Business Recorder: Lithuania Sues Russian Gas Giant Gazprom
FT: CEE Nuclear Power: Deeper in Doubt
NYT: Chevron, Intent on European Shale Gas, Buys Lithuanian Stake
Reuters: Chevron to Prospect for Shale Gas in Lithuania
Reuters: Lithuania Gets 16 Proposals to Supply LNG
Reuters: Lithuania Terminal Calls LNG Supply Tender
SF Chronicle: Lithuanians Deal Blow to Austerity, Nuclear Plans
WSJ: Chevron Enters Lithuanian Oil and Gas Exploration
To reduce its energy dependence on Russia, Lithuania is encouraging private companies to explore for shale gas (a type of natural gas) and actively seeking new liquefied natural gas (LNG) suppliers. Lithuania imports over 60% of its total electricity needs, more than any other European Union (EU) country. In 2009, Lithuania shut down its only atomic power plant, which was built when the country was part of the Soviet Union, due to safety concerns. To make up for this loss of energy, Lithuania began importing more natural gas from Gazprom, a Russian gas company. These imports totaled 3.4 billion cubic meters (bcm) in 2011, or 100% of Lithuania’s natural gas consumption. Countries completely dependent on Gazprom for natural gas have experienced problems in the past. For example, in the winter of 2009, the Ukrainian government entered into a pricing dispute with Gazprom. As a result, Gazprom cut off the country’s gas supply for three weeks leaving hundreds of thousands of Ukrainians without heat. This is why the Lithuanian government recently made energy independence a priority for the country.
According to Lithuania’s Prime Minister, Andrius Kubilius, Lithuania has 120 bcm of underground shale gas reserves that could be recovered through specialized extraction methods. In order to access the reserves and reduce its dependence on Gazprom, the Lithuanian government has been auctioning off shale gas exploration licenses to private companies. In May 2012, Minijos Nafta, a Lithuanian oil exploration company, began drilling wells in its license area around Gargzdai. In October 2012, Chevron, the second largest U.S. oil company, announced it was purchasing a 50% stake in LL Investicijos, a privately owned Lithuanian oil and gas exploration company. Investicijos holds a license to prospect for gas on a 2,400 square kilometer field near the town of Rietavas. According to Derek Magness, Chevron’s Director General of onshore European operations, the company believes Lithuania’s government will welcome Chevron’s involvement due to its desire to break free from Gazprom. Prime Minister Kubilius described Chevron’s investment as a “good sign,” and the Ministry of the Environment announced plans to auction off two more licenses to shale gas areas in 2012.
The Lithuanian government has also attempted to find new suppliers of LNG to reduce its dependence on Russia. Klaipedos Nafta, a state-owned operator of oil terminals (facilities for storing natural gas), is opening a new LNG storage unit in 2014 that it expects will distribute up to 4 bcm of natural gas to Lithuania each year. In October 2012, Klaipedos Nafta received bids from 16 companies offering to supply LNG to the new storage facility. Rokas Masiulis, Klaipedos Nafta’s Chief Executive, said the number of bids received was “unexpectedly high” and would help put an end to Lithuania’s dependence on a single gas supply source. The bids came from companies all over the world, including the U.S., Qatar, and Norway. Klaipedos Nafta hopes to sign one of these non-Russian companies to a ten year supply contract for 0.75 bcm of natural gas per year. In addition, Klaipedos Nafta entered negotiations with Cheniere Energy, an energy company based in the U.S., to purchase LNG in the spot markets (purchase of gas for immediate delivery at current market prices) beginning in late 2015.
The Lithuanian government’s efforts to reduce dependence on Russian natural gas are coming at a critical time for the country. In October 2012, Lithuania filed an international lawsuit against Gazprom seeking approximately $1.9 billion in damages. Lithuania alleged that Gazprom abused its market clout to increase Lithuanian gas prices almost 500% from $84 per cubic meter of gas in 2004 to $497 in 2012. Lithuania’s Prime Minister hopes Gazprom will ultimately agree to a settlement involving more favorable gas prices, but warned the lawsuit could drag on for several years if no settlement is reached. Although Gazprom angrily contested the lawsuit’s allegations, the Lithuanian government’s continued efforts at energy independence may provide a powerful economic incentive for the company to reach a settlement.
Showing posts with label Lithuania. Show all posts
Showing posts with label Lithuania. Show all posts
Friday, November 30, 2012
Wednesday, September 19, 2012
Fiscally Cautious Countries Hesitate to Join Eurozone Amid Fears of Future Bailouts
Bloomberg: Bulgaria’s Stability Will Attract Investment, Barroso Says
Bloomberg: Lithuania to Adopt Euro when Europe is Ready, Kubilius Says
European Commission: Enlargement Website
European Commission: Economic and Financial Affairs Website
WSJ: Bulgaria’s Lesson for Euro-Skeptics
WSJ: Bulgaria Shelves Plan to Join Ailing Euro Bloc
Fiscally cautious European Union (EU) member countries, including Bulgaria, Lithuania, and Latvia, have recently postponed plans to adopt the euro as their official currency due to concerns over future bailouts for weaker members. There are 27 member countries in the EU, 17 of which have adopted the euro (the Eurozone). The remaining ten countries, with the exception of the United Kingdom (U.K.) and Denmark (who both “opted-out” of the euro), are expected to replace their national currencies with the euro when their economies meet the Eurozone’s entrance criteria. This criteria includes debt-to-GDP (gross domestic product) ratios below 60%, deficit-to-GDP ratios below 3%, stable exchange rates, low consumer price inflation, and low long-term interest rates.
