Russian then-Prime Minister Vladimir Putin meets Lithuanian President Dalia Grybauskaite, Feb. 2010 (Government of Russia official ohoto)
Two decades ago, the Baltic States became politically independent from Moscow. Their energy independence has yet to occur. In Lithuania, Russia’s Gazprom remains the sole supplier of natural gas to the nation of 3.2 million, Obviously, this gives Russia quite a bit of leverage in Lithuania post-independence – February in Vilnius is much more pleasant if one can heat one’s home and business, and Russia through Gazprom gets to decide if that happens and at what price. Lithuania wants to break Gazprom’s monopoly, and Gazprom clearly would like to keep it. It may not be economic warfare, but it is certainly a conflict worth monitoring
The latest installment in the story is the Third Energy Package, an EU-mandated gas market reform which bars suppliers from both transporting and selling energy. Gazprom does both. The term for changing this is “unbundling.” On February 27, Gazprom, Lithuania and the EU Commission agreed to keep talking about how to restructure the Lithuanian gas industry to comply with the regulations. The next day, Lithuanian Prime Minister Andrius Kubilius said reform of the gas sector in accordance with the Third Energy Package would happen by the end of 2014. Gazprom is demanding international arbitration over the reforms.
At stake is the ownership of Lietuvos Dujos, the main natgas company in Lithuania. The reforms would force Gazprom to sell its 37.1 percent stake in the firm. Germany’s, E.On Ruhrgas owns an equivalent share; the Lithuanian State Property Fund owns 17.7%; and 6.3% is in the hands of minority shareholders. It is unclear what happens to the shares owned by E.On Ruhrgas at this stage, but it is important to remember that Germany doesn’t supply gas to Lithuania. So, even if a divestiture is required, Germany loses nothing politically. That is not the same situation as the one in which we find Gazprom and Russia.
Those shareholders failed to vote on the various unbundling plans Friday, March 23 as had been planned. No new meeting is scheduled to deal with this, but importantly, there will be annual shareholders’ meeting on April 23. You can expect back-channel discussions and intense negotiations for the next four weeks.
Despite the asymmetry in their relationship, Russia may not be able to hold onto this trump card over Lithuania. Reuters reported a few weeks ago “ Norwegian LNG service company Hoegh LNG on Friday signed a deal to supply a floating LNG import platform to Lithuania, in a move that will cut the Baltic country’s dependence on gas imports from Russia. The deal includes the 10-year lease and operation of a 170,000 cubic meters floating storage and regasification vessel (FSRU) with Lithuania’s majority state-owned terminal Klaipedos Nafta at a cost of $156,200 per day.”
