How Lithuania cut its ties to ‘toxic’ Russian gas

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Twelve years ago, Lithuanian company administrator Rokas Masiulis was handed a new job with an ambitious target: end his country’s reliance on Russian gas.

In his new post as head of Klaipėdos Nafta, a state-controlled oil terminal operator, Masiulis was to oversee the commissioning and delivery into service of a floating liquefied natural gas (LNG) terminal off Lithuania’s Baltic coast

The ship — which was named Independence and went into service in 2014 — was built to ensure Lithuanian consumers could still get gas even if political relations with Russia soured to such an extent that supplies from the east had to be switched off.

Earlier this month, as the brutality of Moscow’s invasion of Ukraine became ever clearer, Lithuania’s government flipped that switch, announcing that it had become the first European country to stop all imports of “toxic” Russian gas. The Independence proved its worth and Lithuania’s gas supplies remained stable.

“I was excited about the Independence project when we took it on, but I couldn’t imagine how big a deal it would ultimately be,” said Masiulis, who went on to be Lithuania’s energy and transport minister and these days runs a state-controlled electricity grid manager.

Useful case study

Reducing Russia’s lucrative gas supplies to the West is a key challenge facing European leaders as they develop their response to Moscow’s assault on Ukraine and seek to sap the Kremlin’s war chest.

“Years ago my country made decisions that today allow us with no pain to break energy ties with the agressor. If we can do it, the rest of Europe can do it too!” tweeted Lithuanian President Gitanas Nausėda. The country also said it will stop buying Russian oil, although it remains connected to the Russian electricity grid.

A particular focus is Germany, Europe’s industrial powerhouse, which generates around 15 percent of its electricity from gas, and which sources about half of its gas from Russia.

German Climate and Economy Minister Robert Habeck has said it will take until 2024 for Germany to wean itself off Russian gas, leaving lawmakers in Kyiv increasingly frustrated.

“As long as the West continues buying Russian gas or oil, it is supporting Ukraine with one hand, while supporting the Russian war machine with the other hand,” Ukrainian Foreign Minister Dmytro Kuleba told reporters in Brussels in early April.

“We don’t understand how you can make money out of blood,” President Volodymyr Zelenskyy told the BBC.

Lithuania’s Independence, a so-called Floating Storage Regasification Unit, or FSRU, could offer a useful case study for those looking to pivot away from Russian gas. LNG is pumped onto the vessel from a transport ship where it is turned back into gas for use or storage.

FSRU systems can be built relatively quickly — project lengths are estimated at between one and three years — and generally require fewer planning permits than a permanent land-based equivalent. They can be moved from place to place and swapped out for bigger or smaller units as needed with comparative ease.

Importantly, they also allow a country to pick and choose where its LNG supplies come from: Lithuania currently sources much of its LNG from Norway, the U.S. and Qatar.

FSRU projects are seen as good solutions for smaller countries like Lithuania, which consumes around 2 billion cubic meters (bcm) to 3 bcm of gas per year, said Zongqiang Luo, a gas market analyst with Norway-based consultancy Rystad Energy. Lithuania got about a quarter of its gas from Russia last year.

For a country like Germany, which needs around 90 bcm a year, such a system could still be useful as part of a broader set of solutions which could also include gas piped from Norwegian and Dutch gas fields, as well as energy-saving measures.

Italy, the Netherlands, and Estonia have said they are looking at FSRU projects, while Berlin is planning three such units which could deliver 27 bcm of gas a year.

Habeck visited Qatar recently to discuss LNG supplies.

“This can work,” he told broadcaster DW after the visit.

Latvia and Estonia also said they’ll end Russian gas imports. The region isn’t yet connected to the EU-wide gas grid, something that will happen in May when a connector to Poland is partially completed.

Although Lithuania no longer buys Russian gas for domestic consumption, Russian gas still flows through its pipeline network to the Russian enclave of Kaliningrad.

Troubled history

Tensions between Russia and Lithuania over energy supplies date back to the early 1990s, when both countries were seeking to rebuild their economies after the collapse of the Soviet Union.

In the winter of 1992, in one of a series of attempts to apply political pressure to Vilnius, Russian President Boris Yeltsin stopped oil supplies to its Baltic neighbor after payment disputes.

In the years that followed, Vilnius accused Russian gas giant Gazprom of abusing its monopoly position by charging Lithuanian customers inflated prices.

Lithuania ultimately lost a long-running compensation case in a Stockholm court over that claim, but at the same time, the Baltic state’s leadership was devising another way to wrest back power from Gazprom: the Independence project.

In 2010, former Energy Minister Arvydas Sekmokas called Masiulis to his office on the tree-lined Gedimino Avenue in the capital Vilnius and offered him the top job at Klaipėdos Nafta, which he accepted.

Lithuania’s contract with Gazprom was set to expire in 2015 and Masiulis understood that by that time, a new FSRU unit had to be moored and ready to go in Klaipėda harbor.

Masiulis began sounding out companies with the know-how to source an FSRU vessel.

In early 2012, Norway-based Hoegh LNG announced it had won the Lithuanian contract and it tasked South Korean shipbuilder Hyundai to get to work on the Independence.

A raft of specialist kit, including a regasification system from China and a docking system from Denmark, were also commissioned for the $330 million project. In Lithuania itself, public and private sector players were being pushed hard to ensure the project met its deadline, fast-tracking decisions and working long hours.

The pace continued until October 27, 2014 when the Independence finally drew alongside its new jetty in Klaipėda to be met by Masiulis, who had been made energy minister a month earlier by then-President Dalia Grybauskaitė, a staunch supporter of the project.

“We are now an energy-secure state,” she said.

As the gas from the ship began to flow, lawmakers in Vilnius noted a secondary benefit they had not banked on.

As well as providing them with greater energy security, the new competition from the Independence also pushed Gazprom into dropping the price of the gas it piped to Lithuania by about a fifth.

“It was both a political and economic win,” Masiulis said.