Gazprom has been investigated for monopolistic practices in the eastern European energy market

Cheaper gas for Lithuania as pressure on Gazprom mounts

Three months after christening a vessel built to reduce Lithuania’s energy reliance on Russia, the country has secured a cheaper gas deal with Gazprom as pressure on the Russian energy giant increases.

Having dictated gas and oil prices in the eastern European region in a rather monopolistic manner for years, Gazprom has recently gotten under fire after the European Commission launched an antitrust investigation into the company’s pricing policy.

In the wake of the Ukrainian crisis, the pressure on Gazprom has intensified, as European countries have focused on how to decrease the general energy reliance on the eastern European super power.

Lithuania has become the first to benefit from the situation, winning a deal that will see Gazprom delivering gas for considerably cheaper prices until the end of 2015.

Although how much the price has been discounted has not been revealed, it was suggested Gazprom may have taken up to 20 per cent down from the price of gas sold to Lietuvos Dujos - a state-backed energy company covering some 40 per cent of the Lithuania’s market.

Lithuania had paid $465 (£276) per 1,000 cubic metres of gas at end-2013, data from the energy market regulator showed.

"The agreed price level provides a good basis to negotiate gas supplies after 2015, and the price formula could look different then," said Joachim Hockertz, deputy general director at Lietuvos Dujos, of which Gazprom owns 37 per cent.

"I think that it's quite a significant breakthrough if we are talking about price discounting by 20 per cent or more, but I don't think that it could stop the European Commission's investigation," former energy minister Arvydas Sekmokas said.

Previously, Lithuania invested into a floating LNG import terminal, named "Independence" to allow gas imports on tankers of up to 2 billion cubic metres annually, enough to meet two-thirds of domestic demand.

The terminal, which could see natural gas being delivered from Norway or Quatar, is expected to start operating by the end of the year.

Lithuania's biggest gas consumer, fertilizer producer Achema, told Reuters it was considering buying up to 200 million cubic metres of gas via the LNG import terminal as it was struggling to agree price discounts with Gazprom.

It said it was being forced to half its production from mid-May to limit losses as fertilizer prices dropped while gas prices, the bulk of production costs, remained high.

"By offering cheaper gas, Gazprom is making the LNG terminal less attractive to potential customers," said Tadas Povilauskas, an analyst at Vilnius-based Finasta bank.

Lithuanian President Dalia Grybauskaite said the ability to import LNG would put an end to the "existential threat" of a dependence on Russian energy supplies.

Lithuania's efforts mirror those of other nations in the region - including Poland, Estonia and Finland - to improve gas infrastructure and diversify sources.

Earlier this year, Russia raised the gas price for Ukraine, almost doubling it in three days to $485 per 1,000 cubic metres, much more than the average price paid by consumers in the European Union.

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