfolio last year and the share is going down as the company is buying more LNG from other sources.

"For example, we bought zero gas from Gazprom in January. We have also ordered non-planned shipments and one such shipment arrived from the United States in early February, and we also plan to have more of those non-planned shipments in the short-term," the company told BNS.

Lithuania could renounce Russian gas and electricity completely, Maciulis says, as Lithuania is ready to do so and has the necessary infrastructure. Meanwhile, Mauricas says, it's unlikely that Russia could be eliminated from Lithuania's oil market anytime soon.

"The majority of natural gas consumed in Lithuania is imported via the Klaipeda-based LNG terminal, and a quarter of all consumed gas is bought from Russia. The terminal and other infrastructure have sufficient capacity to be able to renounce Russian gas completely," the Swedbank economist told BNS.

Speaking of Lithuania's possibilities to buy oil elsewhere, Mauricas said it could be done now already, via the Butinge terminal and by buying via intermediaries, but that would cost more. Therefore, he does not expect Russia to be eliminated from this market in the near future.

"I don’t think such a scenario is realistic, to cut oil supply from Russia completely. It seems that the West, having imposed tough sanctions for Russia, left the partial possibility to buy raw materials, I think it's oil, and to pay for it as the market is global and eliminating such a player from it would be a major blow," Mauricas told BNS.

He says Lithuania could have been in a much worse situation, had it not invested into its LNG terminal or had not stored gas at the Incukalns gas storage facility.

Analyst Marius Dubnikovas also says Lithuania has one of the best positions in Europe because of the LNG terminal in Klaipeda.

If Lithuania renounced Russian oil, that could mostly cause problems for Orlen Lietuva as it would be forced to make adjustments to its Mazeikiai refinery to adapt to a different type of oil, Dubnikovas said.

"Oil would cause problems for the Orlen plant as it today refines Russian oil. I think it would take time for the plant to make adjustments to a type of oil with lower sulphur content as Russian oil has a high level of sulphur, it's heavy, and the Mazeikiai oil refinery as adapted that type of oil specifically. So, it could probably need time for the production to adjusted to oil with lower sulphur content," the economist said.

Speaking with BNS in the spring of 2021, Michal Rudnicki, CEO of Orlen Lietuva, said the Mazeikiai plant was using almost 80 percent of Russian oil, adding that the company could not renounce it immediately and, let's say, start refining Arabic oil.

This year, Orlen Lietuva is starting implementing its project, valued at 641 million euros, on upgrading its residue hydrocracking facility and adapting the refinery for non-Russian oil.

Politico, one of the most influential political publications in Europe, reports that the EU paid 64 billion US dollars for Russian oil and gas in 2020, which almost matches Russia's defense budget for that year.

By Roma Pakėnienė, Erika Alonderytė, Remigijus Bielinskas, Valdas Pryšmantas