Ints Kalnins / REUTERS Floating storage regasification unit (FSRU) "Independence" is docked at the liquefied natural gas (LNG) terminal in Klaipeda port, Lithuania, October 2014.

U.S. Natural Gas Arrives in Lithuania

What It Means for Russia and the Baltic Region

The first-ever delivery of U.S. liquefied natural gas (LNG) to Lithuania on August 21 marks a significant turning point for both Vilnius’ and the greater Baltic region’s energy markets, where the Russian state company Gazprom has historically been the dominant gas supplier. It also reflects the new geopolitics of natural gas for Europe and especially for the United States, which only began exporting LNG worldwide in 2016. In an e-mail statement to me, Lithuanian President Dalia Grybauskaitė wrote, “U.S. gas imports to Lithuania and other European countries is a game changer in the European gas market. This is an opportunity for Europe to end its addiction to Russian gas and ensure a secure, competitive and diversified supply.”

The LNG cargo arrived in Lithuania’s Klaipėda port from the Sabine Pass terminal in Texas, operated by Cheniere Energy, the leading U.S. LNG exporter. In 2016, the company launched its inaugural exports to Asia, Europe, the Middle East, and Latin America. In Europe, however, the deliveries were largely confined to Portugal, Spain, and the United Kingdom—until this June, when Poland received its first U.S. LNG shipment.

Although the United States was among the early players in the LNG industry, it was never a significant exporter until recently. Commissioned in 1969, the Kenai liquefaction plant in Alaska was the only operational American LNG export facility for over 40 years, even though it never exported notable amounts other than on one occasion to Japan in 1996. As recently as the mid-2000s, experts and investors expected that the United States would need to import gas, and private companies were planning to build additional LNG import terminals along the U.S. coast. The shale revolution and the resulting boost of U.S. oil and natural gas production, however, scrapped these plans and ushered in a new American energy boom.

Meanwhile, until Lithuania constructed its LNG import infrastructure in late 2014, the country depended on Russia for 100 percent of its natural gas, which was delivered by a single Gazprom-operated pipeline. Opened in the Soviet era, the pipeline and the Russian-Lithuanian gas trade relationship remained largely unchanged even after Lithuania and the other Baltic States joined the European Union and NATO in 2004. By the late 2000s, however, political tensions had worsened and Gazprom began to hike gas prices for the Baltic States and other countries of central and eastern Europe even though supplies to Lithuania remained stable. The Lithuanian government complained that it was paying Gazprom some of the highest gas prices in Europe.

In Lithuania, gas prices remain a serious domestic political issue, as many households rely on gas for heating in the cold winter months. On the question of how to lower gas prices, the country had until recently been divided between those arguing for greater cooperation with Moscow and those recommending that Lithuania diversify its energy sources and thus diminish Moscow’s influence. Former Lithuanian Minister of Defense Rasa Juknevičienė explained to me, “The Kremlin’s most important tool was gas, through which Russia delivered not only a natural resource but also corruption, financed Kremlin-friendly politicians, and bought media influence.”

The last straw came with the global financial crisis of 2008 and Gazprom’s halt of supplies to Ukraine in the winter of 2008–2009, which resulted in supply interruptions to European Union. This prompted the Lithuanian government to begin seriously looking for alternatives to Russian gas. At that time, I was working as an adviser to then Lithuanian Minister of Foreign Affairs Vygaudas Ušackas, analyzing how to improve the country’s gas security. LNG trade was already growing in the 2000s, and by building LNG import facilities on the Baltic Sea, Lithuania could access the global markets. The country completed the Klaipėda Floating Storage and Regasification Unit (FSRU) in late 2014, but even before then, the project’s mere existence allowed Lithuania to negotiate its first-ever gas price discount with Gazprom earlier that year. Realizing it would no longer monopolize the Lithuanian market, the Russian gas giant offered lower prices and better terms. Soon after, Lithuania started receiving LNG from Norway and reduced its reliance on Gazprom by roughly half.

Although it was Norwegian rather than U.S. LNG that first broke Gazprom’s monopoly in Lithuania, the American cargo may hold more significance in the long term. Its delivery signals that the United States is now a powerful global gas supplier and that American companies are willing to compete even in Gazprom’s most traditional markets. Lithuanian Minister of Energy Žygimantas Vaičiūnas told me, “We value cooperation with the United States in the LNG sector both from the energy security and the economic perspective. This deal was economically beneficial and we bought the gas on market competitive terms. If we assess the future potential of the United States as a gas exporter, we can expect further supplies from the United States and even more competitive terms.”

What’s more, the arrival of U.S. gas in Europe signals a geopolitical shift. As a new energy superpower, the United States will have more influence and more interests across the globe, particularly in the markets to which it exports. Juknevičienė sees this as greatly beneficial for Europe: “American business interests in Europe increase Washington’s interests in the continent’s security dimension,” he said. “Thus, American gas exports are not any less valuable than American missile defense or tank reinforcements in Europe.”

With U.S. gas now competing in Russia’s traditional markets, the question remains how Moscow will respond.

With U.S. gas now competing in Russia’s traditional markets, the question remains how Moscow will respond. It could lower prices and continue to be more flexible about the terms of its gas trade, moving away from long-term contracts or oil-linked gas pricing. Or perhaps it could resort to challenging the shipping of LNG in the Baltic Sea, where the Russian military has a strong presence. Although it is impossible to be sure of the approach Moscow will take, EU ambassador to Russia and former Lithuanian Foreign Minister Vygaudas Ušackas believes it will be closer to the former scenario: “Gazprom will try to respond by becoming more competitive,” he said. “This will be done in two ways, first by lowering gas prices, second by trying to sell improved quantitates of gas on the spot market,” meaning for immediate delivery rather than long-term contracts.

What is certain is that, with last month’s delivery of U.S. LNG to Lithuania and to the delivery to Poland in June, the geopolitics of natural gas will not be the same. With the United States expected to become a leading LNG exporter and with Russia facing new competition in its traditional European and Asian markets, a commercial clash between Moscow and Washington will add to their preexisting political tensions. Meanwhile, gas importers that long worried about their dependence on single and potentially hostile suppliers will no longer have to do so.

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