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haggling over the bill
Score One for Lithuania in Its Fight Against Gazprom

Lithuania’s Prime Minister is crowing over what looks to be his recent victory against the dastardly forces of Gazprom. Lithuania, like most eastern European countries, hasn’t been happy with its current natural gas arrangement with Russia. The Russian state-owned gas company Gazprom locks its customers in to long-term contracts, and because Europe lacks other options for stable, nearby sources of natural gas, it can charge a lot for its goods. But Lithuania’s contract with Gazprom is up for renegotiation this year, and it looks like it will be getting Russian hydrocarbons for at least 20 percent less, the FT reports:

Algirdas Butkevicius, Lithuania’s prime minister, told local radio that a deal signed between the country’s leading utility Lietuvos Dujos and Gazprom should lead to a big fall in prices. “I can say that the price will fall at least by 20 per cent,” he added.

[T]he concession is being viewed as the final step in the process of cementing the country’s independence. Aleksandras Spruogis, Lithuania’s vice-minister for energy, told the Financial Times last year: “Our strategy for energy independence is part of our overall independence strategy as well.”

Lithuania came to the table in a stronger position than when it last negotiated prices. That’s in part due to its construction of a floating liquified natural gas (LNG) terminal in the Baltic Sea, significantly named “Independence.” That signaled to Moscow that the former Soviet state was ready and willing to find new partners for its gas. Lithuania also moved to nationalize its pipelines last summer, further reducing Russia’s influence over the country’s energy infrastructure, as Gazprom owned a 37 percent stake in the company that previously operated Lithuanian gas pipelines.

Taken together, those moves gave Lithuania more leverage at the bargaining table. But this is also a story about a possibly overextended Russia. Given recent events in Ukraine, and the chorus of calls for Europe to diversify away from Russian gas, Gazprom’s price concession with Lithuania could be a sign that Moscow is concerned it may have alienated some of its most important energy customers.

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  • Andrew Allison

    The real import of this news is the message to the rest of the EU that Gazprom is just as susceptible to market forces as any other provider.

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