However, on September 3, 2012, Bulgaria, which joined the European Union in 2007, indefinitely postponed its plans to join the Eurozone. Although the country remains one of the region’s poorest member states, its current debt-to-GDP ratio of 15.3% is one of the lowest in Europe. Although Bulgaria’s leadership anticipates meeting the criteria necessary to join the Eurozone by 2013, the government has decided to keep its own national currency (the lev) for the time being. Bulgaria’s Finance Minister, Simeon Djankov, attributes this decision to the uncertainty of future bailouts, such as those for struggling countries like Spain and Greece. Djankov commented that, “The public rightly wants to know who would we have to bail out when we join?” He went on to say that if his country joined the Eurozone, the lack of fiscal discipline among the region’s weaker members to reduce their deficits and debts could negatively impact Bulgaria’s relatively strong economic growth rate.
Bulgaria’s announcement follows decisions made in August by the Lithuanian and Latvian governments to postpone their own plans to adopt the euro. Lithuania and Latvia, who both joined the EU in 2004, expect to meet the criteria necessary to join the Eurozone by 2014. However, Lithuania’s Prime Minister, Andrius Kubilius, stated that the country would not adopt the euro until there is a stable situation in the Eurozone and it is clear the group is ready for expansion. Similarly, Latvia’s Prime Minister, Valdis Dombrovskis, also backed away from switching to the euro in 2014. Dombrovskis attributed Latvia’s decision to the Eurozone’s failure to control member countries that choose to violate rules on budget deficits, debt, and inflation. If Eurozone countries do not bring their deficits and debts under control, the need for more bailouts would hurt fiscally conservative countries like Latvia.
The decisions by Bulgaria, Lithuania, and Latvia are not evidence that EU member countries find a single, common currency undesirable. Rather, the decisions reflect concern about their liability for future bailouts of weaker countries, and the uncertainty surrounding the Eurozone’s resulting move toward tighter financial integration among members. Bulgaria, Lithuania, and Latvia’s desire for a common currency is demonstrated by the fact that these countries currently tie the exchange rates of their national currencies to the euro. This allows the countries to experience many of the benefits that come from participation in the Eurozone’s monetary union, while avoiding many of the problems associated with bailouts and the loss of control over their own financial decisions.
Bloomberg: Lithuania to Adopt Euro when Europe is Ready, Kubilius Says
European Commission: Enlargement Website
European Commission: Economic and Financial Affairs Website
WSJ: Bulgaria’s Lesson for Euro-Skeptics
WSJ: Bulgaria Shelves Plan to Join Ailing Euro Bloc
Fiscally cautious European Union (EU) member countries, including Bulgaria, Lithuania, and Latvia, have recently postponed plans to adopt the euro as their official currency due to concerns over future bailouts for weaker members. There are 27 member countries in the EU, 17 of which have adopted the euro (the Eurozone). The remaining ten countries, with the exception of the United Kingdom (U.K.) and Denmark (who both “opted-out” of the euro), are expected to replace their national currencies with the euro when their economies meet the Eurozone’s entrance criteria. This criteria includes debt-to-GDP (gross domestic product) ratios below 60%, deficit-to-GDP ratios below 3%, stable exchange rates, low consumer price inflation, and low long-term interest rates.
However, on September 3, 2012, Bulgaria, which joined the European Union in 2007, indefinitely postponed its plans to join the Eurozone. Although the country remains one of the region’s poorest member states, its current debt-to-GDP ratio of 15.3% is one of the lowest in Europe. Although Bulgaria’s leadership anticipates meeting the criteria necessary to join the Eurozone by 2013, the government has decided to keep its own national currency (the lev) for the time being. Bulgaria’s Finance Minister, Simeon Djankov, attributes this decision to the uncertainty of future bailouts, such as those for struggling countries like Spain and Greece. Djankov commented that, “The public rightly wants to know who would we have to bail out when we join?” He went on to say that if his country joined the Eurozone, the lack of fiscal discipline among the region’s weaker members to reduce their deficits and debts could negatively impact Bulgaria’s relatively strong economic growth rate.
Bulgaria’s announcement follows decisions made in August by the Lithuanian and Latvian governments to postpone their own plans to adopt the euro. Lithuania and Latvia, who both joined the EU in 2004, expect to meet the criteria necessary to join the Eurozone by 2014. However, Lithuania’s Prime Minister, Andrius Kubilius, stated that the country would not adopt the euro until there is a stable situation in the Eurozone and it is clear the group is ready for expansion. Similarly, Latvia’s Prime Minister, Valdis Dombrovskis, also backed away from switching to the euro in 2014. Dombrovskis attributed Latvia’s decision to the Eurozone’s failure to control member countries that choose to violate rules on budget deficits, debt, and inflation. If Eurozone countries do not bring their deficits and debts under control, the need for more bailouts would hurt fiscally conservative countries like Latvia.
The decisions by Bulgaria, Lithuania, and Latvia are not evidence that EU member countries find a single, common currency undesirable. Rather, the decisions reflect concern about their liability for future bailouts of weaker countries, and the uncertainty surrounding the Eurozone’s resulting move toward tighter financial integration among members. Bulgaria, Lithuania, and Latvia’s desire for a common currency is demonstrated by the fact that these countries currently tie the exchange rates of their national currencies to the euro. This allows the countries to experience many of the benefits that come from participation in the Eurozone’s monetary union, while avoiding many of the problems associated with bailouts and the loss of control over their own financial decisions.
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