SzukajKontaktMenu

LNG terminals in Central and Eastern Europe - impact on energy security in region

The aim of this paper is to analyze LNG terminals in Central and Eastern Europe (CEE) countries with particular emphasis on its influence on energy security in this region. Analysis also focuses on presenting basic information about existing and planned terminals in area and recommendations about future use of LNG infrastructure.
{[if_foto_desc]}
Foto:
{[/if_foto_desc]}
Readtime 12 minut

For the purpose of this paper definition Central-Eastern Europe countries  shall be deemed as countries belong to Visegrad Group (V4) which means: Poland, Hungary, Slovakia and Czech Republic and other region states: Lithuania, Latvia, Estonia, Romania, Slovenia and Croatia. All of this countries are also a member states of European Union. These countries apart from the similar geographical location connects a past belonging to the Eastern Block. As a result, an energy markets are very similar and often a interests of each countries are the same. These markets are also different from even known from Western Europe, especially from UE-15. All this circumstances, at least in theory, contribute to formation a sub-regional energy networks. Growing interest of LNG and increasing number of terminals causes changes in energy policies countries in region, which will be discussed in this paper.

Existing LNG terminals in CEE

Due to geographical conditions it is evident that not all CEE countries are able to build LNG infrastructure. Among states in region access to sea has Poland, Baltic States, Croatia and Slovenia, however only in two of them LNG terminal is build: Poland and Lithuania.

Polish terminal is located in Swinoujscie and a first commercial supply of liquefied natural gas took place on June 16, 2016[1]. Capacity of this terminal is about 5 bcm [2]/year with possibility of extension to 7,5 bcm/year. Investments costs is approx. 3,5 billion PLN (950 million EUR), from which financing was provided form three sources: own contribution (1 bilion PLN), donation form EU (55 million EUR from European Energy Programme for Recovery and at least 500 million EUR from Operational Programme Infrastructure and Environment) and 300 million PLN loan from European Bank for Reconstruction and Development[3]. As we can read in official statements of EU, the main goal of this construction was "increase security of gas supply, by the diversification of suppliers, thus reducing dependency on Russian gas"[4]. Polish terminal is one of the key investment  to increase energy security into EU but also to Central-Eastern Europe. Region states are very highly dependent on supplies from other countries, especially from Russia - in 2014 average energy dependency rate for CEE states was about 41,5 % and most dependent on energy supplies import countries was Hungary and Slovakia - rate for the Polish is about 29 %[5]. Among the main suppliers of gas to the CEE states is Russia, while the biggest buyer of Russian gas in the region are Hungary, Slovakia, Czech Republic and Poland, however states concentrated in Visegrad Group[6]. These countries were mainly based in agree on necessary to diversify gas supplies, but Poland was the only country able to bet on development of LNG infrastructure. 

Poland consume annually 16,3 bcm of gas which 4,2 bcm is from domestic production, 10,6 bcm is imported by gas pipelines: 8.9 bcm from Russian Federation and 1,7 bcm from other European Countries[7]. If terminal reaches a maximum power of import (5 bcm per year), will cover a domestic demand for natural gas in almost 1/3. Moreover, it is possible to expand a terminal power to nearly 8 bcm/year which will cover domestic demand in almost 50 % and will allow to further distribution to countries in region. Construction of LNG terminal in Swinoujscie is going to change the structure of import of natural gas in country, allowing a further diversification of gas supply sources and, above all, a progressive emancipation of imports from Russia. This process has a deeply political background - in the current international situation Poland will strive to reduce supply from East to weaken potential political pressure from the Russians. Furthermore, thanks to the terminal Poles have better negotiating position with Russian Gazprom in setting a new gas prices. This is undoubtedly an important component of improvements the quality of energy security, because Poland pays one of the highest prices in Europe for Russian gas[8].

