Although Lithuania is no longer gripped by Russia's gas supply monopoly, the battle over the Baltic gas market is far from over. Developing a liquefied natural gas (LNG) infrastructure in the Baltics is an opportunity to reclaim the market that Russia lost in 2014.
Gazprombank and Novatek, a private company, have been building LNG production plants in Russia. Last spring, Novatek LNG shipments started arriving in the Lithuanian port of Klaipėda.
Klaipėda is home to ‘Independence’, a floating LNG terminal and regasification unit launched with great fanfare in 2014 which broke Russia's monopoly of gas supply via land pipelines. Lithuania can now import gas, in liquefied form, from whichever supplier it chooses, but the country has no small-scale LNG infrastructure yet.
Building the infrastructure means building and claiming the LNG market – and companies with links to Moscow are eyeing the opportunity.
A secret party
On a Friday night in late August, a lakeside villa in southern Lithuania was hosting an important and seemingly secretive party.
The guests were arriving in cars with Lithuanian, Belarusian and Russian license plates and their privacy was closely guarded with drive-ways to the venue cordoned off and security cameras mounted on pine trees.
The host of the event was Ričardas Matijošaitis, owner of the Lithuanian gas trading company Haupas. His guests included Alexander Ryazanov, a member of the Board of Directors of Russian Railways and a former vice president of the Russian state-owned gas company Gazprom, Denis Emelyanov, a Gazprom executive in charge of trade with the Baltic States, Anatoly Oruzhev, a co-owner of the gas and oil company Petromir, and Alexander Girzekorn, the head of Lukoil-Kaliningrad and of ICIE (International Congress of Industrialists and Entrepreneurs) representative office in the Baltic region.
Haupas has a history of dealing with Gazprom. Matijošaitis has claimed that he helped the Russian company to buy the Kaunas CHP plant in 2003. In that same year, Haupas secured a deal with Gazprom and became the sole gas supplier to the town of Druskininkai.
At the moment, the company has 2.16 percent of the Lithuanian gas retail market, according to regula.lt.
Asked by LRT TV whether he invited the influential Russian energy businessman to look for business partners, Matijošaitis stated, in writing, that the party was a private occasion: “Russian business representatives came on personal invitation to mark the 30th anniversary of my career in commerce.”
“Haupas does not plan to be importing liquefied natural gas (LNG) to Lithuania in the near future,” he insisted.
His deputy Donatas Motiejūnas, however, previously stated that the company was actually eyeing the LNG business in Lithuania.
“Yes, we do intend [to go into LNG trade], but we will buy from those who sell, and those who sell are not those who produce. It is likely that the gas will originate from two sources, Norway and Russia. In Russia, the producer is Novatek and in Norway, Statoil,” Motiejūnas told LRT TV by phone.
Novatek is co-owned by Gennady Timchenko, a friend of Russian President Vladimir Putin and a business partner of Oruzhev, one of the guests at Matijošaitis' party. This company seems to be the flagship of Russia's effort to enter the Baltic LNG market.
Failure in Poland
Last spring, Putin ceremoniously launched a new LNG plant Cryogas-Vysotsk in Leningrad Oblast. It was built jointly by Novatek and Gazprombank.
Novatek's partner Cryogas has publicly declared its plans to expand its market share in the Baltic states, Scandinavia and Eastern Europe.
Cryogas M&T Poland launched in Warsaw a few years ago and is owned by a company registered in Cyprus. Initially Cryogas made no secret that its true owner was Gazprombank, but after 2014, when Gazprom became a target of EU and US sanctions, the company became less open about its ties with Russia.
Cryogas engages in LNG production and transportation and builds LNG production, storage and regasification facilities.
Polish energy policy and security expert Andrzej Szczensiak says that despite offering low prices and favourable terms, Cryogas did not meet much success in Poland, mostly because the country views Russian investment with suspicion.
“Poland regards Russia as a hostile country [...]. Each entrepreneur who thinks of cooperating with a Russian company or intermediary fears that it might be a handicap,” according to Szczensiak.
Capturing Baltic LNG market
The company recently secured a license in Lithuania and started operations in the second quarter of this year. The National Energy Regulatory Council does not have information about the ownership and management of Cryogas M&T Poland, because the Lithuanian laws do not require that companies disclose it.
Cryogas representative for the Baltic states is Marijus Simanavičius, who is a former head of sales of Haupas. He confirms that the company plans to build a network of gas stations in the Baltics.
“Our company specialises not just in supply, but also in infrastructure development,” he told LRT TV by phone. Asked who the shareholders of Cryogas were, he asked to be sent questions in writing. The company did not respond by the time of publication.
LRT TV sources say that at least four Lithuanian companies have been approached by Russian representatives to sign gas supply deals. According to Energy Minister Žygimantas Vaičiūnas, the government follows their activities, but cannot take action lest it be accused of restricting competition.
“For some time now, we've been seeing Lithuanian industrial companies receiving competitive offers to switch to Russian gas, because the technology allows to do it with mobile LNG stations,” Vaičiūnas says.
Romas Švedas, a Lithuanian energy expert, comments that once Russia lost its monopoly over gas supply to Lithuania, it is trying to capture the LNG market. Novatek has been transporting Russian gas to the Baltics via the LNG terminal in Klaipėda.
“Lithuania has an LNG terminal. Russia built one, only smaller, in Kaliningrad [...] There is now competition over who will be the first one to start using the so-called small-scale infrastructure here, in Lithuania. Whoever is the first to build the infrastructure, will build the LNG market for themselves,” Švedas says.
If Russia manages to develop an infrastructure in the Baltics, there is the risk that it will capture the market by offering cheaper gas, says MP Dainius Kreivys, a member of the parliamentary Commission for Energy and Sustainable Development.
“Through Cryogas and Novatek, Russia is trying to reclaim the market it lost [when the Klaipėda LNG terminal opened] and block our terminal this way,” according to Kreivys.
Building licenses for gas stations are issued by municipal authorities in Lithuania. The central government, if it proves that a company engages in trade dumping, can turn to the European Commission which will decide whether to sanction the company.