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  Vol. 16, No 1, 2008
Towards Energy Independence

Author:
Žygimantas Vaičiūnas

Energy security is one of the key preconditions for economic and national security. Although Lithuania restored its political independence in 1990, its energy dependence on Russia, the main power supplier, has remained to this day. The country is still dependent on Russia’s energy system in all energy sectors, oil, gas and electricity, and still does not have alternative energy import sources.

 

Threats and challenges

In EU energy policy documents, Lithuania, alongside the other Baltic States, is identified as an energy island. This means that it does not have energy systems connecting it to other EU countries.

Although, from political and economic points of view, Lithuania is an integral part of the EU, in terms of energy it remains isolated from the EU. It has failed to develop an energy infrastructure link with other EU states, and in this way ensure the supply of energy resources from alternative sources.

The greatest threat the country may face is in the natural gas sector. Lithuania imports all its gas from Russia, and it is supplied through the Minsk-Vilnius-Kaliningrad gas pipeline, controlled by the Russian gas monopolist Gazprom.

The dependence on Russia in the gas sector is increased further by the fact that Lithuania does not have depots for natural gas, and cannot import gas by sea, as it does not have liquefied natural gas (LNG) terminals.

The country’s vulnerability in the natural gas sector will grow in the future. The demand for natural gas at the beginning of 2010 will increase considerably.

According to the EU accession agreement, Lithuania is committed to shutting down the Ignalina Nuclear Power Plant, which satisfies 70 per cent of its electric energy needs, by 31 December 2009. Upon closing down this power station, the demand for gas should increase by 75 per cent, as electricity will then be produced in power stations run on gas.

Russia is actively implementing projects to increase its independence from transit countries in natural gas exports. The North Stream project is an excellent example, according to which Russian gas will be transported along a 1,200-kilometre-long gas pipeline across the bottom of the Baltic Sea from the Russian town of Vyborg in the Bay of Finland to the northeast German town of Greifswald.

From 2011, Russia expects to transport along this gas pipeline up to 55 billion cubic metres of gas annually to Western Europe. It is planned that the gas pipeline will also be extended to Sweden, the Netherlands and Great Britain.

The project is to be implemented by Russian (Gazprom) and German (BASF and E.ON) companies. One fact should be considered: Gazprom and E.ON have 76 per cent of the shares of the main Lithuanian natural gas supplier and distributor, Lietuvos Dujos.

The North Stream gas pipeline will greatly reduce Lithuania’s energy security, because Russia will be able to transport natural gas to Kaliningrad, bypassing Lithuania. Lithuania will become the final stop in Russia’s natural gas exports.

The North Stream project has been developed as an alternative to the Amber gas pipeline designed earlier, which was supposed to extend across Latvia, Lithuania and Poland. The Amber project would have increased Lithuania’s energy security to a great extent, because it would have had not just a second natural gas import pipeline (though from the same source), but would also have become a transit country for the Russian natural gas.

Lithuania’s oil sector is better protected against possible threats than the gas sector. Nevertheless, limited possibilities to import from alternative sources remain the biggest problem. Under the current oil pipeline system, the country can import oil by land, from Russia as the sole supplier.

For a long time it was transported to the Mažeikių Nafta oil refinery by the only oil pipeline to Lithuania, Druzhba, via Polock in Belarus and Biržai. However, when, on 29 July 2006, Russia stopped supplying oil through this pipeline, Lithuania was forced to import oil by sea through the Būtingė oil terminal.

Depending on the weather conditions, between eight to ten million tonnes of oil can be imported through this terminal annually, which fully suffices for the internal needs of the country. Although the Būtingė oil terminal was built only as a safeguard against disruptions in the oil supply, today it is the only oil import channel to Lithuania. (Another oil terminal in Klaipėda is more suitable for the export of oil products rather than the import of crude oil.)

Hence, although Lithuania does have possibilities to provide itself with oil from alternative oil supply sources, one of the greatest challenges it has is to expand the possibilities for oil imports through the Būtingė oil terminal, so that Mažeikių Nafta, the only oil refinery in the Baltic States, can work profitably and increase the export of refined oil products.

The biggest problem in the electricity sector is the dependence on the electric power grid, which includes Bela­rus, Latvia, Estonia and the Russian parts of Karelia, the Kola ­Peninsula, and the Leningrad and Kaliningrad regions. If the electricity supply is disrupted within this network, Lithuania will have no possibility to import electricity from the West.

Thus, it is an integral part of the East European electricity system, and so far its grid has not been integrated into the West European power grid.

In order to reduce this dependence, like Latvia and Estonia, Lithuania seeks to connect its power grid to the largest energy system in the world, the UCTE (Union for the Co-ordination of Transmission of Electricity), which includes 24 European states. Nevertheless, its integration into this system is rather complicated. Until now none of the three planned electricity lines (to the electricity-sharing system of Finland and Sweden, and a power bridge with Poland) have been implemented.

 

Hopes and signs

Threats and challenges arise to the country’s energy security first of all due to its considerable dependence on Russia as a single source of energy resources. Its energy security could be increased with the help of three measures complementing each other.

First, implementing projects for building new oil and gas pipelines will enable it to import energy resources from alternative sources. Second, increasing the efficiency of the use of energy resources consumed in Lithuania will reduce the demand for energy. Third, by expanding the connection of the Lithuanian energy system with the systems of other EU states, it will ensure the import of energy resources (in case the energy supply is disrupted).

Until now, this has seemed an impossible task, but the year 2007 was a turning point. New energy projects are not only being talked about, but there are also signs indicating that they are gradually gaining momentum despite the difficulties.

