The European Commission approves state aid measures to secure long-term operation of Klaipėda LNG terminal

The European Commission (EC) has positively evaluated Lithuania’s goals to secure long-term competitive supply of liquefied natural gas (LNG) by purchasing and operating the LNG floating storage and regasification unit (FSRU) by the right of ownership after 2024 and has approved of granting state aid. According to this model, the state issues a guarantee that will serve to finance the purchase of the FSRU.

“The EU has set a target for every Member State to have at least three alternative sources of natural gas supply in order to guarantee energy security and maximum price competitiveness; therefore the EC approval of Lithuania’s long-term access to LNG is crucial. This stage of state aid coordination accomplishes the securing of funds needed to implement the project. Lithuania has already adopted necessary legislation and finally received the EC approval. Thus, now is the time for KN (AB Klaipėdos nafta) to make expedient decisions in order to choose the most cost-effective LNG supply option, which is inseparable from our green energy agenda, in time, i.e. by the end of 2022,” states Minister of Energy Žygimantas Vaičiūnas.

In 2018, in order to achieve energy security goals and encourage competition among natural gas suppliers, the Lithuanian Parliament passed a decision to purchase the LNG FSRU by the right of ownership, thus ensuring long-term operation of Klaipėda LNG terminal after the expiry of the current lease agreement between state-controlled KN and Höegh LNG at the end of 2024.

By making a decision regarding the most cost-effective tender to acquire the LNG FSRU for Lithuania, our state may use the option to buy out the current FSRU “Independence” or purchase any other facility of such a type in the international market. The objective set by the state and envisaged in the Republic of Lithuania Law on Liquefied Natural Gas Terminal is to select the most cost-effective tender and a solution that is technologically the most suitable for Lithuania.

This is the second and final stage of coordination of state aid with the EC, related to ensuring long-term operation of Klaipėda LNG terminal. During the first stage, the EC approval of restructuring the security component of granting state aid was received last year. This year, the security component has decreased by almost 40 per cent having changed the LNG FSRU maintenance model and having arranged lease costs over a longer period.

“It opens an opportunity for us to take further actions – to invite international consultants to conduct a market research of the facilities of the same type as “Independence”, develop the LNG FSRU purchase and operation strategy, initiate the process of selecting the facility, and get ready for the operation of the facility. All these stages are necessary to both implement the goal set by the state and KN’s aim to find the most cost-effective option that will allow further operation of available infrastructure, i.e. the LNG terminal berth jetty and a connecting gas pipeline branch, into which we have already invested, and keep on creating value for Lithuania as well as our country’s natural gas consumers,” says Darius Šilenskis, CEO of KN.

During both stages, state aid has been coordinated in accordance with the amendments to the Law on Liquefied Natural Gas Terminal passed by the Lithuanian Parliament in December 2018, whereby Lithuania will secure long-term LNG supply after 2024 by purchasing the LNG FSRU. In December 2019, the Parliament approved of the issuance of state guarantees to the loan agreements of the Nordic Investment Bank (NIB) and the operator of Klaipėda LNG terminal (KN) regarding the purchase of the LNG FSRU and restructuring of the LNG terminal maintenance costs.

A state guarantee constituting 100 per cent of the loan amount will be issued to cover the NIB loan which will be used to acquire the FSRU. Previously, state aid has been granted to cover the loan targeted at reducing the security component of the LNG terminal. Issuance of the state guarantee with regard to these KN’s loans has ensured particularly favourable borrowing terms.

State aid is support granted by the state from its resources to certain economic entities or for manufacturing of certain goods/provision of certain services, providing an exclusive economic advantage that could not be created under market conditions, and affecting trade among the EU Member States.

It should be noted that in the period from January to October this year, as much as 68 per cent of the entire volume of natural gas imported to Lithuania has been supplied through the LNG terminal.

Lithuania has been currently importing natural gas by a pipeline from Russia through Belarus and the LNG terminal in Klaipėda. The third gas import source will be the GIPL gas connection between Lithuania and Poland to be accomplished by the end of 2021.

Information prepared by the Ministry of Energy of Lithuania.