Construction of LNG terminal in Swinoujscie is part of the assumptions of diversification of gas supplies and it has not only ensure energy security in country, but also in other states of Central Europe, Ukraine or Denmark, mainly due to building cross-border connections. Opening of LNG terminal along with geographical conditions and planned project (including Baltic Pipe) provides a good opportunities for creation a kind of gas hub in Poland and as a result, to improve a energy security of countries in the region. This concept is more boldly ejected by Polish officials, but so far the project didn't gone beyond the realm of the conceptual. Reasons for this are various, among others, concerns of other countries in region about dominant position of Polish or economic competition from neighbors (Lithuania). Last but not least, LNG terminal creates opportunities for significant strengthening security of gas supplies in the countries of Central and Eastern Europe. It has been included in a number of transnational projects as element of natural gas supply chain. Such is the case in supported by European Union North-South Gas Corridor which shall link LNG terminal in Swinoujscie with the countries of CEE through the transmission network of individual countries and cross-border connections. So it is, among others, in case of  connecting gas pipelines from Scandinavian fields in the framework of Baltic Pipe project. Through a combination of a gas pipeline from terminal, would allow Scandinavian countries access to the global LNG market. Terminal would play a key role in a project of Poland-Ukraine interconnector. This connection aims at securing supplies of natural gas from Polish to Ukraine, as well as security of supply from Ukraine to EU countries. A similar role terminal will held in other interconnections with the Czech Republic and Slovakia and also in connection between Poland and Lithuania. Both countries holding LNG terminals can take even greater benefits in the framework of cooperation. The project of connections Poland - Lithuania is part of the integration of European gas systems and the development of liberalized gas market in the north-eastern part of Europe. Project allows  the integration of gas markets in Baltic Sea region, as well as reducing dependence of Baltic States and Finland on gas supplies form only one direction. This project is a crucial element of the of the Action Plan for the integration energy markets in the Baltic Sea Area (BEMIP- Baltic Energy Market Interconnection Plan) [9]. Can thus be seen that the LNG terminal in Poland, strengthens not only national security, but thanks to the expansion of cross-border transmission networks can be a guarantee of energy security in the region.

Second country in CEE region, with LNG infrastructure is Lithuania. LNG terminal is located in Klaipeda and it is FSRU unit (Floating Storage and Regasification Unit) called Independence. The initial capacity of terminal reach a value of approx. 1 bcm per year and ultimately its capacity can rise to ceiling of 3-4 bcm. Expenditure on the construction of the necessary transmission and economic infrastructure and adjusting port amounted to approx. 600 million EUR, of which 428 million are rental cost of the terminal[10].

Lithuanians believed construction LNG terminal in their country as a strategic move to strengthen own energy security in gas sector. In the absence of domestic production of natural gas, Lithuania imported it from only one country - Russia. Gas is delivered by a single pipeline which runs through Belarus[11]. Dependence in almost 100% of imports from Russia, made it possible to interruption of supplies from this country, may have critical consequences for the national energy security. Moreover, Lithuania also has been sensitive to political pressure from its eastern neighbor. That is why Lithuanians bet on building LNG infrastructure, which provides much more possibilities to diversify suppliers, rather than traditional gas pipelines. The choice seems to be justified also for this reason, that the annual gas consumption in the country reaches approx. 3 bcm, and the targeted capacity of the terminal fluctuates around 3-4 bcm, which basically did not only cover 100% annual gas demand in Lithuania, but also gives possibility of re-export and supply gas to other states in region. However, such development will require substantial expenditures on expanding and strengthening of gas infrastructure in the region. This project, however, may encounter problems. Estonia together with Finland planning to build its own LNG terminal. Poland diversify gas supplies on their own and still has a cheaper gas from domestic production, which makes Lithuanian gas less attractive. Lithuania, however, has ambitions to become a regional gas hub and re-export their gas to other Baltic states. Estonia, like once Lithuania, is totally dependent on Russian supplies, but in their share of gas in energy balance is relatively low (approx. 9%). Inability to achieve consensus by the Baltic states on the construction of a joint terminal (which encouraged them by European Commission), forced the Estonian energy companies to develop their own energy projects. Estonians finalized an agreement with the Finnish energy company concerning the construction a gas pipeline Balticconnector and two LNG terminals - in Estonia and Finland. Although, at the same time, Estonian companies have signed an agreement with LitGas for the purchase of 5.8 million m3 of gas from the terminal in Klaipeda, it is clear that they are focused mainly on the implementation of their own projects. In the case of Latvia, the integration of markets is hampered by the lack of progress in reforming the gas sector, resulting in maintenance of control over Gazprom's gas supplies in country. In 2014 Latvian authorities delayed the liberalization of the market until at least 2017. The dominance of the Russian company effectively blocks the possibility to import the gas from other sources, including the Lithuanian terminal in Klaipeda. Gazprom has in Latvia the strongest influence in the region, and its interests are effectively protected by the gas lobby. In addition, the tendency to liberalization of the market is reduced by a large share of gas in the energy mix of the country[12].