The biggest hopes for energy security in the oil sector are connected with the implementation of the Odessa-Brody-Plock-Gdansk oil pipeline. In the electricity sector main measures are connected with the construction of a new nuclear power station, and connecting the power grid with Western Europe. The gas sector remains the weakest point. Although there has been talk of an LNG terminal on the coast for many years, no steps have been taken towards implementing such a project.

The Odessa-Brody-Plock-Gdansk pipeline would enable the import of oil from a Ukrainian port on the Black Sea, and in the future from the South Caucasus and Central Asia as well. A symbolic impetus for the project was given by the international energy conference which took place in Vilnius on 10 and 11 October 2007, when Lithuania, Poland, Ukraine, Georgia and Azerbaijan signed an agreement on the establishment of a joint company to build a pipeline. True, Lithuania’s participation in this oil pipeline project is symbolic, as it holds only 1 per cent of the shares in the entire project, and the possibilities to import oil from this pipeline are also minimal.

Unfortunately, at the same conference, Lithuania and Poland failed to sign a bilateral agreement on building a power bridge. Although discussions about the power bridge have been going on for more than 16 years, the project could not move, even with the help of the EU and America.

The electricity line which will connect Germany, Poland and Lithuania is one of the four EU energy priority projects. In the 2007–2009 EU energy policy action plan, a European coordinator has been designated for the implementation of the Germany-Poland-Lithuania electricity connecting line. Therefore, at a strategic level, all the necessary preconditions are in place. All that is left is its implementation.

At the end of 2006, and especially in 2007, a regional Estonian, Latvian, Lithuanian and Polish project gained momentum. This is for the construction of a new nuclear power station in Lithuania.

At the end of 2009, Lithuania has to shut down the Ignalina Nuclear Power Plant (INPP). The international environment is favourable for the construction of a new nuclear power station. In Europe and across the world, more and more voices can be heard about the renaissance of nuclear energy.

After the closure of the INPP, a new power station would not only satisfy the electricity needs of Lithuania, but would also reduce its dependence on Russia (there would be no need to increase imports of natural gas in order to generate electricity).

Nevertheless, both external and internal obstacles arise in the design stage of the nuclear power station. The internal obstacles include the disagreements over the proportion of state and private capital in the project and the principles for the formation of a national energy company, which would represent Lithuania in this international project.

The merging of separate Lithuanian energy companies into one national energy company involves no less uncertainty. It is not clear whether such a merger corresponds with the topical principle of EU energy policy to unbundle energy production, transmission and distribution companies.

One of the greatest challenges remains the question of ensuring an adequate supply of electricity when the INPP is closed and the new nuclear power station is not yet built. If Lithuania’s power grid were connected with the grids of other EU states, the problem of a shortage of electricity would be resolved.

 

EU energy policy

The EU is important to Lithuania on its road to energy security in two respects. First, by developing the list of priority projects of trans-European energy networks, it encourages with financial and political means the expansion of energy links between EU states. Second, the strengthened position of EU states could help to defend their interests in negotiations with Russia as the main supplier of energy resources.

In the European Union, a common energy policy is still being developed, and Lithuania is an active initiator and participant in its development. It makes an active contribution to speeding up the connection of the Lithuanian energy infrastructure with the energy systems of other EU states, and to developing not only a common EU energy policy, but also the external dimension of this policy.

The main goal of the conference “Responsible Energy for Responsible Partners” held in Vilnius at the end of last year was to encourage faster development, and particularly the external dimension of EU energy policy.

In the EU, it is first of all necessary to create an internal energy market, and then to move on to the consolidation of the external dimension of EU energy policy. Lithuania seeks to ensure that both dimensions of EU energy policy are developed in parallel, and on an equal footing.

By strengthening the external dimension of EU energy policy, it seeks not only to create better conditions for relations with Russia, but also to develop a consistent EU energy policy towards Belarus, Ukraine, Georgia, Azerbaijan and Armenia, thus expanding the possibilities for these countries to cooperate in the energy sector. In addition, the external dimension of EU energy policy can be a useful measure not only to increase Lithuania’s energy security, but also to strengthen all aspects of relations between Belarus, Ukraine, Georgia, ­Azer­baijan and Armenia and West European states and international organisations.

So the external energy policy dimension of the EU can be not only an aim, but also a suitable measure to attract non-EU East European countries.

EU energy policy is one of the key preconditions of Lithuania’s energy security and energy independence. Therefore, the EU is the main channel for the implementation of Lithuania’s energy interests.

In other words, Lithuania’s and EU common energy policy are two sides of one coin. By identifying Lithuania and the other Baltic States as an energy island in its political documents, the EU gives grounds for hope that it will help not only to address the problem of energy isolation, but also to implement initiatives and energy projects to increase the country’s energy efficiency and the consumption of renewable energy resources, to look for alternative suppliers of energy resources, and to enlarge the possibilities for their import into Lithuania.

Only against the background of a common EU energy policy can Lithuania achieve its energy goals, to increase energy independence and energy security.



***



The Lithuanian energy sector


Weaknesses


           Low energy efficiency


           No direct links with the energy systems of Western Europe


           Natural gas is supplied by one supplier, the Russian company Gazprom


           No natural gas depots or terminals for LNG


           Most of the power plants, grids and pipelines are obsolete


           Underused local and renewable energy resources


           After closing down the Ignalina Nuclear Power Plant, the demand for natural gas to produce electricity will increase by 75 per cent


Strengths


           A developed energy capacity: nuclear and thermal power stations, an oil refinery, terminals for the import and export of oil and its products, a natural gas supply system, etc


           The Mažeikių Nafta oil refinery is the only such enterprise in the Baltic States, which not only satisfies the demands of the local market, but also exports to Estonia, Latvia, Belarus, Ukraine, Poland and Western Europe


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