LITGAS, Statoil sign LNG supply contract

UAB LITGAS, the natural gas supplier and trader which forms a part of Lietuvos Energija, has signed an LNG supply contract with Norwegian company Statoil ASA.

The contract will help ensure continuous operation of the Klaipeda LNG terminal and establish a new natural gas pricing policy linked to the natural gas price movements on the international markets. The contract also covers possibilities of LNG reloading – a new commercial activity in the Baltic Sea region.

As of 2015, Statoil supply 540 million m3 of natural gas (950 000 m³ of LNG) to ensure continuous operations of the Klaipeda LNG terminal. LITGAS has an obligation to ensure this supply volume as the designated supplier approved by a decree of the Ministry of Energy.

Under the mid-term contract signed with Statoil, the delivery of the first LNG cargo is expected to be at the Klaipeda terminal by the end of December 2014, enabling the terminal to begin commercial operation from the 1 January 2015. Six to seven such cargos will be delivered to Klaipeda port each year by Statoil.

Dominykas Tuckus, general manager of UAB LITGAS, said: “This strategic contract will help to ensure the availability of an alternative natural gas import source which will enable us and other Lithuanian companies to procure natural gas on international markets from various suppliers at any time.”

Geir Heitmann, vice president of Statoil LNG Trading and Operations, said: “We are delighted to sign a contract with LITGAS. At the same time this contract marks our first step with LNG business in the Baltic Sea region. We hope that will evolve into long-term partnership and will bring mutual benefits to both parties.”

LNG reloading

The contract also provides possibilities for cooperation in LNG reloading. Gas in liquid form would be pumped to smaller tonnage vessels at the Klaipeda terminal and shipped to small terminals. Successful development of commercial reloading operations would increase the usage of the terminal and would concurrently lower its maintenance costs, which are being covered by Lithuanian consumers.

LNG price

The price of LNG supplied to Lithuania will be linked to the value of the NBP index.

“This type of pricing is new to Lithuania and this means that the price of natural gas supplied by LITGAS will depend on changes in the supply and demand for natural gas, including LNG on the international markets as well as seasonal temperature fluctuations,” added Tuckus. “Linking to natural gas indices is a common practice in North Western Europe which makes it possible to abandon the indexation of natural gas prices to oil prices which dominates in Eastern Europe and often results in natural gas prices that have no relation to the ones prevailing in the rest of Europe.”

Based on exchange data of the last four months, the price of LNG in Lithuania would be in a range of LTL 900 - 1000 per 1000 m³ adjusted for the calorific value. “However, the natural gas market is seasonal in nature and prices in winter tend to be higher, especially in cold weather,” Tuckus noted.

Supply information

Like other natural gas suppliers, LITGAS will provide information on the latest prices of supplied natural gas to the National Commission for Energy Control and Prices, which, in turn, draws up and publishes market reports.

According to the scheme established in legislation, LITGAS, as the designated supplier, has an obligation to supply 540 million m³ of natural gas per annum through the LNG terminal for a period of five years. This will then be sold to regulated heat and electricity producers (electricity and heat producers that are subject to the regulated heat prices, receive subsidised electricity generation quotas or generate electricity under public service obligations). Their off-take will be proportionate to their gas consumption volume.

LITGAS is also prepared to supply more gas than it is currently required by legislation. The company has already entered into 12 non-binding Master Sale and Purchase agreements (MTA/MSPA) with global suppliers. MSPA agreements enable LITGAS to trade on the spot market and to offer natural gas to Lithuanian market from companies whose aggregate supply accounts for more than half of total global LNG supply.

Tender

Under these MSPA agreements, LITGAS has also organised a tender for the purchase of the commissioning cargo. The bid submitted by Statoil was recognised to be the most economically advantageous offer (in terms of technical and financial criteria) out of 16 different bids provided by 9 companies. The commissioning cargo will be delivered to Klaipeda port in autumn on DES basis. Commissioning cargo will be used for terminal testing purposes in order to ensure that comprehensive operation of Klaipeda LNG terminal is possible.

Adapted from press release by Ted Monroe

Read the article online at: https://www.lngindustry.com/liquid-natural-gas/09092014/litgas-and-statoil-sign-lng-supply-contract-1365/