Lithuanian LNG can become in the future an instrument of political struggle between the United States and Russia. Americans from the very beginning supported initiative of building a LNG terminal in Klaipeda and what is more, there were statements about a potential supplying LNG from USA to Lithuania. Gas deliveries could have a purely political dimension. USA, in the light of the current situation in the international arena, would be interested in exports to Lithuania in order to weaken Russia's position in the region. Having regard that, until now, Lithuania has been 100% dependent on imports for the eastern border, LNG exports to that country, unguided by only pure economic calculation, would reduce significantly position of Gazprom. In this case,  loss part of the Lithuanian market, automatically falls the possibility of pressure on the Lithuanian state from the Russian authorities. Therefore, the supply of US liquefied natural gas could serve as a purely geopolitical instrument. Finally, in March 2015 Lithuanian terminal operator - LitGas - signed an agreement with the American company Cheniere Energy for the supply of LNG to Lithuania. The first delivery scheduled for early 2016. However, in January this year, Lithuania unexpectedly refused to purchase liquefied gas  from the US. Head of company Lietuvos Energia, which owns LitGas, argued suspension of delivers from US failure to meet the Lithuanian quality requirements by American gas. Some experts, however, suggest that Lithuania spoke loudly about the American LNG, just to have a better negotiating position with Statoil, which for months talking about the possibility of lower prices and reduction of the supplies[13].

Planned LNG terminals in CEE

As has been previously indicated in CEE region, at this moment there are two LNG terminals - in Poland and Lithuania. However the situation is begins to change slowly and with a growing global LNG trade, also increasing a number of planned investments in LNG sector, also in CEE countries. Below has been discussed detailed only one Croatian project because, as one of the few, is in advanced stage of planning.

Planned Croatian regasification terminal will be located on Krk island in Adriatic Sea. Its import capacity has to fluctuated about 6 bcm per year. It is one of the strategic projects increasing energy security of Croatia and received a priority in the Energy Strategy of the EU. Its launch is planned initially for the fourth quarter of 2019. As in the case of other countries in the region Croatia and their neighbors are heavily dependent on gas imports from Russia - in Croatia itself, Russia's share in import of gas is approx. 76%. The LNG terminal is thus to be one of the first major steps toward a stronger diversification of supply for Croatia itself and its nearest neighbors. Croatians, like Poles, perceive in his terminal catalyst for the development of interconnections. In next years it is expected to built approx. nine interconnectors to Slovenia, Hungary and Bosnia. All of these actions are similar in nature as in the case of Polish and Lithuanian - to integrate regional gas markets and at the same time as much as possible to become independent from supply mainly from Russia[14]. Krk terminal will be a part of already mentioned project North-South Gas Corridor. Its aim is to connect Scandinavian gas fields (via Baltic Pipe) and LNG terminal in Poland with CEE states ending with a LNG terminal in Croatia. Corridor is composed of cross-border interconnection and national gas pipelines and will connect countries such as Poland, Czech Republic, Slovakia, Hungary and Croatia. This investment has the status of Project of Common Intersts (PCI) and is strongly supported by the EU. Corridor benefits, in addition to increasing energy security in region and integration of regional gas markets, are also access to new sources of supply, coordination of local infrastructure projects and allowing a  implementation of regional preventive and emergency procedures in crisis situations[15]. Croatian terminal will be last base for gas supply in Corridor project.

