Independence through greater inter-dependence

With the tentative nature of the recent cease-fire, the situation in Ukraine remains tense and highly uncertain. As a near neighbor, Lithuania has seen Russia’s determination to maintain control over what she sees as her traditional sphere of influence all too often.

Typically those efforts have come in the shape of the Kremlin’s most potent geopolitical tool, energy. In the almost 25 years that Lithuania has been a sovereign state we have repeatedly found ourselves in the cross-hairs of Russia’s hydrocarbon-weapon; be it in the shape of an embargo after we first declared independence, or an increase in Gazprom’s prices – already the most expensive in Europe – when we chose to implement the EU’s Third Energy Package in 2011.

{mosads}Those experiences have made one thing clear; the absolute necessity for Lithuania to achieve energy independence from Moscow. Or more accurately, energy independence through greater inter-dependence with the rest of Europe. 

In recent years we have made real and significant progress towards that vision. Having successfully unbundled our production and transmission networks under the terms of the Third Energy Package we have moved a step closer to our ultimate goal of becoming a fully-fledged member of the E.U. Energy Market. And by the end of the year we will have completed a $620 million, 1.2 GW electricity interconnector with Poland and Sweden, as a part of efforts to synchronize the Baltic’s energy network with the rest of Europe.

Most importantly we have also taken steps to diversify our gas supply away from Russia. The creation of a common Baltic market with Latvia, Estonia and Finland is crucial, and will be underpinned by Lithuania’s $128 million, ten year lease of a liquefied natural gas (LNG) vessel. Aptly named the Independence, the ship’s 4 billion cubic meter processing capacity is enough to meet 80 percent of the Baltic’s demand. When you factor in the creation of a $533 million gas interconnector with Poland due for completion in 2018, as well as the construction of Poland’s own import terminal, valuable steps have been made on the way to our vision of a regional LNG hub.

As rosey as that picture may seem, it is only part of the story.

Our contract with Statoil is in fact for around one-eighth of the Independence’s capacity; nowhere near enough to meet Lithuania’s 2.5 billion cubic meters of annual gas consumption, let alone to supply the rest of the Baltics. And while the Independence was instrumental in delivering a 20 percent decrease in the price of our contract with Gazprom, Moscow has since offered a further 10 percent reduction for compliance with its policy objectives.

So as important as the progress we have made has been, it still represents the tip of the iceberg; far more needs to be done to ensure real and lasting energy independence from Russia.

Later this week I will be meeting with representatives of the administration to discuss Lithuania and Europe’s energy future, and top of the agenda for those discussions will be finding a way to expand U.S. export of its surplus natural gas.

Officially policy states that shipment of LNG to non-free trade agreement countries is permitted except in those instances where a project is shown to be outside of the public interest. Unofficially, the system has become so convoluted that it takes several years and millions of dollars to navigate.

Finding a way to simplify that process is crucial. It will take time for projects to be built and there is no guarantee where gas will ultimately end in a free market, but expediting the system will send a clear and immediate message to the rest of the world about the U.S.’ position.

And by doing so, it will effectively kick start the development of a global LNG market. For evidence, just look at Cheniere Energy’s Corpus Christi project which only received its final approval in December of 2014 and is still some years from operation, but which has already stimulated multiple, million dollar supply deals.

It will also have a material effect on the lives of people in Eastern Europe. According to a 2013 study by Deloitte, the export of U.S. LNG will result in a wealth transfer of up to $4 billion from Russia to European consumers as a result of greater market diversity.

Today, Russia is still responsible for the supply of more than 90 percent of Bulgaria, Poland and Slovakia’s total oil and gas. Our own experience of “negotiating” with Gazprom prior to the Independence contract demonstrates very clearly the futility of challenging such monopoly conditions but also the free market’s very real impact in lowering prices.

Thankfully Lithuania and the rest of Europe are steadily building the infrastructure necessary to provide greater energy diversification and thus to enhance regional security. What we need now is for the United States to play its part, demonstrating its commitment to free trade by allowing its allies in Europe and the rest of the world to quickly benefit from the surplus natural gas it does not need.

Masiulis is the Lithuanian Minister of Energy.