Agreement reached on LNG terminal

  • 2012-07-11
  • From wire reports

DONE DEAL: Andrius Kubilius (center, standing) looks on as the terminal construction agreement is signed.

KLAIPEDA - The Lithuanian state-owned Klaipeda State Seaport Authority and another state company, Klaipedos Nafta (Klaipeda Oil), on July 5 signed a cooperation agreement on the construction of a liquefied natural gas (LNG) terminal, reports ELTA. Under the agreement, Klaipedos Nafta will be responsible for implementing the LNG terminal project. The agreement also determines how the infrastructure for the new terminal will be funded.

Last Thursday, Lithuanian Prime Minister Andrius Kubilius met with the chiefs of the Klaipeda port and Klaipedos Nafta. After successful negotiations, the heads of the two state companies made another crucial step in the implementation of the strategic project and signed the cooperation agreement. “I am happy that an agreement was reached and rational and appropriate decisions were made. The agreement allows us to move forwards and smoothly continue the construction of the terminal. We will immediately publish an invitation to tender for quay construction,” the prime minister said.

The agreement sets out that the oil company will build both the quay and equip the terminal, but the port will have to cover the company’s expenses. Meanwhile, the Klaipeda Port will be entitled to receive the collected harbor dues.
Kubilius says that the Klaipeda State Seaport’s investment in the LNG terminal facilities must guarantee the authority a normal, or average rate of return, which is expected to follow a 20 year payback schedule. Kubilius pointed out that the average rate of return on the investment in the Klaipeda seaport quays is guaranteed by the so-called port charges that are collected from the ships coming to the seaport. However, the government also provisioned other options to reach its return, though the prime minister did not explain what they are.

“In this case, since the quay is specific, we also considered other options if the standard port charges were not sufficient to guarantee the return on investment,” said Kubilius.
The cost of the construction will be clear after a public procurement competition.

Region needs more than one terminal
It will be best if the EU-financed regional liquefied natural gas terminal is built in Estonia, and also involves Finland in the project, Latvijas Gaze gas supply company CEO Adrians Davis said at the company’s shareholder meeting on July 6. In an interview with later, Davis corrected himself by saying that he considered such a decision, suggested by a consulting company hired by the European Commission, acceptable.

In Davis’ opinion, there is no need for dividing the Baltic countries in this particular case, because Latvia, Lithuania and Estonia are all members of the Baltic region, and it is of practically no importance where the terminal will be built with the European Union’s co-funding. There is no need for any Baltic country to be “a dog in the manger,” said Davis.
The Latvijas Gaze CEO also said that the economic aspect must be considered. Latvia already has a huge gas infrastructure facility, the underground gas storage facility in Incukalns. Its maintenance is very costly. If Latvia also builds a large terminal, part of its maintenance costs will have to be covered by consumers in Latvia, said Davis, adding that building the terminal would require enormous investments.

Davis believes that, given the Incukalns storage facility in Latvia, it would be a correct decision to build the terminal in Estonia. Asked to comment if it was all the same to Latvijas Gaze if the terminal was located in Latvia or Estonia in terms of gas transportation, Davis said that he was speaking not on behalf of his company, but as a resident of Latvia doing his civic duty. “We must think not only about consumers, but also about pensioners and the new generation. I have grandchildren, and I want them to be well-off and not paying too much for gas,” said Davis.

During the Latvijas Gaze shareholders meeting, Davis said that the debates about construction of the liquefied gas terminal were continuing into the fifth year already, but the final decision would be taken by the European Commission.
Davis also showed the participants in the meeting a map with several possible locations for construction of the terminal, and said he hoped that the terminal would be built in Paldiski. He said that, according to the current plans, a huge terminal would be built with annual capacity of around 4 billion cubic meters. In this case, the terminal will have to rely on the Incukalns underground gas storage facility, which will have to be expanded.

In June, consulting company Booz&Company, hired by the European Commission to do research for determining the best location for building the terminal, presented its interim report to participants in the Baltic Energy Market Interconnection Plan (BEMIP).

The interim report is classified; however, Latvia’s Union of Greens and Farmers political party announced that, based on unofficial information, Booz&Company considers Estonia to be the best location for building the terminal. has information though that the research by the consulting firm also incorporates Finland into the project, not just the three Baltic countries.