Project of building a terminal has a strong support from authorities in Croatia. Project of LNG terminal was declared a strategic investment of the Republic of Croatia by the Decision of the Croatian Government in July 2015. According to Croatian officials LNG terminal on the Island of Krk, is an important element in diversification of the supply of natural gas, as well as for improving the security of natural gas supplies in South-Eastern Europe. Furthermore, the Government of the Republic of Croatia at its 27th session held on 8 June 2016 adopted the Conclusion on the support to the construction of the first phase of the LNG terminal project[16].

The rest of proposed projects in LNG sector are in conceptual phase or early planning and analysis, therefore, will not be described in detail, due to the lack of hard sources. Proposed new terminals and expansion of existing in CEE region was presented in Table 1.

 

Table 1. Planned new and exsiting LNG terminals in CEE

Country/Name of Instalation

Status

Investment

Start-up year

Type

Annual Capacity

Romania / Constanta LNG terminal

Planned

New facility

Unknown

Large on-shore

2-8 biliion m3

Ukraine / Odessa LNG terminal

Planned

New facility

2015

FSRU

5 biliion m3

Latvia / Riga LNG terminal

Planned

New facility

2016

Large on-shore

5 biliion m3

Estonia / Padalski LNG Terminal

Planned

New facility

2018

Large on-shore

2,5 biliion m3

Estonia / Tallin LNG

Planned

New facility

2018

Large on-shore

4 biliion m3

Croatia / Krk Island LNG terminal

Planned

New facility

2019

FSRU

1-2 biliion m3

Poland / Swinoujscie LNG terminal

Planned

Expansion

2020

Large on-shore

7,5 biliion m3

Croatia / Krk Island LNG

Planned

Expansion

2021

FSRU

2-3 biliion m3

Croatia / Krk Island LNG

Planned

Expansion

2023

FSRU

4-6 biliion m3

source: http://www.gie.eu/index.php/maps-data/lng-map

Conclusion

To summarize, the number of LNG terminals in relation to number of countries in CEE region is relatively low. For this state, is influenced by mainly geographical and economic factors. However, in recent years can be seen a growing interest in LNG infrastructure among the region. It is connected both with the growing global demand for liquefied gas and political factors. In view of unstable political situation, countries importing natural gas from Russia will try, in near future, to diversify gas supplies harder, exactly by LNG. Against this problem is the majority of countries in the region which contributes closer cooperation in the energy sector. LNG terminals, which can be seen on the example of Polish and Lithuanian, are not only serve to increasing energy security within the state, but more and more are focused on increasing the security of the entire region. This conception is realized mainly through the expansion of interconnectors, which in recent years has gained much momentum. LNG terminals are one of the most important links of the international gas supply chain. Through a combination with traditional pipelines, in global LNG market may participate states which do not have a infrastructure and even this without access to sea. This has a huge impact on the possibilities of diversifying sources of supply and consequently increase the energy security of the groups of countries with common interests. In case of CEE region seems to be that, in near future rising level of energy security will be determined by expansion of interconnectors. Among all the plans, particular attention should be paid towards the North-South Corridor. This is a huge venture which includes not only interconnectors, but also local transmission networks and two LNG terminals - already existing in Poland and planned in Croatia. On the question of what should be future of LNG in CEE region hard to tell because of dynamic of a sector. One can only assume, that due to growing demand and decreasing prices of LNG, more and more countries will be decided to build LNG infrastructure. However it should be noted that decision to build a terminal has not always purely economical grounds.

 

Bibliography

Sources in the English language:

  1. BP Statistical Review of World Energy, June 2015
  2. Communication from the Commission to the European Parliament and the Council, European Energy Security Strategy, Brussels, 28.5.2014
  3. European Commision Energy Country Reports 2014 - Lithuania, https://ec.europa.eu/energy/sites/ener/files/documents/2014_countryreports_lithuania.pdf
  4. European Commision Energy Country Reports 2014 - Poland, https://ec.europa.eu/energy/sites/ener/files/documents/2014_countryreports_poland.pdf
  5. LNG Regasification Terminal in Krk, Croatia - project teaser
  6. North-South Gas Corridor, http://en.gaz-system.pl/our-investments/integration-with-european-gas-tramsmission-system/north-south-gas-corridor/
  7. Poland Gets First Commercial LNG Cargo as New Supply Route Open,

http://www.bloomberg.com/news/articles/2016-06-17/poland-gets-first-commercial-lng-cargo-as-new-supply-route-open

