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THE NORTH-EAST DIMENSION: GAS-PIPELINE INTERCONNECTION WITH THE BALTIC STATES. Dr. Joachim Hockertz Deputy CEO, Director for Commerce, AB Lietuvos dujos European Economic Congress Katowice, 17 May 2011. Infrastructure & Quantities 2010. UGS 2.3 BCM working gas capacity New CS near Vilnius
Dr. Joachim Hockertz
Deputy CEO, Director for Commerce, AB Lietuvos dujos
European Economic Congress
Katowice, 17 May 2011
According to the 3rd Energy package, TSO must annuallyprepareten-year network development plan.
Long-term planning is binding for gas transmission and distribution companies according Natural Gas Law
Principles in methodology for calculating the infrastructure tariffs caps were changed:
2008-08-08 (WACC introduced)
2009-10-13 (5% cap on pre tax RoA)
2011 autumn: changes expected
The changes are immediately applied to calculate prices caps, despite the regulatory period is five years => i.e. the term “regulatory period” is stripped from any meaning.Instable regulatory environment
Regulation & Market: Infrastructure (2/2)
Long term investment
Regulation & Market: Commodity (2/2)
since mid 2007 all consumers are eligible, incl. households – however, at the same time the whole gas market became state regulated
From the recent joint comments of the Lithuanian Associations of Heat Suppliers, of Power Producers, of Biomass Energy, and of the Lithuanian Energy Consultants Association on the natural gas section of the ‘National Energy Independence Strategy’ drafted by the Energy Ministry, 27.09.2010
“By 2020 Lithuania will have the LNG terminal and, depending on timing of project completion, will have a gas interconnection with Poland.”
Draft NES prepared by Energy Ministry, approved by the Government on 06.10.2010, page 28.
Regulation & Market: Draft National Energy Strategy
Oct 2008 - Polish TSO Gaz-System S.A. performs Open Season Jun 2009procedure / No demand in both directions
end 2009 LD and Gaz-System create a joint working group to investigate possibilities to construct PL-LT gas link
Apr 2010 Gaz-Systems and LD send a joint application to EU COM for TEN-E co-financing of a study
Dec 2010 EU decides on 50% co-financing, remaining part equally covered by Gaz-System & LDLT-PL gas link(1/4)
Two phases of study
Business Case Analysis (BCA)
Feasibility Study (FS)
Market, regulation, demand & supply
and prices forecast
Technical and environmental aspects of
the pipeline connections
Jan 2011 tender for BCA announced
Apr 2011 contract with winner “Earnst&Young” signed, start of BCA
Summer 2011 presentation of BCA to the Boards of Gaz System and LD in case of positive Board decision: continue with
2012 preparation of FS in case of positive results: continue with
2012 Open Season in case of positive results: continue with Engineering and Constructing
2016 in service
“… The companies are delaying the construction of the interconnection by preparing a feasibility study. Allegedly, the EU has already promised to allocate the support to this project, therefore there is no sense to analyze whether the project will pay back. … I spoke on the telephone with the EU Commissioner Günther Oettinger when the Belarus gas crisis arose, and he assured the European Commission will allocate financial support for the construction of this interconnection. The companies should start concrete works …”
Energy Minister on 02.08.2010 on Lithuanian National Television
“... LD started to show demonstrative activity only after we clearly announced our determination to implement the EU directive on the separation of pipelines”
Prime Minister in Verslo žinios, 06.09.2010
Article 48. Interconnection of natural gas transmission system with the European Union natural gas transmission systems
1. The Government or the institution authorized thereby shall be entitled to approve resolutions on the installation or extension of gas pipelines, natural storage facilities and LNG facilities necessary for safeguarding the security. Gas undertakings and the Regulatory Authority shall implement such resolutions.
2. When investing in the development of the transmission system, the manager (managers) of the transmission system together with the Government of the Republic of Lithuania or the institution authorized thereby shall participate in the project of interconnection of the natural gas transmission system of the Republic of Lithuania and the European Union gas transmission systems. The Republic of Lithuania shall implement its rights and duties in the project through the undertaking controlled by the Government.
3. The methodology for the inclusion of costs of the project of interconnection of the natural gas transmission system of the Republic of Lithuania and the European Union natural gas transmission systems in the costs of rendering the services of the transmission system shall be approved by the Regulatory Authority.
From draft gas law, prepared by the Energy Ministry, approved by the Government on 02.02.2011(markings by LD)
Lit-Pol gas link
PM declared goal: state control over gas transmission business (incl. transit) without buying out shares from foreign investors
Due to condition state control (inter alia re management, profit distribution) and state regulation (5% pre tax cap, instability) sale of transmission business hardly possible
Option Ownership Unbundling (OU) was chosen without:
meaningful discussion with major shareholders and consumers
impact analysis or comparison of the options available under the Directive
LT is isolated market with single external supplier
OU would just create additional costs and higher transportation tariffs, but no positive effect on the level of competition
Transportation of gas from any source from the border to consumers inside LT is already fully safeguarded, today
Liberalization or Nationalization?
Gas System and LD envisage in service date 2016, virtually in line with EU policy (LT Government plans a considerably later in service date)
Baltic LNG may realize earlier than 2016 (LT LNG Terminal in service date fixed by Government as 2014), but possibly cannot be considered as „interconnection“ of Baltic States
Involve big consumers and Lithuania‘s Northern neighbors
Determine gap to reach economic conditions; gap cannot be covered via consumers tariffs, only
Government statement (website 21.07.2010):
"… We need a pipeline connection between Klaipeda and Jurbarkas to be able to supply that liquefied gas to all consumers in Lithuania. The attempts to have the gas pipeline interconnection between Klaipeda and Jurbarkas constructed have been unsuccessful despite ten years of trying. Lietuvos Dujos is incapable of implementing this project. At this point I have to remark, as we see, what a mistake it was to privatize Lietuvos Dujos.”
“… The construction of the terminal is directly related to the implementation of the so called third package of the EU Energy Directive in Lithuania, about which the Government publicly announced in May.
The third package requires unbundling the control of gas transmission and gas distribution. The construction of the terminal would be senseless if gas transmission and gas distribution were not unbundled, because Lithuania would not be able to distribute to customers the liquefied gas delivered by sea to Klaipėda since, for the being time, the Government does not control gas transmission pipelines. ”
We would be happy to connect an LNG terminal, in particular because this would end speculations on the gas price. However, basic issues like the terminal’s location and capacity are not decided, yet. By law, LD is obliged both to connect such facilities and to safeguard free access to its system.
“The energy ministry told ICIS Heren that it has decided to push ahead with the unbundling to diversify supplies and to assure free access to the grid, something it says the incumbent has failed to do.”
“The energy ministry said it had made numerous attempts to convince Lietuvos dujos to build new interconnectors, and a link to a proposed LNG terminal, but had been unsuccessful.”
ICIS Heren European Spot Gas Prices, May 20, 2010
Lietuvos Dujos asked the Energy Ministry in writing whether it was correctly cited and, if not, to inform what the Ministry actually said.
Energy Ministry’s “answer” (translation):
“We would like to inform you, that the Energy Ministry does not comment and assess any opinions, conclusions or interpretations distributed in the mass media. …”
Heren confirmed that the Ministry said exactly what Heren published.
<…> lately delayed implementation of strategic energy projects (e.g. the construction of Šakiai – Klaipėda gas pipeline) acknowledges the existing problems <…>
Implementing the 3rd EU Energy Package by ownership unbundling model, the Republic of Lithuania <...>solves the currently existing problems …
Material distributed by the Energy Ministry for the "public hearing" on 09.11.2010 regarding new gas law
All strategic projects LD implemented in time and in budget – only Šakiai-Klaipėda delayed by State.