  1. http://ec.europa.eu/energy/eepr/projects/files/gas-interconnections-and-reverse-flow/poland-swinoujscie_en.pdf
  2. Energy dependence EU

http://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&language=en&pcode=tsdcc310&plugin=1

  1. http://www.gie.eu/index.php/maps-data/lng-map

 

Other language sources:

  1. Popławski, Z. Rapciak, Terminal LNG zwiększa bezpieczeństwo energetyczne Polski, Dziennik Gazeta Prawna, dodatek „Forum Biznesu”, s. 1
  2. Hyndle-Hussein, Litewski terminal LNG - Independence ?, http://www.osw.waw.pl/pl/publikacje/analizy/2014-11-05/litewski-terminal-lng-independence, [access: 05.06.2016]
  3. Dudzińska, System naczyń niepołączonych - rynek gazu w państwach bałtyckich, Biuletyn PISM nr. 54, czerwiec 2015, s. 1-2.
  4. Litwa nie chce amerykańskiego LNG, Energia Gigawat, January 2016.
  5. Report on monitoring of security of supply (2015), Ministry of Energy of Poland, http://www.me.gov.pl/files/upload/26270/20160802_%20sprawozdanie_2015_do%20podpisu%20Ministra.pdf

 

[1] http://www.bloomberg.com/news/articles/2016-06-17/poland-gets-first-commercial-lng-cargo-as-new-supply-route-open

[2] Bilion cubic meters

[3] T. Popławski, Z. Rapciak, Terminal LNG zwiększa bezpieczeństwo energetyczne Polski, Dziennik Gazeta Prawna, dodatek „Forum Biznesu”, s. 1

[4] http://ec.europa.eu/energy/eepr/projects/files/gas-interconnections-and-reverse-flow/poland-swinoujscie_en.pdf

[5] http://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&language=en&pcode=tsdcc310&plugin=1

[6] Communication from the Commission to the European Parliament and the Council, European Energy Security Strategy, Brussels, 28.5.2014

[7]Status for 2014, BP Statistical Review of World Energy June 2015,

[8] European Commision Energy Country Reports 2014 - Poland, https://ec.europa.eu/energy/sites/ener/files/documents/2014_countryreports_poland.pdf

[9] Report on monitoring of security of supply (2015), Ministry of Energy of Poland, http://www.me.gov.pl/files/upload/26270/20160802_%20sprawozdanie_2015_do%20podpisu%20Ministra.pdf

[10] J. Hyndle-Hussein, Litewski terminal LNG - Independence ?, http://www.osw.waw.pl/pl/publikacje/analizy/2014-11-05/litewski-terminal-lng-independence, [access: 05.06.2016]

[11] European Commision Energy Country Reports 2014 - Lithuania, https://ec.europa.eu/energy/sites/ener/files/documents/2014_countryreports_lithuania.pdf

[12] K. Dudzińska, System naczyń niepołączonych - rynek gazu w państwach bałtyckich, Biuletyn PISM nr. 54, czerwiec 2015, s. 1-2.

[13] Litwa nie chce amerykańskiego LNG, Energia Gigawat, styczeń 2016.

[14] LNG Regasification Terminal in Krk, Croatia - project teaser, file:///C:/Users/%C5%81ukasz/Downloads/LNG%20terminal%20Krk%20-%20Project%20teaser.pdf

[15] North-South Gas Corridor, http://en.gaz-system.pl/our-investments/integration-with-european-gas-tramsmission-system/north-south-gas-corridor/

[16] J.Harper, Croatia could ditch LNG terminal on island of Krk from list of strategic projects, http://www.financialobserver.eu/recent-news/croatia-could-ditch-lng-terminal-on-island-of-krk-from-list-of-strategic-projects/

Author:
Recommend: